Maintaining channel profitability on Amazon is a nagging issue for many brands. Aggressive PPC spend has become a necessity to maintain and improve product positioning, especially within ultra competitive categories. And with huge numbers of shoppers transitioning from brick-and-mortar over to ecommerce, Amazon is only going to become more overtly pay-to-play.
So, how do you keep your Advertising Cost of Sales (ACoS) lean as possible while simultaneously hitting all your macro performance targets?
In this article Bobsled’s Stefan Jordev has outlined some important tips about how to reduce ACoS the right way. Plus, he’s also shared the most common mistakes advertisers make when pursuing optimal ROI.
What should my Amazon PPC goals look like?
Before you explore ACoS or Return On Ad Spend (ROAS) optimization, it’s crucial to establish defined PPC goals. When auditing ad dashboards, the Bobsled team classifies campaigns into the following broad categories:
Launch – flat or negative ROI to facilitate early clicks, establish sales history and start generating data. Consider this your ‘speculate to accumulate’ period.
Growth – break-even ROI to keep the pressure on and take advantage of your incrementally increasing sales velocity that the Amazon algorithm loves to reward.
Steady State – positive ROI to generate profits from a stable base of sales.
Decline – flat or negative ROI as a means to start challenging your competitors once again. Consider this your ‘pay to get back in the game’ period.
Your phase should directly influence your advertising goals in respect to ad spend ROI. In other words, you can’t expect campaigns promoting products in the ‘Launch’ phase to ACoS as efficient as campaigns promoting products in the ‘Steady State’ phase.
Benchmarking your Amazon catalog in this manner will allow you to identify which campaigns are in most dire need of ACoS reduction.
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Reducing Amazon ACoS Tips
- Use all available campaign types at your disposal; the main key to reducing ACoS is finding gaps within certain placements where competition for relevant clicks is lower.
- Creative testing and tips for improving Click Through Rate (CTR):
- Sponsored Brands – create keyword themed campaigns. Use the keywords you are targeting in the Sponsored Brands campaign creative.
- Sponsored Brands video – use the same video but create and test different on-screen text. This will minimize video production costs and allow you to figure out what messaging resonate with your target audience best.
- Refine product targeting Sponsored Products and Sponsored Display campaigns, target higher priced competitors and low rating competitors. To see which ones yield the better results, isolate the low impression keywords into their own individual campaigns to give them a proper chance of getting displayed.
- Use rule based automation for budgets, targeting and bid management.
- Review placement reports regularly and focus on the best performing placement for your campaigns: is it top of search, product pages on Amazon or other placements?
- Important keywords from verified product reviews are great candidates for targeting.
- Determine your profit margin on a product level; feature only one product per campaign and strive to hit a target ACoS based on the tenure of the product.
- Use negative keywords diligently to get rid of all unwanted impressions and clicks.
Check out How much should I spend on Amazon PPC?
Reducing Amazon ACoS Mistakes
- Don’t start advertising until you are retail ready (15 reviews, 3.5+ star rating, winning the featured offer, having the necessary title, images and bullets length requirements)
- Always complete proper keyword research before launching campaigns. It is tempting to assume you know the main keywords and use only the converting search terms from auto targeting campaigns, but this approach limits campaigns’ potential.
- Most accounts are generally too reliant on Sponsored Products. If more than 90% of the ad budget is going towards Sponsored Products the account is probably missing out on opportunities and has limited exposure potential.
- Using many SKUs within a single campaign. The main problem with this approach is that you won’t be able to tell which product got the sale in the Search Term Report.
- The very real threat of over-optimization. Don’t try to get to 10% ACoS if it means you will spend only a fraction of your budget. This will lead to you generating far fewer sales from advertising than optimal, which has the knock-on impact of hurting your BSR and organic sales.
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