Amazon Advertising Bible: ins and outs from a PPC evangelist

Updated: Oct 15, 2021

In my digital marketing career, I have heard so many opinions on how to advertise on Amazon and the truth is they are all wrong.


Why?


Because there is only one right process to advertise on Amazon. Opinions are irrelevant.


You can’t say one strategy is better than another, because there is only one strategy.


Don’t you believe me?


So, why does automated software for Amazon Advertising exist?


You see, artificial intelligence is not yet so “intelligent”, it can’t compete with human thought for complex interactions.


If advertising on Amazon consisted of creating different strategies according to each specific client, products like Sellics, Helium 10 or Seller Labs couldn’t have existed.


These programs iterate standard actions that an advertiser would have done manually otherwise.


All to say: Amazon Advertising is a standard process.


There is only one main process to follow for Amazon Advertising. Once you have learned it, you can adapt it to each different client or business.


No one will ever tell you what you’re about to read in this article.


Buckle up.


PS: to get the best from my ultimate guide, you should already know the basics of Amazon Advertising, in terms of vocabulary, features and options available.



Table of contents:

  1. Introduction;

  2. How to calculate your ideal ACoS;

  3. Sponsored Products campaigns: automatic targeting;

  4. Sponsored Products campaigns: manual targeting;

  5. Sponsored Brands campaigns;

  6. Sponsored Display campaigns.






INTRODUCTION




My Amazon Advertising Bible contains the best proven guidelines to set up and optimize ad campaigns on Amazon.


For educational purposes, I will label certain metrics with X, Y and Z (more on that below). It is important to note that these metrics are unique to each business or sponsored product.



Formulas and vocabulary used in this guide

Use this section as reference for the terminology used in the following chapters:

  • A profitable ACoS will be called X;

  • An unprofitable ACoS will be called Y;

  • The ad spend limit without sales for each search term or target ASIN will be called Z*;

  • In this guide, always consider to use Amazon suggested bids if not stated otherwise (or use my bid calculator for perfect bidding).


* This concept is based on the fact that you don’t want to keep spending ad budget on a search term or target ASIN which doesn’t convert.


In general, the more expensive an item is, the more ad budget you should be willing to spend on a target keyword or ASIN.


There is no standard rule to define this parameter. Just remember to compare ad spend with number of clicks.


For example, if you achieve just 2 clicks with $10 ad spend, it’s not enough to consider that keyword or target ASIN unprofitable. So, you need to spend more. Use your common sense.


I usually consider a keyword or target ASIN unprofitable after 10 - 25 clicks without conversions (but it may vary according to the item's price and category).





HOW TO CALCULATE YOUR IDEAL ACoS




To put this guide into practice, you must understand how to evaluate and improve a few key metrics on Amazon Advertising.



What is ACoS in Amazon Advertising?

One of the most important metrics on Amazon Advertising is the Advertising Cost of Sales (ACoS) which determines the performance of your campaigns. It is expressed in percentage.


Advertisers’ first mistake is to think that there is one general profitable ACoS for every campaign and usually attribute this title to an ACoS lower than 25%.


Wrong.


There's no such thing as a good or bad ACoS in general.


An ACoS of 25% means you spend $25 in advertising for every $100 sales. In other words, you pay $0.25 for every dollar you make.


ACoS = Ad Spend ÷ Sales


Amazon ACoS formula
Amazon ACoS formula.


How to calculate your break-even ACoS

To find out your ideal ACoS, you must know your break-even ACoS which is calculated by subtracting the costs from your product’s price.


In fact, it is directly connected to your product’s profit margin.


Profit margin formula
How to calculate the profit margin of each product you listed on Amazon.

Use Google Sheet to build a clear table with all costs associated with each product: manufacturing cost, shipping cost, Amazon fee and so on.


Let’s consider a product, like shampoo:

  • Retail price $20;

  • Manufacturing cost: $5;

  • Amazon fee: $3;

  • Shipping cost: $5.


20 - 5 - 3 - 5 = $7 (profit margin before advertising)


7 ÷ 20 = 35% (break-even ACoS)


In this example, your profit margin before advertising is $7.


This also corresponds to the maximum amount you should spend to advertise this shampoo. If you spend more than $7 in advertising, you will lose money.


If your break-even ACoS is 35%, you need to achieve an ACoS < 35% to be profitable.


Now, you finally understand that a profitable ACoS depends on each product’s profit margin.



What’s the TACoS in Amazon Advertising?

Defining your TACoS is fundamental, since it represents your ideal ACoS.


If you search for a definition of TACoS, you will find it is the Total Advertising Cost of Sales.


Well, there’s no such a thing.


And if you think about it, to calculate the total cost of your advertising efforts, you just have to divide the total ad spend by the total revenue.


So, what does TACoS really mean?


TACoS is your Target ACoS, my friend.


ACoS breakdown
To find out your Target ACoS (TACoS), you need to subtract your target profit margin from your break-even ACoS.

As you can see from the image above, you want to set a target profit margin and consequently calculate your TACoS.


Determining a target profit margin is usually a business internal decision and it is made by considering many different factors that I’ll not explore in this article.


If you want me to help you determine your profit margin, book a strategic digital marketing consultancy with me!


Your ideal ACoS is the TACoS.



How is TACoS related to bidding?

Michael Erickson Facchin, CEO of Ad Badger, calculates the perfect bid using TACoS with this formula:


CPC = Average Order Value x Conversion Rate x TACoS



If you use this formula to optimize your CPC (Cost Per Click) for every target keyword or ASIN, you’ll never overbid or underbid.


If you don’t use an automated software that does this calculation for you in real time, you should get my free Amazon Advertising bid calculator!


Bid calculator for Amazon Advertising
Bid calculator for Amazon Advertising by Alberto Carniel.




SPONSORED PRODUCTS CAMPAIGNS:

AUTOMATIC TARGETING


Every Amazon advertising strategy starts from a Sponsored Products campaign with automatic targeting.




Objective and main KPI

The main objective of a Sponsored Products campaign is to generate sales.


Amazon attributes to this campaign type all sales generated up to 7 days after clicking the ad.


For this reason, you should evaluate its performance according to the volume of sales generated.


The main KPI (Key Performance Indicator) is sales.


Since this campaign type has automatic targeting, you should use it to explore the market and find new profitable search terms and target ASIN.



How to structure an automatic targeting campaign

When you create a Sponsored Products campaign, consider a minimum $10/day budget per sponsored ASIN.


You can eventually adjust the budget later.


Sponsored Products automatic campaign setup
How to create a Sponsored Products campaign with automatic targeting.

As you can see from the image above, I usually name this campaign Auto - All items, because we are going to create an ad group per each product or products category sponsored.

Leave Dynamic bids - up and down.


In this way, Amazon AI will decide whether to increase the bid when your ad is more likely to convert.

For the moment, leave the advanced bidding options by placement.


Leave the standard $0.75 bid.


You can eventually customize this bid later by using my bid calculator mentioned before.

Create as many ad groups as ASINs or groups of similar ASINs you want to sponsor.

Call each ad group with the name of the product or category of similar products sponsored.

Auto campaign's ad groups
How to label each ad group in a Sponsored Products campaign with automatic targeting.

Once the campaign is active, wait a few days before you start optimizing it.


The more budget you use, the more often you should optimize the ad (read the following section to discover how to optimize an automatic campaign).



Setup mistakes

Remember not to place in the same ad group products belonging to different product categories.


For example, if you are sponsoring eyeliner pencils and pencil sharpeners, place the two categories of products in two different ad groups.


In this way, Amazon AI will be more accurate in delivering the ad and you will be able to better optimize the campaign.


Another common mistake is to limit the dynamic bid.


Unless you are following a specific strategy, you should always leave Amazon’s algorithm increase up and down on your bid as it will adjust according to the ad’s expected performance.


How to optimize an automatic targeting campaign

When you optimize a campaign, always work on each single ad group. Don’t make changes at campaign level.


In each ad group, use the Search terms tab to audit the targeting performance.


Order the columns according to the ad spend (called Spend).


Search terms ordered by Spend
Search terms ordered by Spend (ad spend).

All search terms and ASINs that reach Z must be moved into the Negative targeting accordingly.


It means that keywords must be placed with the exact match type in the Negative keywords section and ASINs must be placed in the Negative products section.


Negative targeting on Amazon Advertising
Use the tab "Negative targeting" to insert negative keywords and target ASINs accordingly.

Then, arrange the columns according to the Orders.


Search terms arranged by Orders
Search terms arranged by Orders.

When a search term has attained at least 2 orders, move it into the Exact match or ASIN match ad group of a related manual campaign (read the next chapter to learn more about manual campaigns).


If a search term has reached 2 orders and Y ACoS, remember to lower its bid when you promote it to a manual campaign. If you don't understand why you should do this, book a strategic digital marketing consultancy with me.


Keywords funnel for Amazon Advertising
Keywords funnel for Amazon Advertising.

Optimization mistakes

Don’t pause underperforming targeting (Close match, Loose match...) too early.


It’s normal to have underperforming automatic campaigns for the first few weeks or months (it depends on the budget invested).


Amazon automatic campaign targeting
Amazon automatic campaign targeting.

If an automatic targeting match type keeps delivering unprofitable results over time, you can decrease its bid by 10%.


Remember: the higher the budget is, the faster the campaign/ad group generates results. The faster it generates results, the sooner it needs maintenance.


Don’t add negative search terms with the Negative phrase match type (keep reading).


Amazon keyword match types
Amazon's keyword match types scheme with examples.

Use the negative keyword phrase match type only when you are 100% sure that all combinations with that keyword are not relevant for the ad.


If you want to learn more about automatic and manual targeting match types, you can read the official Amazon references.





SPONSORED PRODUCTS CAMPAIGNS:

MANUAL TARGETING

The second step is to create a Sponsored Products campaign with manual targeting for each ad group sponsored in the automatic targeting campaign.


The difference between automatic and manual targeting campaigns is that the latter needs you to manually input the target keywords and ASINs.



Objective and main KPI

Also the main objective of a Sponsored Products campaign with manual targeting is to generate sales.


For this reason, the main KPI is sales.


You should use a manual targeting campaign to:

  • Focus the budget on profitable search terms and target ASINs;

  • Protect the brand with self-targeting and branded-keywords. In other words, target keywords containing the name of your brand/product. Target also your own ASINs to prevent competitors from winning the bid for the ad space surrounding your listing;

  • Optional: speed up the exploration process of the automatic campaign by activating a broad match type ad group (keep reading to understand what it is).


How to structure a manual targeting campaign

Set a minimum $10/day budget per sponsored ASIN.


Consider that each keyword or target ASIN has a specific cost per click. So, the more keywords or ASIN you target, the higher the budget you need to invest.


Let’s say you are targeting the keyword “coffee table” and it has an average CPC (Cost Per Click) of $5.


If your daily budget is $10, you will just achieve 2 clicks and then, you’ll be out of the game for the rest of the day.


So, be sure to adjust the budget as soon as you add more keywords or target ASINs in your campaign.


Manual targeting campaign setup
Sponsored Products campaign setup with manual targeting.

As you can see from the image above, I usually label this campaign with the name of the product or products category sponsored: Manual - “Name of the product”.

Manual campaigns should have Dynamic bids - down only, but if you don't have a strong understanding regarding how bids work, leave Dynamic bids - up and down.


Don’t touch the advanced bidding options by placement at the moment.


Leave the standard $0.75 bid.


Create two ad groups and call them: ASIN match and Exact match.


Manual campaign ad groups
How to label the ad groups of a manual Sponsored Products campaign.

As mentioned before, create a manual campaign per each ad group inserted in the automatic campaign.


The ASINs in the auto campaign’s ad groups and the ASINs in the related manual campaigns must coincide.

In the Exact match ad group, target the profitable search terms found by the auto campaign and add specific branded keywords for the ASINs sponsored.

In the ASIN match ad group, target the profitable products found by the auto campaign and add self-targeting ASINs. In other words, add the ASINs sponsored as targets.