Updated: Aug 3
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.
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.
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:
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%.
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
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.
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.
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!
SPONSORED PRODUCTS CAMPAIGNS:
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.
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.
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).
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.