No matter what you sell on Amazon, whether it’s dog biscuits or cat food, advertising on Amazon requires bidding.
Bidding is the cornerstone of a paid advertising platform. Amazon’s auction format means the competition between you and competitors revolves around setting bids.
Most sellers know that bidding strategy affects ad rank on Amazon’s search engine results pages (SERPs), but bids also affect ad placement. If you ever look at the placement settings in your campaign, you’ll probably notice different CPCs (cost per click) for different placements.
(If you want to know more about placement settings, check this out.)
Playing into effect with your bids, if you start bidding more, you might see your conversion rate increase because of improved ad placements. Even with this increased ad spend, a higher conversion rate can still result in a net decrease of ACOS.
Four Reasons People Have Trouble With Bids
Let’s start with the four models of bid optimization that you do not want to follow. Even if you’re campaigns are performing well, it’s easy to let aspects of these models creep in and hinder you from reaching your full potential.
Neglecting Bid Optimization
Let’s start off with the foundation of bid optimization: paying attention to your bids. If you want to get the most out of your bids, you have to stay on top of them. Even if you’re using PPC software, like Ad Badger, you still need to take a look at what’s going on inside your account.
Sellers who neglect their account (ie: set the same bid for everything and never change it.) are more common than you might think. Even experienced sellers can find themselves falling into this trap from time to time and they forget to change the bids on one or two campaigns.
The remedy to this problem is simple. Stay organized. Ad Badger uses a project management tool, Asana, to stay organized with the campaigns we manage.
Setting Bids by Guessing
When it comes to setting bids, some sellers pull bids right out of thin air, based on their feelings. I hate to be the one to break this to you, but bids don’t care about your feelings. Emotions cannot control your PPC campaigns!
Thinking the performance of a campaign will turn around magically or work itself out over time is undoubtedly costing sellers money.
So how do you actually come up with a bid strategy, especially when you have almost no data to go off of? Keep reading! We’ll discuss effective bid optimization strategy in the second half of this post.
Wild West of Bidding
No one wants a gunslinger managing their account. So just slow your roll, Wild Bill. Making crazy changes to your bids can be very costly.
Similarly to how someone who guesses and makes big adjustments to their bids, seemingly at random, is bound to hurt their campaign performance, making drastic changes to a bid based on little evidence is an equally terrible idea. Of course, making a big adjustment to a bid is alright, if you have the evidence to back it up!
Amazon advertisers with a wild streak also tend to archive good keywords. The ACOS for these keywords is higher than they want it to be, but the problem isn’t the keyword selection. It’s the bid. The CPC for these keywords is what’s actually too high, and that can directly be tied to the bid.
Amazon gunslingers usually operate off some data, separating them from “guessers,” but they don’t make any calculations based on that data. Without calculating the future outcome of any bid, the result is uncertain. Uncertainty kills bottom lines.
Penny Pinching and ACOS Anxiety
When we meet a new seller and discuss their goals, we often hear “I want the lowest ACOS possible.” You may think you want that, but you don’t. Instead, you want the ACOS that gives you the most profit.
Sure, at face value, an ACOS of 1% may seem great, but that leaves you a lot of margin, and there’s most certainly money being left on the table. Sellers in this situation shouldn’t “pinch pennies” and should be more aggressive with their bids. Incrementally aggressive, of course.
When looking at ACOS, you have to find the point where you maximize traffic and visibility. This drives sales and actually makes money for sellers. Low ACOS doesn’t automatically mean a higher profit.
Three Reasons Sellers are Successful with Bid Optimization
Whew. Glad we got all of the things you shouldn’t do out of the way. Now, let’s talk about some strategies that will actually optimize your bids! Bid optimization comes down to being cognizant of three main areas, and we’re going to introduce those principles with three models you should emulate.
Using Bid History to Make Decisions
Sellers who live and die by the data are in the best position to succeed on Amazon.
One of the things these sellers do is find the perfect CPC (cost per click) by calculating RPC (revenue per click). RPC can be calculated by taking the total sales for a keyword and dividing it by the total clicks for that keyword.
These sellers then calculate RPC for the past 30 days, 60 days, and 90 days. This gives them a good idea of how the RPC has changed due to seasonal factors and a long-term view of how the keyword is performing.
Once RPC is calculated, multiply RPC by target ACOS and the result is the perfect bid.
Another simple trick is to find how far off your CPC is by dividing your target ACOS by your current ACOS. If your ACOS currently stands at 100% and you want it to be at 50%, then you need to cut your CPCs in half. It’s a very simple calculation, but it’s incredible how many sellers don’t use it.
Appropriate Expected Value
All sellers try to anticipate the value of a click will be for a product ad with little to no data. But what did we say about arbitrarily setting bids? It kills you. We have a system that will help you set starting bids.
There are three components to this system:
- Expected Conversion Rate
- Sales Price
- Target ACOS
The expected conversion rate is essentially how many clicks it takes before you get a sale. The average conversion rate on Amazon hovers around 10%. So if you have an average account, you can expect 1 out of every 10 clicks to result in a purchase.
The sales price is how much you are selling the product for.
The target ACOS is your ideal advertising cost over sales.
Let’s say a seller is looking at the historical performance of their account, and they have an 8% conversion rate. The product they’re selling is $29.99, and the target ACOS is 30% (0.3 for the calculation).
To calculate the bid use this equation: Sales Price Target ACOS Conversion Rate
In this scenario, the seller’s ideal starting bid is $0.72!
Smart sellers will recognize that with an expected conversion rate of 10%, every 10th click should result in a sale. If a seller has a keyword with 15 clicks and 0 sales, they will hopefully realize that their conversion rate isn’t at 10%.
An anticipatory seller will adjust their bid as their anticipated conversion rate continues to change. Anticipatory sellers are always thinking, “What is the perfect bid if my next click results in a sale.”
A Core Thesis on Bid Optimization
All of these “ideal” models rely on calculations from their account data. They use simple, quick math to make educated decisions about everything in their account. Whether it’s determining a starting bid, anticipating different metrics, or adjusting bids successful Amazon advertisers always use every piece of data at their disposal before making a decision.
Once you start implementing these 3 ideal bidding principles, you start seeing the profits roll in.
Stop using your “gut” to make decisions and start using the data at your disposal to optimize bids. Don’t have much data? Good thing we covered the Appropriate Expected Value formula! No matter what situation you find yourself in, there’s always a way to make an educated decision about your bids.
Discover Us on our PPC Den Podcast
If you prefer learning via audio, we cover this same info in the podcast episode below. You can also find us on your favorite streaming platforms like Apple, Google, Spotify, and more!
- 4:40 Intro to the Four Areas Where Amazon Excels
- 5:13 The $100 Test
- 9:02 Sponsored Products: Amazon vs. Google
- 11:15 Bulk Files with Amazon
- 14:25 Native Ads with Amazon
- 18:40 Consumer Anxiety on Google vs. Amazon
- 19:40 Where Google Shines – Ad Support
- 20:34 Google Platform Customization
- 23:48 How Google Manages Size and Scale
- 25:47 Mulit-Account Management with Google
- 28:22 Facebook Audiences and Targeting
- 30:40 Ad Types on Facebook
- 33:08 Amazon and Ad Quality Score
- 35:35 Final Conclusions