Calculating a Bid Strategy for Amazon Ad Campaigns

Bidding for your Amazon campaigns can be a perfect science. We created a bid calculator just for you that factors in conversion rate, your revenue per conversion, and Target ACoS.

How Does Advertising Work On Amazon?

This is a reminder: Advertising on Amazon is an auction system where the seller bids on search terms. The seller with the highest bid mixed with a quality ad usually wins the search term. When a customer searches that term on Amazon, your ad will show up to them and create an impression. You won’t pay for that ad until the customer clicks on your ad, hence the Amazon Pay-Per-Click (PPC) name. Remember you must win the buy box in order for your ads to show up on Amazon. Read more on how Amazon ranks ads here.

How To Find The Perfect Bid For Your Amazon Ads

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To access the Bid Calculator, click here. Simply hit file and make a copy to use for your personal use.

Audio transcript:

Most Amazon Sellers Are Probably Not Optimizing Their Bids

Hey, guys, what’s up? It’s Mike here. I’m in the Badger Den. And today, we’re going to be talking about bidding on Amazon. This, like so many other things in life — flossing your teeth, eating all are vegetables — most Amazon sellers are probably not doing. So what does this mean here? Basically, what I mean when I say, “Most Amazon sellers probably are not optimizing their bids.” We probably open up our Amazon accounts, look at a whole bunch of different keywords, look at different ad groups, and never actually know what to put in the bid category. Amazon has a suggested bid in there. There’s bid plus. What does all this mean? How do you actually bid the right amount? What is the right amount?

Amazon PPC bids
Mike's working the cardigan.

The Formula You Need for Your Amazon PPC Strategy

Let’s take a look at the calculation behind what the perfect bid actually looks like. It is average order value times your conversion rate, divided by one over your Target ACoS, equals what you should be paying every single click. If you somehow were able to go inside your Amazon account and optimize every single keyword or ad group to this calculation, you would never be overbidding and you would never be underbidding.

[If you haven’t read it yet, we wrote the ultimate guide to optimization for Amazon PPC.]

Let’s Take a Look at a Quick Example:

Let’s say our average order value is $19 at a 10% conversion rate, and your Target ACoS (TACoS) was 30%, so 0.3. If we were to run through this calculation, we would get $19 times 0.10, over 1 over 0.3, giving us 57 cents. Meaning, if we were to bid 57 cents every single time, we would hit our 0.3 or our 30% Target ACoS. Let’s actually go inside the computer right now and actually take a look at this exact example, and take a look at what Ad Badger actually does for you on a nightly basis. Let’s jump in.

Enter the Bid Calculator

Here is a free basic bid calculator for Amazon PPC. You can to our blog and just search “bid” and find it, and then just go ahead and file, make a copy. So basically, what it is that we are looking at is the conversion rate, revenue per conversion, giving us our revenue per click, and then our Target ACoS. Basically, from the situation before, a 10% conversion rate, $19 of revenue per conversion, and a 30% ACoS. So, what this little spreadsheet does is actually calculate your average revenue per click, which is, as you can see, 10% times $19, giving us $1.90. Meaning every time this person gets a click, they generate $1.90 of revenue. 

Be sure to take advantage of our free bid calculator.

Now, what is a third of that, or what is 30% of $1.90? Well, it’s just $0.57. So that’s what this basic bid calculator does. And you can see what would happen over 1,000 clicks. So if we assume that conversion rate will stay the same over a thousand clicks, we can say, “Okay, we’ll spend $570.” So 1,000 times $0.57 is $570. We would generate 1,000 conversions because 10% times 1,000, so getting 10% of conversions from 1,000 clicks is 100. We would generate $1,900 of revenue, because 100 times $19 is $1,900. And we would hit a Target ACoS of 30%, because $1,900, which 30% of that, $570.

Now, this is how this basic bid calculator works. The only issue with it, though, is as soon as your update your bids on Amazon and you get them picture perfect. So, go inside Amazon. You update your bid using this bid calculator. First of all, it takes a whole bunch of time to go through each thing and actually do this. And then the second thing is the next day your conversion rate is going to change. So Monday, it might be 10%. Tuesday, it might be 12%. Wednesday, it might be 8%. Who knows? Maybe Thursday or Friday, it’s 3%. So your conversion rate can go up and down and up and down. What you want is actually something that calculates the new conversion rate every single day, even taking into factor the two-day conversion delay that Amazon sponsored products have. Let’s actually go and take at Ad Badger to see how we wrestle with this and some of the results that our customers are getting.

Inside the Ad Badger’s Bid Optimizer

All right. So we’re actually inside Ad Badger. I’m going to blur out a few things because this is actually from a real customer’s account. Basically, what this customer did was they went ahead and set a 33% ACoS for a couple of their campaigns. This one has a 30% ACoS. Literally, to turn it on, all you have to do is just punch in your Target ACoS and call it a day. That’s literally it. The second you do that, every single night, Ad Badger will actually go in and calculate the changing revenue per conversion, if it’s changing, if you’re using a tool Splitly or something. And then we’ll also calculate the changing conversion rate. During high season, conversion rate goes up. You want to bid a little bit more. During slower seasons, during slower weeks, you want to bid a little bit less as conversion rate shrinks. If you were to change your Target ACoS for different types of campaigns, it will take that into consideration, too.

A look inside our platform. Isn't it grand?
 

We’ve been really, really excited with the results of it as if someone were able to be sitting in front of your campaigns every single night and update your bids. So what does this actually look like? Well, 33% Target ACoS. This person’s doing 32% ACoS over $3,700 in spend. 33% Target, they’re doing 32.25% over $1,000 in spend. 33% Target is actually doing 26%, so they’re doing a little bit better. Over $200 in spend. Over here, they have a 30% Target, over $2,300 in spend, and they’re hitting 32% Target ACoS.

Ad Badger Loves This Type of Stuff

So taking these good bid optimization principles, turning them into a nightly automation. This is what we made Ad Badger for. See you on the inside. See you in the Badger Den.

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