Prime Day 2020 promised to be the biggest one yet. Digital Commerce 360 estimated sales would hit $10.40 billion, up from $7.16 in 2019. Time will tell. But regardless of whether you saw a big bump in sales or not, Prime Day 2020 presents you with the perfect opportunity to review your Amazon Sponsored Products campaigns to see what is working so you can build on the momentum for a strong Holiday season.
Over the next two blog posts, we are going to share our top tips for optimizing your Amazon Sponsored Product Ads campaigns before, during and after the Holidays for a bumper Q4.
In this week's post, we are going to talk about how to prepare for the Holidays so you can get the biggest bang for your buck. As Benjamin Franklin said 'If you fail to plan, you are planning to fail'. But before we dive in, here's a quick overview of Sponsored Products on Amazon.
Sponsored Products ads give brand owners a chance to compete with the top-ranking products, organic and paid.
Amazon Sponsored Products are native-looking ads for individual product listings on Amazon. They appear on shopping results pages and product detail pages, helping drive sales and product visibility.
There are two types of Sponsored Product ads: keyword-targeted ads displayed at the top of, alongside, or within the Search Results Page (SERP); and product and category-targeted ads that help shoppers find your product when browsing detail pages and categories, or when searching products on Amazon.
Sponsored Products ads are cost-per-click (CPC) ads which means that you only pay when your ad is clicked.
We've talked about applying the 80/20 rule or 'The Pareto Principle' to your PPC in previous blog posts. The principle specifies that 80% of results come from 20% of actions.
What this means in practical terms for your Amazon Sponsored Products strategy is to focus your advertising efforts on your best products, campaigns, keywords and targets (if you are using Product Targeting in Sponsored Products). Let's start with your products.
When it comes to products, focus on your best-sellers and highest-converting products. Chances are you know what these products are. If you don't, simply go to Business Reports and look at your Unit Session Percentage.
This is a far more effective use of your ad spend and will give you a better Return on Your Investment (ROI). Think about it, a product that converts at 20% will take half the number of clicks to generate a sale than a product converting at 10%.
Longer-term, higher conversion rates, which mean higher Click-Through Rates (CTR), will lead to higher ad positions and lower Cost Per Clicks (CPC).
With that said, inventory management poses a bigger challenge than usual this year due to Amazon's restrictions on FBA inventory so you may have to prioritise your in-stock, or easier to fulfil products, over your best-converting ones.
At the campaign level, we want to identify those campaigns where Advertising Cost of Sale (ACoS) is at or below break-even as these campaigns provide the biggest opportunity for making profitable sales.
We've written entire posts on our Break-Even ACoS strategy before. Here's a quick reminder. To calculate your break-even ACoS, you need to calculate your ACoS and your profit margin.
Your ACoS is the percentage of ad sales made from ad spend. You can calculate ACoS using this simple formula:
ACoS = Total Ad Spend / Total Ad Sales x 100
To calculate your Net Margin, you first need to calculate your net profit. Your net profit is seller proceeds minus Cost of Goods (COGs). Your net margin, which is expressed as a percentage, can then be calculated as follows:
Net Margin = Net profit/Total Revenue
Your net margin is equal to your break-even ACoS; it is the tipping point between making a profit or loss on a campaign.
The reason we want to run our PPC campaigns at break-even is so we can drive the maximum amount of PPC sales at little or no cost to have the biggest positive impact on organic rankings. This, in turn, will positively impact organic sales, which are 100% profitable.
Let's say your break-even ACoS is 47%. That means you want to focus your efforts (and ad dollars) on those campaigns with an ACoS of 47% or lower as illustrated below:
It's not uncommon to see the majority (or the '80%') of PPC sales come from a handful (or the '20%') of keywords. Again, this is where you should focus your ad budget - on the proven keywords that convert into sales.
Here, you are looking for search terms with multiple sales (we recommend a minimum of 3 for new accounts, more for aged accounts) at above-average Click-Through Rate (CTR) and PPC conversion rate.
Each of these metrics represents relevancy and conversion; the low hanging fruit when it comes to measuring and improving the performance of your campaigns at the keyword level. Let's look at each in turn.
Relevancy is measured by Click-Through Rate (CTR), which is the percentage of people that see your ads and click on them:
CTR = Total Clicks/Total Impressions
It is for this reason that CTR is seen as an indicator of how relevant your ad is to a shopper’s search query.
You can use your Search Term Report to find Click-Through Rate (CTR).
CTR is massively influenced by the relevancy of the keywords you are targeting in your campaigns, product listing and back-end search terms.
A high CTR indicates that your ad is relevant to shoppers' searches and that you have chosen the right keywords. The higher the CTR, the more traffic is being driven to your product listing, the more opportunities for sales.
Conversely, a low CTR suggests your ad is not relevant to what shoppers are searching for and that you should reexamine your keywords.
The average CTR on Amazon is 0.4% so use that as a guide. You want to get rid of any keywords that are getting lots of impressions but have a low CTR and driving very few sales.
It is not uncommon to have what you think are 'relevant' keywords in your campaigns but for whatever reason have a low CTR which is far short of the average. Because these keywords are getting lots of impressions relative to your other keywords, they will drag down your campaign's overall performance so it's critical that you remove them.
You also want to ensure that your ads do not show for unrelated customer search terms by adding them as negative keywords as these too will be hurting your campaigns
Using negative keywords helps to keep your campaigns laser-focused both in terms of keyword relevancy and budget. They help to reduce wasteful ad spend and re-focus those savings to what is working to further improve relevancy which in turn improves overall campaign performance and therefore ACoS.
PPC conversion measures how well your ads convert; it represents how many people clicked on your ad and actually purchased.
Unfortunately, Amazon does not display our PPC conversion rate in seller central but is simply calculated using the following formula:
PPC CVR = Clicks/Orders x 100
The average PPC CVR on Amazon is just under 10% so again, use that as a benchmark to aim for.
Amazon likes to be sure that the ads being shown on their site are relevant for the customer. As such, Amazon favours the ad with the highest historic conversion rate for any given keyword because it knows it is highly relevant and has a greater likelihood of converting into a sale.
So you want to make sure you are indexed for all the keyword phrases that you are running ads for by strategically peppering them throughout your listing. Our most important and valuable keywords should be in the product title, then the bullets, back end search terms and product description.
Driving up your PPC conversion rate should be a regular focus because by doing so you are generating more sales for the same ad spend. Let’s say your PPC campaigns convert at 10%. With a $30 product, an average CPC of $1 and an ad spend of $1000, you will generate $3000 in ad sales. Not bad.
Now double that conversion to 20% through improved keyword targeting and improved campaign optimization. The same $1000 in ad spend now generates $6000 in sales - that’s double the sales for the same spend! Which scenario do you think will contribute to a better rank organically?
You can drive up your PPC conversion by removing keywords with low conversion rates that do not drive sales
Another way to drive up the conversion of your ad campaigns is to re-direct ad spend away from poor performing and irrelevant keywords - through reduced bids and adding negative keywords - and re-invest those ad dollars into keywords that are performing and have a higher conversion rate. Doing so will have the effect of pushing up your overall campaign performance.
It's important to keep overall campaign performance in mind. Generally speaking, no matter how many keywords you have in a campaign, only a small percentage are going to be driving sales. That's why you want to focus on fewer keywords so that you can keep conversion high. You always want to be testing new keywords, but only a handful at a time. That way you won't dilute your conversion rate too much as you take the necessary time to test and optimise
SEO optimized product listings will always achieve better advertising results compared to bare-bones listings and also improve relevancy and conversion.
Your ads are like mini-listings and so CTR is also influenced by everything the shopper sees in your ad. You can improve your CTR by optimizing your main image; product title; the number of reviews and price.
No matter how tempting, do not throw a bunch of random Holiday-related keywords into your products listings. All this will do is hurt your CTR and bring down the overall performance of your campaigns.
Ensuring your top-performing keywords are in your product listing will also improve the relevancy of your product listings, and in turn, sales.
Once a shopper clicks on your ad, they will be taken to your product detail page. A strong product detail page can help convert the click into a sale.
In this instance, you are optimizing your organic conversion rate, or ‘Unit Session Percentage. You do this by making your product offering as compelling as possible by ensuring your supplemental product images, bullet points and product description and/or Enhanced Brand Content (EBC) are not only relevant and useful but engaging and persuasive as well.
Just like driving up your PPC conversion rate generates more sales for the same ad spend, optimizing for a higher conversion rate generates more sales for the same traffic. This is why it is crucial that we have as high a converting product listing as possible and should always be looking for ways to optimise it further.
The simplest strategy for maximising your Holidays sales, not to mention your Return on Investment (ROI) with Amazon PPC is to focus your efforts, and ad dollars, on what already works.
Review your Search Term Reports and Business Reports ahead of time to identify your top-performing products, campaigns and keywords using a combination of 3 key metrics: Break-Even ACoS; CTR and Conversion rates (PPC conversion and Unit Session Percentage).
Achieving higher click-through rate and conversion rates result in a lower Cost per Click (CPC), and ultimately, a lower ACoS. Therefore focusing on these core Amazon Sponsored Products metrics help increase sales and profits.
Next week, we'll cover what you need to do with your Amazon Sponsored Products campaigns during and after the Holidays.
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