STRATEGY

A. Bidding

When a shopper searches Amazon for products, Amazon runs a real-time auction to decide which ads to appear for that specific search and in which order those ads will show on the page.

Before competing, those ads must meet a minimum relevance criteria. Based on a combination of the seller's bid and the ad's relevance to the shopper's search, ads are ranked and displayed at different ad locations.

The maximum default bid (manual targeting) or the maximum bid(automatic targeting) is the cost-per-click that you are willing to pay when someone clicks an ad from this ad group

Keyword bidding gives you the most control in terms of your ad performance and spend.

Cost-per-click bids that are set at the keyword level take precedence over the default cost-per-click bid set at the ad group level

Suggested bid and bid range is an estimate provided by Amazon (updated daily) and is calculated from a group of recent winning bids for ads that are similar to yours in your product category.

Bidding strategies at campaign level

Bidding setting applies to all bids within the campaign. There are two types of bidding to compete in the real-time auction in Amazon:

• Fixed Bidding : When you choose the option of 'fixed bids', Amazon will not alter your bids based on a likelihood of a sale and use your bids exactly while competing in real-time when a shopper searches relevant terms
• Dynamic bidding : Using this bidding strategy, Amazon will alter your bids (restricted by a bidding logic) based on a likelihood of a sale to compete in real-time providing your ad maximum opportunity at that particular market dynamics scenario

Using Dynamic bidding, bids can be altered in two ways explained in the following table 8.1

Table 8.1 -Dynamic Bidding Strategies

Dynamic Bidding	Down only	Up and down
Description	Real-time bids reduction by Amazon for less likely converting clicks	Real-time bids alteration (increase/ decrease) by Amazon for clicks that can convert
How it works	Example Less relevant search query Ill-performing placements	Example Alter based on relevance of search query Alter based on performance of placements Upto 100% change in bids for top of first page results and upto 50% change for other placements
Benefits	Minimizes wasted spend dynamically Defensive ad spend approach	Maximizes sales opportunity dynamically Offensive ad spend approach

Amazon also provides adjust bids by placements option for sellers to choose. The performance of different bids can be viewed in Amazon based on 3 ad placement groups - top of search (first page), rest of search, and product pages. So, bids can be set different for two placements explained in the below table 8.2 ( "x" is the base bid)

Table 8.2 -Adjust bids by placement - Bid ranges for different placements

Placement type	Bidding limits
Top of the search	x to 10x
Rest of the search	x
Product pages	x to 10x

Now, let's take an example combining both bidding strategy and adjust bids by placement.

Example:

Let's assume you are willing to put a base bid for a keyword : $1

Now, you wish to explore 'adjust bids by placement' option for this keyword and set percentages as mentioned in the table below. For reference, the maximum percentage change Amazon will alter the base bid if you choose 'Dynamic - up and down' bidding strategy is provided below in table 8.3

Table 8.3 -Example bids by placement and maximum bids ofdynamic - up and down

Placement type	'Adjust bids by placement' set by you	Maximum bid change by Amazon in 'Dynamic - up and down' bidding
Top of the search	50 % (1)	100 % (a)
Product pages	100% (2)	50 % (b)
Rest of the search	No change	50 % (c)

Let's understand how the bids will be applied based on bidding strategy in our example below:

Table 8.4 - Maximum bid range for different placements and bidding strategies in our example

Bidding Strategy	Maximum bid range applied on placement
	Top of the search	Product pages	Rest of the search
Fixed bids	$ 1.5	$ 2	$ 1
Dynamic bid - down only	$ 0 - $ 1.5	$ 0 - $ 2	$ 0 - $ 1
Dynamic bid - up and down	$ 0 - $ 3	$ 0 - $ 3	$ 0 - $ 1.5

From the above table 8.4, it is clear that the bids are not altered by Amazon by choosing fixed bidding strategy. In fixed bidding, the bids are only varying based on placement.

By choosing 'Dynamic bidding- down only' bidding strategy, Amazon will adjust bids down from there for opportunities where a click is less likely to convert into a sale for each respective placement

By choosing 'dynamic bids - up and down', Amazon may increase a bid by up to 100% for top of search (first page) and up to 50% for other placements

If you are still confused how the bids for different placements came by using different bidding strategies and 'adjust bids by placement', check the following calculations table (table 8.5) to get a clear understanding how bids using different options work and maximize opportunities for likelihood of sales.

Table 8.5 - Calculations of maximum bid range for different placements and bidding strategies in our example

Placement type	Calculations (max bid)
	Fixed bids	Dynamic - down only	Dynamic - up and down
Top of the search	Base bid + 50%(1) = $1 + $0.5 = $1.5	Base bid + 50%(1) = $1 + $0.5 = $1.5	By placement - Base bid + 50%(1) = $1 + $0.5 = $1.5 Dynamic - $1.5 + 100%(a) = $1.5 + $1.5 = $3
Product pages	Base bid + 100%(2) = $1 + $1 = $2	Base bid + 100%(2) = $1 + $1 = $2	By placement - Base bid + 100%(2) = $1 + $1 = $2 Dynamic - $2 + 50%(b) = $2 + $1 = $3
Rest of the search	Base bid = $1	Base bid = $1	By placement - No change Dynamic - Base bid + 50%(c) = $1 + $0.5 = $1.5

Testing bidding strategies - Key Takeaways

• Always test the performance of different bidding strategies on existing campaigns and do not create new campaign to compare with existing campaign.
  Example: Take an existing campaign that is running using dynamic bids - down only, and change its strategy to dynamic bids - up and down
• Always choose a stable campaign i.e. a relatively steady ACoS and conversions for few weeks. By changing bidding strategy to such campaigns for purposes of testing, it will help in deriving insights between the two bidding strategy types.
• While testing bidding strategies, limit any other changes in the campaigns in order to attribute the difference in performance to a specific change.
• Also, remember that changing bidding strategies frequently in a campaign also does not result in low-cost conversions soon because Amazon predictive algorithms that optimize bids under dynamic bidding work better when it has more historical data.
• ✓It is not recommended to create two identical campaigns but with different bidding strategies too as both the campaigns will compete for same opportunities skewing the results. One great point to note is that, competition between campaigns never impacts cost-per-click of your ad.

B. ACoS Calculations

Most of the sellers who advertise on Amazon judge the success of their campaigns using a metric called advertising cost of sales (ACoS) as it represents ad spend as a percentage of sales (a direct metric of your advertising's profitability). For example, if you spend $5 on ads and generate $25 in sales, your ACoS is 20% [(5/25) x 100].

The lower the ACoS, the cheaper it was to drive a sale; the higher the ACoS, the more expensive it was to drive a sale.

Though ACoS is the most important metric in analyzing sponsored campaigns in amazon, it could be misleading to understand the overall impact of your advertsing if ACoS is used in isolation.

Before we dive into how to look at ACoS in different scenarios, let's try to understand how to calculate and first assign a targeted ACoS, break-even ACoS

a. Break-even ACoS

As an analyst at buy box strategy for ecommerce businesses, we recommend a universal process that - to predict better of successful sponsored campaigns and sales and thereby, success of your Amazon business - it is imperative to calculate costs and profits on unit-level basis.

What is break-even ACoS?

Break-even ACoS is simply the profit you make after cutting all the incurred costs before you start sponsored campaigns. So, we can call break-even ACoS as 'profit before PPC'.

Why is break-even ACoS the 'profit before PPC'?

Break-even means "no profit, no loss". So, if your ACoS is equal to the profit you would make before running Amazon PPC, you won't make any profit or loss with that ASIN. If the ACoS is less than break-even ACoS, it will be profitable and if goes above break-even ACoS, it will incur a loss.

How to calculate break-even ACoS?

Let's assume you have a product that you would price at $ 20 in Amazon. The following is the rough breakdown of the costs you generally incur:

• Product cost = $ 6
• Shipping (assume 5%) = $ 1
• Amazon Selling Fee (15%) = 0.15 x 6 = $ 3
• FBA Fees (use FBA Calculator) = $3

Gross profit = $20 - ($6 + $1 + $3 + $3) = $7

Profit before PPC = ($7 / $20) x 100 = 35 %

The break-even ACoS for this product is 35%. For you to run sponsored campaigns for this product, pegging your ACoS below 35% will result in profit.

b. Target ACoS

Like discussed in the Section 2, every sponsored campaign should have advertising goals based on the stage of selling of your product in Amazon. Based on your business goals and marketing budget, you need to start the campaigns by locking at a target ACoS.

In the above example, let us take 3 scenarios having different advertising goals for your Amazon Business

• Scenario 1 - Product Launch stage:
  The product belongs to a competitive product niche and you are about to launch an outstanding product in Amazon. What should your ACoS initially be?
  1. Most of the sellers are stuck at this numbers problem. While launching a product, the price of the product needs to be very competitive (not violating MAP) till the product listing receives sales, recognized by Amazon algorithm, trusted by shoppers through reviews and brand.
  2. Target ACoS is entirely dependent of your business goals.
  3. If your focus is impressions as your primary performance metric, drive product discoverability, increase your target ACoS to break-even ACoS or more. The impressions will eventually result in clicks and sales depending the quality of your product listing and your product.
  4. With a restricted marketing budget, you can plan to make a basic profit over sales, target ACoS in our example with net profit after PPC between 5-10%
  5. If you lower your ACoS too low, it will only result in lesser impressions, lesser clicks and lesser sales (no one would want that!).
• Scenario 2 - Product portfolio - Brand Loyalty
  1. If you have decent sales velocity of your products and aiming to drive brand awareness and loyalty , you can gain these goals through sponsored brands campaigns and sponsored ads campaigns
  2. Create ad creative with your brand message and dazzle your best-selling 3 products from your catalog.
  3. Create two campaigns with variation in selction of keywords - one campaign aiming for broad niche keywords with sponsored brand ads and another campaign with exact keywords related to your product with sponsored products ads.
  4. The broad match type campaign will help in creating awareness to an intended audience looking for your related products. The exact campaign will focus mainly on conversions of products under the umbrella of your brand
  5. Comparatively, sponsored brand campaign will have a high ACoS but will be complementary to the sponsored ads campaigns
  6. The combination of campaigns with different goals help in reaching out to the intended audience at different points of their decision-making.
• Scenario 3 - Remarketing of your product:
  1. If the buyer decision journey of your product is lenghty and your product listing has more pageviews and sessions before culminating into a sale, you need to run two campaigns.
  2. The two campaigns will be complementary to each other - one being a sponsored campaign with a high ACoS driving impressions and clicks to your product listing. The other campaign would be a remarketing display ads campaign(low ACoS) reminding the shoppers of your product.
  3. This will enable to touchbase the shoppers at different points of decision-making in purchasing your product, enabling into a sale.