Everyone loves advertising!

Well, not everyone, admittedly. Some customers think that advertising is the purest manifestation of evil known to mankind, but hey — can’t argue with results!

There are a lot of advertising platforms available to Amazon sellers, whether on Amazon itself or using external sites. Today, however, we’re going to talk about the most popular form of Amazon advertising: Amazon Sponsored Products.

You’ve undoubtedly seen these yourself if you’ve ever shopped for anything on Amazon. They’re at the top or side of any search results page, and you can spot them thanks to the grey "Sponsored" label in the corner.

Sponsored Product Example

You may even be using Sponsored Products as we speak. If so, that’s fantastic — they’re one of the best tools available to Amazon sellers. If you’re a private label seller and you’re not using them, you should get started as soon as you can.

There is, however, a difference between just using Sponsored Products and using them effectively. In this article, we’re going to go over three tips for optimizing your Sponsored Products. But first, we need to do our due diligence and go over exactly what Amazon Sponsored Products are and how the program works.

Amazon Sponsored Products: A Basic Overview

Amazon Sponsored Products are basically an Amazon-only version of Google Adwords. You create automatic or manual campaigns, set your bids, and launch away. Whenever a keyword matches a customer’s search and your bid is high enough, your listing will be displayed as “Sponsored” at the top of the SERP (with several caveats, of course). Sponsored Products also operate on a pay-per-click (PPC) model, so you only have to spend when your ads are working.

Sponsored Products Benefits

The most obvious advantage of Sponsored Products is gaining huge amounts of exposure and potential traffic, especially for any listings with otherwise low visibility. Exposure and pageviews lead to sales, reviews, higher organic search rankings, and countless other benefits.

However, another significant benefit is the closed nature of Amazon’s ecosystem: it allows you to track exactly which clicks lead to conversions. This hugely actionable data means that you can make informed choices about your keywords, your bids, and your campaign groupings.

Lots of sellers — almost 50% of all Amazon sellers, according to a WebRetailer survey — are already using Sponsored Products to promote their products, and rightfully so. But it’s one thing to use Sponsored Products, and another thing to optimize them. Without further ado, here are our three tips for getting the most out of Sponsored Products.

1. Use Automatic Campaigns Wisely

The first choice you need to make when you begin any Sponsored Products campaign is whether to choose automatic or manual targeting. Automatic campaigns will generate a list of keywords based on the listings of products included and their categories, whereas manual campaigns run based off a provided list of keywords.

Many sellers’ first instinct is to choose automatic campaigns. This makes sense, since they’re much simpler to manage at first. However, as a private-label seller, you should never solely rely on automatic campaigns.

I’m not saying that you shouldn’t use automatic campaigns at all — they’re an incredibly valuable tool, as I’ll get into in a moment. In terms of your Sponsored Products endgame, however, you’ll eventually want to have all of your products sorted into matured manual campaigns.

In order to get to that point, you will need to use automatic campaigns for their most powerful use: long-tail and related keyword discovery.

We strongly suggest that you take a look at the Search Term Report, which can be found under Seller Central > Advertising Reports > Search Term Report. This report gives you an enormous amount of data about keyword performance, which is hugely helpful for choosing the best keywords. However, it also gives you significant insight towards what your customers are actually searching.

The Customer Search Term field in the Search Term Report is your best friend. Look through this list and take notes — this is the best keyword data out there, because it represents actual customer searches. Jot down any long-tail keywords you might be able to use as exact-match keywords in a manual report.

As a source of initial keyword data, automatic campaigns are hugely valuable. However, back to the original point — you shouldn’t solely rely on them. Manual campaigns are the way to go once you’ve collected enough data, and for more reasons than just granular control:

  • Manual campaigns allow you to constantly evolve your keyword strategies based what’s working and what isn’t. On the other hand, once automatic campaigns have compiled their initial set of keywords, they won’t add or delete keywords, so you’re stuck with a static list that won’t be optimized.

  • While automatic campaigns tell you what keywords Amazon associates with your listing, manual campaigns give you the ability to teach Amazon other keywords you match with. This allows for an extra feedback loop of optimization based on keywords you know are successful.

  • You can still discover long-tail keywords using manual campaigns: target customer searches from your manual campaign’s broad- and phrase-match searches, just as you would for an automatic campaign.

  • What’s more, automatic campaigns will not show you the actual keywords matched with customers searches. Manual campaigns show you both the customer search and the keyword that matched with it.

The one natural caveat: organizing manual campaigns will take a lot of time and effort, especially if you have a large catalog of products. However, it’s worth it — it’s the only way to legitimately and effectively compete for keywords, especially if you’re in a high-volume category.

2. Understand Advertising Cost of Sales

Advertising Cost of Sales, or ACoS, is an Amazon-specific metric that’s very useful for determining the cost-effectiveness of your campaigns.

What ACoS measures, essentially, is what percentage of each sale was spent on advertising. For example, if you spend $5 on advertising, and that advertising generated a $25 sale, your ACoS would be 20%.

With ACoS, lower is better — a lower ACoS means you’re being very effective with your advertising, either by converting sales at a high rate from click or bidding at an optimally low amount.

In order to optimize your Sponsored Products, you need to understand and act upon your ACoS, and you need to know what your ACoS means for each product. There’s no hard-and-fast rule for what counts as “good” or “bad” ACoS. That’s mostly because there are two primary use scenarios for Sponsored Products, and acceptable ACoS varies based on those scenarios.

Scenario 1: ROI

If you’re using Sponsored Products to increase your ROI, your ACoS should be lower than your adjusted gross margin.

This probably goes without saying, but — if at the end of the day, the margin you have left over from a sale gets instantly drained away by advertising costs, you aren’t making any money. Of course, you’ll have to make the nitty-gritty decisions for yourself: it’s up to you to determine exactly how much of a margin you want to keep.

Making changes based on ROI is far from simple, as there’s no one-to-one relationship between bids and ACoS. To give detailed advice on this subject would take up far more space than anyone would be willing to read. However, there is a fairly simple baseline for ROI-based ACoS: your gross margin.

Scenario 2: Visibility

If you’re using Sponsored Products just to gain visibility for your products, you can be a little bit more fast and loose with your ACoS thresholds.

Now, to be clear, ACoS is far from the best metric to determine the effectiveness of your visibility campaign. To get an idea of how much visibility you’re gaining, you should rely more on click-through rate (CTR) and conversion. However, you shouldn’t be worried about “excessive” ACoS if you’re looking for visibility.

In order to aggressively search for exposure, you’ll need to sacrifice some profits — that’s just how it works. Presumably, if you’re using Sponsored Products in this fashion, you have some other source of revenue, be it other products or an external investment. Because of this, you can’t look at ACoS the same way for these campaigns.

What would be considered “excessive” ACoS for an ROI campaign is perfectly acceptable for the sake of visibility. ACoS equal to your margins, so you’re breaking even? Fine, as long as you’re getting clicks. Even an ACoS exceeding your margins can be fine as long as you have the resources and the exposure to back it up.

Long story short: give your ACoS more leeway if you’re running visibility campaigns.

One Other Thing: Don’t Be Hasty

Your ACoS can fluctuate a huge amount on a day-to-day basis. In fact, when you’re just starting a campaign, your ACoS will almost universally be dreadful. Don’t let this scare you — you should never jump the ship on a keyword without collecting enough data first.

You need to give you keywords, at the absolute minimum, two weeks before you make any changes. This patience is required for a couple of reasons:

  • Amazon attributes sales to advertising clicks up to a week after the initial click. For example, say a customer clicks on a product, browses through the page, then leaves. If you look at your metrics that day, that wouldn’t be a conversion. However, let’s say that customer comes back six days later and makes a purchase, because they considered other options but decided on yours in the end. That sale still gets attributed to the initial click on your Sponsored Product. If you checked again after those six days, your ACoS and conversion rates would indicate a conversion from the click — both metrics would have improved.
    Basically, you need to wait a week more than you would think in order to have a full picture of the data. Your ACoS might look terrible for a week, but once all the data is gathered, it might suddenly jump back up to an acceptable level.

  • Keywords can fluctuate a significant amount between the weeks. Waiting at least two weeks is important to make sure a keyword didn’t just have a bit of uncharacteristic performance — it can even out once the data catches up or when a dry period ends.
    What’s more, when you’re considering a keyword to cut, you should never look at its performance on a week-to-week basis. Look at a keyword’s performance over at least a month. This long-term picture is much more useful for evaluating the performance of a keyword. If it’s been successful in the past, you should keep it. If it’s consistently performed poorly, consider cutting it.

There are, of course, exceptions to the two-week rule. If you find a keyword that’s definitely not relevant to your product, you can remove it right away. This applies to keywords like “shoes” appearing in campaigns for mittens. Otherwise, however, give your keywords a chance before you drop them. They might always rebound, but if you drop the bid before you let them prove themselves, you’ll never know if they could have been successful.

3. Use Bid+

Bid+ is a relatively new addition to the roster of Amazon tools available for Sponsored Products. It launched as a beta in early 2016 and is now fully available — you can activate it in your campaign settings.

When you turn on Bid+ for a campaign, it will automatically increase your bids by up to 50% for each keyword match in an effort to beat the next highest bid.

As an example. Let’s say a keyword you bid $0.50 on matches a shopper’s search. Bid+ finds that the highest bid is $0.65, so it increases your bid to $0.66 in order to win that bid. However, let’s say instead that the highest bid was $0.80. Bid+ won’t increase your bid by more than 50%, which would be $0.75 — in this case, it wouldn’t change your bid at all.

Bid+ only works for manual campaigns, which is, if you weren't already convinced, another great reason to switch your campaigns to manual.

Amazon says that Bid+ gives a better chance for your Sponsored Products to rank for searches, but in our practice, Bid+ is absolutely necessary to get to the top of page 1, even if there are no other Bid+ bids. Basically, if you want your Sponsored Products to rank at the top of lists, you need to be using Bid+.

Of course, using Bid+ comes with extra financial considerations. You’ll need to adjust your advertising budget to account for the up-to-50% increase in your bids at the algorithm’s discretion. It won’t always need to go all the way up to 50% for every bid, but it’s always prudent to prepare for the worst-case scenario (and then some).

Conclusion

Sponsored Products, as with many things on Amazon, are a hugely complicated topic that would require a much lengthier explanation than this post to fully cover. Every exact value for bids, ACoS, conversion rates, and anything else changes depending on the products you sell and the categories you’re in.

However, with these tips applied to your Sponsored Products strategy, you should be in a very good position to get the most out of your Amazon marketing.

Have any questions, comments, or additions? Post them below as always!


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