Amazon PPC Bidding Strategies: Everything You Need to Know
Amazon PPC Bidding Strategies Overview
Managing your Amazon PPC campaigns can be hard work. With all the different ad types available and settings to navigate it can be overwhelming. On top of everything else that goes with Amazon FBA, sellers have their hands full.
One of the critical concerns for beginners that start their Amazon PPC campaigns is out-of-control spending. To combat this and spend your budget wisely, you will need a good campaign bid strategy.
This article talks about your bid strategy before creating your campaign and when your campaign is active.
Automatic vs. Manual Campaigns
Before we get into bid strategies, it would help to know the critical difference between automatic vs. manual amazon PPC campaigns. In the auto campaign setting, Amazon will target keywords and products similar to the product in your ads, while manual campaigns mean you are in charge of:
- Selecting the keywords/product target to bid on
- Match Type on the corresponding keyword
- Bid on the related keyword.
The rule of thumb for selecting either auto or manual campaigns is based on your current product launch cycle.
The earlier the product launch cycle, the more you want to use automatic campaigns for discovery. In the later stage of your product launch cycle, you want to be running more manual campaigns as you know exactly what keywords and ASIN perform well with your product.
You do not need to pause your automatic campaign, but you want to allocate more spending into your manual campaigns graduate as your ASIN becomes more mature.
Campaign Bidding Strategy
The campaign bidding strategy dictates how strategically aggressive you want your campaign bidding to be. There are three options. Each option dictates the level of bidding aggressiveness.
The campaign bidding strategy options are (sort by bid aggressiveness, first the most):
- Dynamic Bid – Up and Down
- Fix Bid
- Dynamic Bid – Down Only
Dynamic Bid – Up and Down
This campaign bidding strategy option is probably the most aggressive of the three. It gives Amazon freedom to adjust your effective bids up +100% or down -100%.
For example, your bid for a keyword is $2.00. In this case, Amazon can automatically upbid your auction bid to up to $4.00 if they deem the likelihood of a sales conversion is likely. On the other hand, they can downbid your auction bid down to $0.00 if they think the possibility of a sales conversion is low.
Keep in mind that the 100% increase and decrease are the maximum. In most cases, the bid will not be increased to the max of $4 or decreased to the min of $0. The auction bid will likely fall somewhere in between.
Using Dynamic Bid – Up and Down strategy is also why sometimes there is a variance between your bid and your CPC (cost per click), because it allows Amazon to change up the bid you set.
Use this strategy if you are comfortable using the entire budget you set for this campaign, and also, you are bidding on keywords in which you have confidence in.
Another fact to note for this strategy is that you only use Dynamic Bid – Up and Down strategy on Sponsored Products campaigns.
As the name suggests, Amazon will use your exact bid and any manual adjustments you set in the fix bid strategy. It won’t change your bids based on the probability of the likelihood of a sale.
Use this strategy if you are optimizing your campaign via updating your bids consistently. You know exactly what you are doing and don’t want Amazon to touch your bids.
Dynamic Bid – Down Only
This campaign bidding strategy option is probably the least aggressive of the three. It gives Amazon the freedom to adjust your effective bids down. Amazon can adjust your bid downward up to -100% .
For example, your bid for a keyword is $2.00. In this case, Amazon can automatically downbid your auction bid down to $0 if they think the possibility of a sales conversion is low.
Use this strategy if you want to be conservative, and limit your exposure to bid auctions with a low possibility of a sale.
In Sponsored Brands and Sponsored Display, this is the default campaign bidding strategy.
*For existing campaigns before implementation of the Campaign Bidding Strategy, the “Dynamic bid – Down Only” option is the default option.
Select the Right Campaign Bidding Strategy for Your Objective
The different campaign bidding strategies would match with different strategic objectives. So before creating a campaign, think strategically about what your objectives are.
For example, any growth-related strategies, as in you want to grow sales or rank for a keyword, using the Dynamic Bid – Up and Down strategy would be the bid settings to use.
On the other hand, if your objective is to optimize a campaign, either Fix bid or Dynamic Bid – down only would be the bid settings to use.
Below are some of the potential strategic objectives for your Amazon PPC Campaign:
- Brand Awareness
- Ranking for Keywords
- Taking Sales from a Competition
- Increase Sales and Scale
- Optimization for Profit
Strategic Ongoing Bid Management
Now that your PPC campaign is active, you will need to update your bids as your performance data comes in.
The rule of thumb is to wait for 1 full week before making any bid changes. By accumulating data for a full 7 days it allows you to accumulate enough data to make a decision.
It is also suggested that when you start a Sponsored Product campaign from time zero, you give it even more than 7 days so you can be more confident in your bid optimization with more data.
As mentioned in the above section you should have set a strategic objective to your campaigns. Your strategic objective will determine your Target ACoS, this the ACoS that you want to achieve in your campaign. The decision on Target ACoS, will cascade down to each individual bid update you make.
What Is ACoS?
Before we determine your target ACoS, it would help to know what ACoS is. ACoS is short “Advertising Cost of Sale”, it is s the ratio of your total ad expenditure to your total sales revenue. It tells you how much sales are achieved for every dollar spent in your campaign. The rule of thumb is that a lower your ACoS percentage is more desirable, as you can get more sales relative to your spending.
The formula for ACoS therefore is :
For example, if you spent $2.00 on a keyword and received $10 in sales, then your ACoS is (2/10)*100 =20%.
What Is My Target ACoS?
Target ACoS in theory can be whatever you want it to be. But you need a benchmark ACoS, then how would you know whether your target ACoS is good or bad? The benchmark ACoS should be what we call a breakeven ACoS.
The breakeven ACoS can be calculated by calculating your margins on a per unit basis, one resource you can use to calculate your margins is FBA Calculator. Using the margins calculated you will calculate your profit margin %. This profit margin % will be your breakeven ACoS.
Using the above example, your breakeven ACoS will be 35.58% for your Advertising on Amazon.
The final step will be figuring your target ACoS, you want to benchmark your breakeven ACoS based on the strategic objectives that you have set. For example:
- Optimization Objectives ➡ Target ACoS < Breakeven ACoS
- Growth Objectives ➡ Target ACoS > Breakeven ACoS
- Moderate Objective ➡ Target ACoS = Breakeven ACoS
Now armed with the target ACoS, you can confidently start optimizing your Amazon PPC bids that is inline with your strategic objective. You can set a new bid that can mathematically reach your target ACoS using the below formula:
New Bid = (Target ACoS/ACoS) * CPC
The CPC in the above formula stands for the Cost per click, it is recommended that CPC number that is used is a time range that is not too short or too long. We at SellerMetrics, use a range between 30 to 60 days in our CPC calculation.
When updating the bids, you can manually change the bid using the Amazon advertising console, the Amazon PPC Bulk Uploads or Amazon PPC Software to make these changes. The latter two options can save you time if you are making a large amount of bid change between multiple campaigns.
In conclusion, thinking about your Amazon PPC bidding strategically is a very important process in your Amazon PPC journey. Your strategy has large cascading effects on your Amazon PPC campaigns. We know as Amazon FBA sellers we are impatient and want to try things out right away, but as I have highlighted above it is important to have a strategic direction before we start pushing buttons.