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So you’ve got some money you want to spend on ads, but you’re not exactly sure how. You don’t want to get beat on every bid, but you also don’t want to overbid so much on certain keywords that you’re just wasting your budget. So what do you do?
Here’s something you shouldn’t forget: Amazon knows way more than you do!
Amazon will let you pre-determine set ranges that you can change your bids by - based on its own data that it derives both from what your competitors are doing and from your own past performance - to automatically change your bids and give you the best chance to get your ad seen.
It is convenient and based on data that you could never analyze to the same level of precision on your own, but could also increase your ad spend quite a bit.
You will not have full control of the adjustments but you can set the parameters.
The first thing to do, however, is determine your base bid, so how should you go about it?
You can set up your base bid with some simple math based on the conversion rate of the ASIN in question, the price, and your desired ACOS.
Firstly, you take the conversion rate of the item in question and multiply it by the price of the item, multiplied again by your target ACOS.
For example, if your conversion rate is 4% for an item that costs $80, and you don't want to spend more than 10% of your revenue on advertising, then the calculation is:
0.04 (conversion) x 80 (price) x 0.1 (target ACOS) = $0.32
Once you’ve determined the base, you can think about possible modifiers.
Obviously, better real estate will come at a premium. Bids by placement allow you to change your bid depending on where it is shown - if it is higher up on the search results, it will be more expensive.
With bids by placement, your bid will be increased by a maximum percentage of modifiers pre-set by you when they compete for high placements, much of the time against competitors that may not have put in place any bid modifiers themselves.
There are three types of bid placements:
Top of Search placements are naturally more competitive, and bids by placement puts you in a position to win the bid that you might otherwise lose if you go in with a straight fixed bid.
Unlike bids by placement, where bids are adjusted depending on your competitors, dynamic bidding will adjust the bid based essentially on your past track record, giving you a bit more flexibility on where to allocate ad spend.
If, for example, you have used certain keywords in the past that have converted more sales, then you are more likely to see higher bids for that particular keyword than for ones that have been less successful.
The bid will be lowered automatically in real-time if it is deemed less likely to convert sales.
Under this model, Amazon can raise it to a maximum of double the base bid for a Top of Search placement, and by 50% for placements elsewhere. It would also lower bids if they are less likely to convert.
The exact bid you put in will be used and will not change based on the likelihood of sale conversion. This is a bit of a riskier option as you may end up bidding for keywords on which you are going to be heavily outbid, but could potentially be a good option if you have a high level of confidence in your targeting. Chances are your ACOS will go up.
You can also combine modifiers for placement and dynamic pricing. For example, you could adjust modifiers to go up by 200% for Top of Search placement and a 50% range for dynamic up and down pricing, then those can compound on top of each other for a significant increase in your bid, turning a $1 base bid into a $4.5 modified one.
That could well be exactly what you’re building in flexibility for in order to reach your intended audience, but also something to keep aware of so ACOS doesn’t skyrocket above where you want it to be.
Don’t make the mistake of not looking at your placement data after a campaign. Take note of the number of impressions at each placement, the click-through rate, total spend, ACOS, orders, and other metrics to compare each of their performance and adjust accordingly.
Naturally, Top of Search gets the most eyeballs and is the most likely to convert sales, but that doesn’t necessarily make it the best as a one-size-fits-all solution. This is especially true if you have a low-margin product where the additional ad spend could eat into your profit, or even translate to a net loss if the modification is big enough.
If your product grid has a bunch of low-margin products, you might want to go for more product page placements where the bids are less competitive and modifiers less drastic.
A common mistake advertisers make on Amazon is to crown the ad groups. Having an efficient structure for your campaign will mean a more efficient allocation of ad spend to each keyword. Grouping in too many words, especially keywords with a large variation in their search volume, will mean that the higher volume words will cannibalize all the budget while the smaller ones won’t get much at all. Not only is this inefficient in itself, but it also distorts the post-campaign analysis.
Better practice is to limit not just the keywords per ad group, but also ad groups per campaign in order to prioritize certain keywords.
In addition, search volume is not the only axis on which you can separate your keywords - some others include branded vs non-branded or by relevance.
This is especially true just after a product launch. Keep in mind that Amazon uses a keywords track record to determine dynamic pricing for a particular product, so new products will not have enough data for good dynamic bidding and, therefore will use fixed bids to begin with - something you will want to change as soon as good data is available after a few weeks of sales.
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