Amazon Advertising Analytics Strategies: The Ultimate Guide
Building a successful Amazon business is no mean feat. Anyone who buys or sells on Amazon will know the importance of Amazon advertising to even stand a chance. But even Amazon advertising has become complex and expensive. CPCs are rising as the sea of Amazon sellers bid against one another to gain a place on the first page of results. Sellers have had to find new and innovative ways to stay ahead of the competition and remain profitable as they expand their businesses.
First, some statistics:
- As of January 2022, Amazon had 9.7 million sellers worldwide, of which 1.9 million were actively selling.1
- According to Jungle Scout, there are roughly 3700 new sellers on Amazon every day.2
- 89% of Amazon sellers use Amazon FBA (Fulfilment by Amazon).3
- Last year, Amazon advertising earned $31 billion.4
- Amazon has increased its FBA fulfillment fees by around 5% to tackle rising inflation and fuel costs.5
- CPCs are rising by an average of 50 percent year-on-year.6
There are no two ways about it. Amazon sellers - of all shapes and sizes - need to have an effective Amazon advertising strategy.
That’s why we have created this Ultimate Guide to Amazon Advertising. This article will cover…
- Why does it matter?
- What is Amazon PPC?
- How to use Amazon PPC
- How to measure success using Amazon PPC
- The Benefits of Amazon Advertising
- Boost your traffic
- Understanding your customers
- Types of Amazon Advertising
- How much does Amazon Advertising cost?
- When should you run your ads?
- Need some help with your ads?
Let's delve in then…
Why does it matter?
As I’ve mentioned already, selling on Amazon has never been more competitive.
You need to be using Amazon advertising if you want to be seen on Amazon, let alone stand out. Even brands that enjoy a solid organic ranking need to ensure they have a paid media strategy. Without one, you will lose sales, traffic, and ranking. In fact, of the first twenty products a customer sees on the first page on Amazon, only four are organic. As Marketplace Pulse says, “Amazon Is Burying Organic Search Results.”7 More often than not, you have to scroll down to reach the first organic result.
What’s more - Amazon advertising can also boost your organic ranking. Check out this article on How to Use Amazon PPC to Drive Organic Results.
If you use your ad budgets effectively and efficiently - something I will cover later on - Amazon advertising can be used to reach the customers most suited for you.
What is Amazon PPC?
Amazon PPC is one of the most effective advertising channels because it allows sellers to reach shoppers where they actually make the purchase (i.e. on Amazon).
Amazon PPC allows you to promote your products with highly visible and relevant placements on Amazon. Your ads appear on desktop and mobile browsers as well as on Amazon’s app. When a shopper searches for a term, your ad has the opportunity to appear at the top of the search results, resulting in more sales.
You can choose from different Amazon ad types depending on your business goals. You can easily control and scale your budget, and you can use a variety of reports to easily see how your ads are performing.
Amazon PPC offers a variety of different targeting methods, including keywords, categories, brands and products (ASINs), as well as remarketing on external websites to ensure that your ad is reaching the desired audience.
You can use Amazon PPC to:
- Grow sales and market share
- Grow profitability
- Help a product launch
How To Use Amazon PPC
Amazon PPC works like an auction. Amazon PPC allows you to bid on keywords that are relevant to your product. If you bid the highest (and Amazon deems your product relevant to the search), you win the auction, and your ad will get listed in your chosen placement. If someone searches for that keyword, your ad will appear above other advertisers' ads in the results. You can set a maximum bid, which is a fixed amount you are willing to pay for each click, and then Amazon will automatically choose the most relevant keywords based on what other advertisers offer.
You only pay the bid price if your Amazon ad gets clicked, hence why it's called ‘pay-per-click.’
What’s more - since Amazon PPC campaigns are auctions, you only ever have to pay 1 cent more than the next highest bidder. For example, if you bid $2, but the next highest bidder only bid $1, you would only be charged $1.01 for the ad placement. This is similar to how Google’s PPC product works too.
This means that the cost-per-click (CPC) for a keyword or targetted ASIN will always depend on the highest bid, but it is normally less than the highest bid.
While CPC is a critical factor, it is not the only factor that decides ad placement. In fact, there are two vital factors at play:
- Amazon CPC: As explained already, the person with the higher bid/CPC has a better chance of winning prime ad space.
- Quality factor: The probability of a customer clicking on the ad is also very important. Because you only pay when an ad is clicked on, Amazon only gets paid for clicks. Amazon does not care about impressions. If a customer is more likely to click on your ad, its placement will be better. This is where organic ranking, offering a good product with good ad copy, ratings and reviews has a big impact.
When you make bids using PPC, there are several different types of keyword match types:
Broad match: Your ad will be displayed when a shopper searches for your keywords in any order, as well as close variants. A broad match rarely results in the best returns, but it is a really useful way to gather data, especially after something like a product launch. This data is then useful for optimizing and refining your ad targeting later. Broad matches also help improve brand awareness and ad visibility because your ads show up more frequently.
For example, if you did a broad match for the keyword ‘shoes,’ your ad could also show for the searches ‘shoes for girls,’ ‘size 9 kids shoes,’ or ‘running shoes.’
Phrase match: Your ad will be triggered if a shopper searches for your keywords in the same order, including either suffixes or prefixes.
For example, if you did a phrase match for the keyword ‘mens shoes,’ your ad could also show for the search ‘mens shoes size 9’ but not for ‘shoes men size 9.’
Exact match: Your ad will only be displayed when a shopper searches for the exact keywords you bid on, without any other words or phrases. This is the most refined targeting option. High-converting keywords have a good chance of wrestling in optimal returns.
For example, if you did an exact match for the keyword ‘mens shoes,’ this is the only search that would work. ‘Mens shoes size 9’ would not.
There is also a 4th match type - auto campaigns. This type lets Amazon decide which terms to target. Auto, broad, and phrase allow you to research match types as they help you uncover new converting terms. Exact is used for ‘performance’ as you know it converts well. You are isolating the exact term and optimizing.
Here are the 5 pillars to a complete Amazon PPC strategy:
- Pillar 1: Clear business goals
- Pillar 2: The right ad types
- Pillar 3: Focus on targeting
- Pillar 4: Profitability
- Pillar 5: Momentum
How to measure success using Amazon PPC
You can’t improve what you haven’t measured. To make sure that you are getting the Return on Ad Spend (RoAS) you need from your Amazon advertising campaigns, you need to understand what a good PPC campaign looks like, how to get the most from your PPC reports, and the critical metrics you can use to benchmark success.
- Return on Ad Spend (RoAS) - RoAS is a key performance indicator. It refers to the amount of revenue you get for every ad dollar you spend in a campaign. This measures the effectiveness of your campaign and is a great metric to help you determine which ad methods are working, so you can improve future campaigns. The average RoAS on Amazon is around 3x - though this depends on your industry/product etc. Sellers tend to believe a high RoAS is good, but it does depend on individual strategy. As a rule of thumb, a RoAS of around 6x would be a great starting point - or an ACoS OF 16.6%. Find out more about what is a good RoAS here.
- Advertising Cost of Sales (ACoS) - This allows you to understand what percentage of sales goes towards the advertising needed to make that sale. It’s just the inverse of RoAS. If the RoAS is 3x, the ACoS is 33% (1/3). As a general rule, low ACoS is good ACoS, however, there isn’t a one size fits all. It depends on your business goals. You may want a higher ACoS in scenarios where you have inventory that needs moving, a new product launch, or key events to exploit. You may want a lower ACoS when you are trying to exploit a competitive advantage, or you are brand building to promote organic growth.
- Breakeven ACoS - This is the amount you can afford to spend on advertising while still making a profit. If you combine this with CLV, this can be a hugely powerful metric. Another way of defining it is the pre-advertising margin, i.e.how much profit do you make on the first sale before ad costs? This number will then tell you the max you can spend on ads in order to break even. For instance, if the selling price of my ASIN is $20 and after subtracting out all Amazon fees and my cost of goods sold, my profit is $11, my breakeven ACoS is $11/$20 = 55%.
- Total Advertising Cost of Sale (TACoS) - TACoS is a unique Amazon metric. This is the primary KPI to work out how well your advertising is helping sell your product, by determining how your ad spend impacts your total sales (i.e. ad sales and organic sales). TACoS offers a more complete picture than ACoS/RoAS by showing advertising spend relative to the total sales generated. It’s calculated by dividing ad spend by total sales.
- Customer Lifetime Value (CLV) - This is your profit per customer. If you track the revenue generated by each customer over time, you can gain valuable insights into growth potential and future sales opportunities.
- Conversion Rate - You want your ads to be performing well, so you want to have a high conversion rate. Ads that get clicked on but don’t convert end up wasting your money as you pay for the ad but don’t get any return on your ad spend. It tells you what proportion of people who clicked on your ads land up buying a product from you.
- Repeat Purchase Rate - This measures how many people buy at least twice. It’s useful when looking at your ACoS because if a lot of people repeat order, you can spread out the ACoS across multiple purchases, not just the first one!
- Click-Through Rate - This is useful to determine which products are most popular, by the number of people that view and click on ads. It’s calculated as what proportion of impressions served were actually clicked on.
- Customer Acquisition Cost (CAC) - Understand exactly how much acquiring a new customer costs you. It’s calculated by adding up all your ad spend and dividing by the number of new to brand customers. This helps you determine the investment you make into your marketing strategy, by balancing what it costs you to attract a new customer vs. how much revenue they bring in.
To find out more about these key metrics, how to measure them, and how to improve them, check out Amazon PPC Reporting: 5 Critical Metrics.
- What Even Are Reporting Metrics for Amazon Sellers?
- Amazon sales metrics you NEED to be tracking (infographic)
- 7 key Amazon metrics to give your coffee brand a boost
The Benefits of Amazon Advertising
The ultimate goal of every business is to sell more products. With Amazon Advertising, you can use multiple marketing channels to sell your products and increase sales.
Let's take a look at some of the benefits of Amazon Advertising:
- Increase Sales - Amazon Advertising is necessary to make sales on Amazon. Effective advertising can help you reach more valuable customers and overall increase sales. As an added bonus, this can increase brand awareness.
- Stay competitive - An effective Amazon advertising strategy allows you to stay ahead of the competition on Amazon.
- Improve your organic ranking - Check out How to Use Amazon PPC to Drive Organic Results.
- Build a brand - Use retargeting campaigns to encourage repeat purchases and foster brand loyalty. Ultimately, your customers are the key to building your brand on Amazon. It can also be used to attract new customers who aren’t specifically searching for your brand.
Boost your traffic
PPC (pay per click) is a great way to boost traffic to your Amazon listing. The key is knowing how to use it correctly.
Use the right keywords: Keywords are the words that people type into Google, Bing or other search engines when looking for products like yours. You want to make sure you choose keywords that will lead people directly from their search results into your product listing on Amazon so they can buy it from you!
Choose a good budget: If there are certain keywords that cost too much per click for you, then don’t waste money on those keywords because they won’t translate into sales anyways! Instead, focus on finding low-cost but high-value terms instead which can bring in lots of clicks without breaking the bank. Run tests regularly: Experiment with different ad copy and images in order see which ones generate better results (and therefore lower costs).
Understanding Your Customers
The most effective way to optimize your ad budgets and ultimately the effectiveness of your ads is to understand your Amazon customers.
Understanding your customers allows you to…
- Align your business to what the customer wants
- Build a solid customer base
- Champion the right new products
- Enhance your existing products
- Better target your marketing campaigns
- Improve sales
Sounds good, doesn’t it?
The problem? Amazon makes it really hard to understand your customers. Still, there are some ways you can focus on understanding your customers without the help of analytics.
- Build your demographics
- Use Customer Lifetime Value (CLV) to guide you
- Measure and learn from your advertising
Here at Nozzle, we believe that every seller deserves the power to understand their customer and use this data to grow their business. That’s why we created Nozzle - a customer analytics tool - to provide Amazon sellers with those missing details.
Nozzle simplifies the otherwise unruly analytics mess into an easily accessible and digestible source.
Amazon Advertising is complex and features many different terms. Here I thought I would outline some of the most important ones which will help you understand Amazon advertising a bit more.
- Ad Sales = This metric is pretty self-explanatory but absolutely key. It outlines the amount of sales generated by an advert, allowing you to determine the effectiveness of that advert.
- Ad Spend = This simply refers to the amount of money you’re spending on Amazon advertising campaigns. This can include Amazon’s search ad products such as Sponsored Products, Sponsored Brands, and Sponsored Display, or Amazon’s more recent demand-side platform (DSP) product that focuses on display advertising.
- Amazon PPC = Amazon PPC is a form of advertising on Amazon. It allows you to bid on keywords that are relevant to your product, and if someone searches for that keyword, your ad will appear above other advertisers' ads in the results.
- Customer Lifetime Value (CLV) = CLV, otherwise known as profit per customer, can be defined as the total value per single customer to a business over the whole period of their relationship. CLV can be calculated as Total order value x Average gross margin x Retention period.
- Customer Acquisition Cost (CAC) = Customer Acquisition Cost (CAC) is the amount it costs to acquire an average customer. To calculate it, for every ASIN per month you add up all ad spend for sponsored brands, sponsored brands video, sponsored display, and sponsored products and then divide by the number of new customers who bought that particular ASIN that month.
- Advertising Cost of Sales (ACoS) = This allows you to understand what percentage of sales goes towards the advertising needed to make that sale. As a general rule, low ACoS is good ACoS.
- Return on Ad Spend (RoAS) = Lets you understand to what extent your ad spend is being turned into new sales. It is basically the inverse of ACoS. High RoAS is typically good RoAS.
- Amazon Brand Analytics (ABA) = Available to members of the Amazon Brand Registry program, ABA is a crucial database of information that is can help inform business decisions and advertising campaigns. ABA can be found under the Reports tab in Seller Central. The data is split into four sections: Amazon search terms; Market basket analysis; Item comparison and alternative purchase behavior; Demographics.
- Brand Registry: The Amazon Brand Registry is a free service, but there are certain eligibility requirements. For example, you need to hold a registered trademark in the area in which you sell. The Amazon Brand Registry gives you access to the data held in the ABA; A+ content; Final say over the product listing; Mechanisms to help eradicate unauthorized resellers; Sponsored brand ads.
For more definitions, see our Glossary of Amazon Abbreviations, Metrics and Terminology.
Types of Amazon Advertising
Amazon Ads offers a wide range of products and services:
- Sponsored Products - These are self-service, pay-per-click ads for individual products, which appear in shopping results and on product detail pages.
- Sponsored Brands - These are self-service, pay-per-click ads for brands that also appear in shopping results. They feature a brand logo, custom headline, and several products.
- Sponsored Display - These are self-service display ads that use automatically generated ad creatives. They are targeted to relevant audiences created based on their Amazon shopping interests.
- Stores - These are free brand destinations that can feature your product portfolio. They are useful to help your brand tell a story.
- Audio Ads - These adverts play on the free tier of Amazon music platforms. This includes Alexa-enabled devices, such as Echo and Fire TV, as well as on mobile and desktop.
- Video Ads - These adverts appear on a variety of third-party sites on and off Amazon. They allow you to engage with your audience in a simple yet effective way.
- Custom Advertising - These are tailor-made advertising experiences, created with Amazon Ads account executives.
- Amazon DSP - The Demand-Side-Platform enables retailers to buy display, video, and audio ads so they can target and retarget customers on and off Amazon.
- Amazon Attribution - This measures how well non-Amazon advertising drives traffic to your Amazon products.
How much does Amazon Advertising cost?
Given how expensive Amazon advertising has become, it’s really hard to know exactly how much you should be spending. Spend too much and you’re left with wasted ad spend that results in a lack of profits. Spend too little and your brand will find itself lost within the sea of competitive Amazon sellers.
What’s more - no two businesses are the same. Spending X amount for one business may not work for another.
Fortunately, we’ve written an article covering how to determine exactly how much you should be spending on Amazon PPC advertising to achieve the best results for your business.
You need to understand key Amazon metrics and establish how they are working together, including ACoS – the advertising cost of sales; CLV – customer lifetime value, and CAC – the acquisition cost per customer. The goal is to reduce wasted ad spend, and then make sure you are targeting effective and profitable customers.
Check out the full article here.
When should you run your ads?
This question depends on where you are in your product stage. A stable mature product is very different to an unknown brand during a product launch.
The overly-simple answer is: when your customers are ready to purchase from you.
Much like the question How much should you spend on your PPC ads?, this question is very much business-dependent.
The more you run your ads, the more money you will be spending. The logic, therefore, is the same: Run your ads too often and result in wasted ad spend and reduced profitability. Run your ads too infrequently and your brand will become lost in the competition.
Much like the previous question, you need to understand key Amazon metrics to determine what the sweet spot is for your business. You need an in-depth understanding of your customers and their purchase journeys so that you know when it will be optimal to target them.
Understanding your Amazon customers allows you to target your customers effectively and efficiently.
Need some help with your ads?
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I hope this article has offered some insight into the complicated world of Amazon Advertising.
Amazon Advertising is an essential part of selling on Amazon. Whatever your product, whatever your business goals, you need to have an effective Amazon Advertising strategy in place if you want to be successful on Amazon. Even successful brands with a solid organic ranking need to have a paid media strategy to maintain their success.
As Amazon increases in competitiveness, it has never been more important to get your Amazon advertising strategy right.
If you need help with your ads, make sure to get in touch with our expert AdVantage team to see how they can help!
1 Fiona O'Connor, 'Amazon has 1.9 million active sellers worldwide (plus other stats),' eDesk. Read here.
2 Melissa Boice, '15 Amazon Statistics You Should Know in 2022,' JungleScout. Read here.
3 Melissa Boice, '15 Amazon Statistics You Should Know in 2022,' JungleScout. Read here.
4 Jordan Novet, 'Amazon has a $31 billion a year advertising business,' CNBC. Read here.
5 Lab 916 Authors, 'Amazon Fees 2022: 5 Major Changes For Sellers & How To Prepare,' Lab 916. Read here.
6 Marketplace Pulse Authors, 'Amazon Ads Are Getting More Expensive,' Marketplace Pulse. Read here.
7 Marketplace Pulse Authors, 'Amazon Is Burying Organic Search Results,' Marketplace Pulse. Read here.
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