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Amazon Search Ads: How to use Amazon Marketing - profitably

Amazon Search Ads: How to use Amazon Marketing - profitably

Strategies to ensure your ad campaigns stay in the black as advertising becomes more competitive on Amazon.

The early days - just a few years ago - of cheap clicks, little competition and a buggy interface with little reporting, are over. Amazon ad formats and inventory have evolved dramatically, and marketers and Amazon sellers are flocking to the platform. More competition means advertisers need to be smarter to ensure their ad campaigns are profitable.

Calculating COGS (Cost of Goods Selling) and all seller fees is key to running profitable search ad campaigns on Amazon, says Kaitlin McGrew, senior SEM manager at Fort Worth-based PMG Digital Agency.

In addition to monthly Amazon seller subscription fees and per-item closing and referral fees, you may also incur sales tax service fees and various storage and inventory fees if you use Amazon's FBA fulfillment program, McGrew said in a talk on "Driving Profitable Sales with Amazon Search Ads" at the SMX West conference last month.

Calculate profit margins at ASIN level

"Understanding hidden fees and ASIN profitability will help you navigate your strategy," McGrew said.

To calculate the profit margin: ((revenue - (COGS + fees) / revenue)). * 100.

In the sample report below, McGrew shows how you can see the profit margin of each product or ASIN (the Amazon Standard Identification Number assigned to each product) after taking into account COGS, inventory fees, and advertising costs.


Include all fees and advertising costs when calculating ASIN profit margins.


Amazon marketing to full funnel 

You don't have to limit your marketing and advertising on Amazon to reaching the willing buyers at the bottom of the funnel. You can also run campaigns to reach consumers in discovery mode. The key is setting goals and tracking metrics for each stage of the funnel, McGrew emphasized.

"Make sure you're using brand, non-brand and product targeting," she said. "Let every type of campaign be possible to make sure you're reaching users in every way possible on Amazon. McGrew breaks it down this way:

Upper funnel: Amazon Posts (organic/free) and video in search ads (in beta). Metrics: Impressions, Clicks, Click Through Rate (CTR).

Middle funnel: Sponsored brand and sponsored product ads with non-brand keyword and product targeting. Metrics: Impressions, clicks, CTR, new-to-brand revenue, ACoS (advertising cost of sale).

Low funnel: Sponsored brand and product ads with brand related keywords, ASIN retargeting with sponsored display ads (in beta) to reach users on and off Amazon. Metrics: ACoS, ROI (return on investment).

Organization of campaigns for control, profitability

A well-structured account with consistent conventions and organizational taxonomies will help keep your campaigns profitable. In the example below, McGrew explained the clear naming structure by brand, non-brand, specialty, and ASIN-specific campaigns.

If you look at the "Specialty" column below, there's an "InventoryRisk" campaign to promote a number of products that have been in storage on Amazon for more than 90 days. "I really need to move this product because we're spending too much money keeping it on the shelf. Put it in a campaign and tag it 'InventoryRisk' so you can identify [it] quickly," McGrew explained.
Amazon Search Ads: How to use Amazon Marketing - profitably 1

Clearly organize and name Amazon ad campaigns for better targeting and bidding.
When you have a well-organized account, it becomes easier to manage bidding for profitability.

Dynamic bidding. McGrew said she has had good success with Amazon's machine learning-based dynamic bidding, which automatically adjusts bids based on the likelihood of conversion. Amazon's dynamic bidding has three options: Down, Up and Down and Fixed.

placing of bids. Bidding adjustments can be used to increase top of page and/or product page bids by up to 900%. Download the placement report to see where your campaigns are showing and how they're performing for each placement. You can then calculate profit margins based on ad position and evaluate your placement bid strategies.

Consider seasonality and search trends. "This goes beyond just serving up sandal keywords in the summer," Mcgrew noted. "We see people searching Amazon for 'gifts for him,' so make sure you're constantly paying attention to what's happening throughout the year and incorporating that into your planning.

Reaching ASIN readiness

Selling, let alone advertising on Amazon will not be profitable if your ASINs or products are not "retail ready".

This includes everything from optimizing the product detail page with clear titles, multiple product images, complete product information, good ratings and reviews, and sufficient inventory. (Don't include products with low inventory in your campaigns, McGrew warns).

Product details, prices, reviews, images, customer feedback, shipping speed, return rates, inventory levels, and advertising all contribute to the "flywheel effect" for greater visibility and profitable sales on Amazon.
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