This post is by Alasdair McLean-Foreman, founder and CEO of Teikametrics. In 2001, Alasdair founded an ecommerce company in his dorm room, which grew into a multimillion-dollar company selling high-end sporting goods. The company became one of Amazon’s first third-party retailers in the sporting goods category in 2003. He also founded the weight loss and fitness company Traineo and has built and provided ecommerce solutions to large media, cosmetics and sporting organizations.
The rise of online shopping has made it easy for small businesses to sell products online, but the market has quickly become crowded with multiple vendors and endless competitive offers. Today, retailers don’t need cheesy TV commercials to prove they’re offering a great deal – they just need to be sure those deals actually reach target customers.
Online marketplaces like Amazon help dictate selling habits for large and small retail businesses around the world. It’s no surprise, then, that global adoption for Amazon’s answer to pay-per-click (PPC) advertising, Sponsored Products campaigns, grew by 100 percent in 2015 – amounting to $1.5 billion in sales. During the holiday season in particular, Sponsored Products pages garnered 200 percent more clicks than the previous year.
It’s clear that Sponsored Products can help businesses build brand identities, maximize profits and connect with new audiences. However, some Amazon sellers are under-utilizing the resource. Below are three ways every retailer can ensure Amazon Sponsored Products campaigns are pulling their weight in ROI.
1. Know the difference between automatic and manual campaigns.
Automatic campaigns are the most popular option for Sponsored Products users, and they’re a great choice for beginners that aren’t yet familiar with the intricacies of PPC marketing. However, automatic campaigns don’t use keywords – they rely on product page content. As a result, a poorly-optimized product page might not meet sales goals.
One critical element in any automatic campaign is the use of negative keywords, which allow brands to negate any terms they don’t want their products associated with. For example, if you’re selling raincoats and you want to avoid sponsoring search terms associated with a competitive brand, such as “The North Face,” you can use that brand’s name as a negative search term. When customers search for that specific brand, your product will not appear as a sponsored ad. While negative search terms play a role in manual campaigns, their influence grows in the scope of an automatic campaign’s limited customization.
Manual campaigns, on the other hand, can be highly customized. Every manual campaign can leverage up to 1,000 keywords per ad group. To ensure success, sellers should target specific keywords – including broad match, phrase match and exact match types.
- Broad match keywords offer the widest range of traffic exposure, and match with similar customer search terms, appearing in any order. If your broad match keyword is “raincoat,” applicable customer search terms include “camping jacket,” “waterproof coat size medium,” and more.
- Phrase match keywords are triggered by search terms including the exact phrase or close variations, appearing in the same sequence with up to two additional keywords. For the above example, customers might search “black raincoat,” or “medium waterproof raincoat.”
- Exact match keywords only include search terms with close variations, such as pluralization and punctuation. Although this match type is narrowly defined, it is typically the most relevant to a customer’s search. For example, a search for “raincoats” would align with a brand’s “raincoat” keyword.
Most Amazon sellers use one type of campaign at a time, whether it’s automatic or manual. However, the best results come from deploying an equal balance of automatic and manual campaigns. Within the two campaigns, sellers can break up ad groups using a specific product attribute, such as size or material type, and allow for greater keyword relevancy in terms of customer search queries.
2. Continually analyze campaign results, and use data to optimize listings
One major benefit of automatic campaigns is their ability to help sellers drill down and uncover terms that customers are actually searching, based on product listings. Sellers can find this data by downloading the Customer Search Term Report from their Seller Central account and find those customer search terms that are working well and those that aren’t.
In order to determine what is working well and what isn’t, sellers need to establish short- and long-term Sponsored Products goals. For example, if a seller is looking to increase sales traction, then a wise choice would be to find search terms that have resulted in the most sales. In this case, Advertising Cost of Sales (ACoS) would become secondary to the number of sales garnered by specific search terms. However, it is important to always maintain an efficient ACoS that is lower than the adjusted gross margin (Gross Margin – Amazon Fees). This will ensure that sellers remain profitable while growing sales.
Sellers should always be increasing their investment in efficient keywords, while simultaneously decreasing their investment in poor-performing keywords. Once a seller successfully mines search terms from their automatic campaigns, it is important to convert those same search terms into keywords within their manual campaigns. They should then continue to monitor the success of those keywords, and adjust bids as long as each manual campaign remains active.
3. Don’t let advertising budgets constrain your company’s growth
Maintaining a healthy profit margin is critical for every seller. Calculating your ACoS (the percent of sales spent on advertising) can help inform this effort by measuring the efficacy of Sponsored Products campaigns in the context of advertising goals.
However, it’s vital to remember that not every seller should aim for the same ACoS – targets differ between categories, products and businesses. After tracking and analyzing ACoS data, some sellers learn that increasing ad spending leads to 10 times more sales, all while the brand’s margins remain in check. If you can manage this balance, there’s no reason not to pursue it.
To calculate ACoS, brands can simply divide total spend by total sales. There are two strategies with which sellers can evaluate ACoS and arrive at an appropriate target range:
- Customer acquisition
- Return on investment (ROI)
A customer acquisition strategy would focus less on maintaining a low ACoS, and more on driving as much traffic to product listings as possible. Meanwhile, sellers using an ROI-based ACoS strategy would strive for an ACoS below the adjusted gross margins of products after FBA fees.
Of course, factors like peak traffic – including the end-of-year holiday season – have a major influence on a brand’s target ACoS. During these periods, sellers should carefully monitor accounts for out-of-budget alerts. Sellers can then calculate the perfect marketing spend for a given campaign and continually improve their bottom lines.
No matter which approach sellers take to Sponsored Products, the program naturally drives more sales, which helps increase conversion rates and search rankings in turn. This cycle is critical to the health of any Amazon-based business – in Amazon’s competitive marketplace, rankings change from day to day, even for products that consistently reach the top of search results for desired keywords.
Of course, like any marketing campaign asset, Sponsored Products are only one part of a holistic strategy. Results from automatic and manual campaigns should always be evaluated alongside corresponding elements, such as product listings optimization and keyword testing.
However, whether sellers are launching a new product, aiming to increase brand exposure or reach new customer audiences, Sponsored Products campaigns are worth taking seriously. Essentially, they’re a minimal-cost marketing tool that can significantly benefit any online business.
Do you have any questions about Amazon Sponsored Products campaigns? Just comment below and I’ll answer you as soon as I can.
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