Originally published on July 15, 2016, updated June 30, 2020
The Amazon Sponsored Products program has not been around very long (about two years), but this advertising service is fast becoming a critical component for third-party sellers, especially sellers launching new products. Some sellers feel reluctant to spend more money with Amazon.com, Inc. (“Amazon”) but many merchants are finding that it ultimately brings in more sales and profit and is well worth the cost. Not only do the advertisements bring in additional sales, but running them also seems to have a halo effect on organic search. Sellers that use these ads are seeing an increase in organic sales, as well.
The beginning of this article will discuss the Sponsored Products program and how to effectively use this service to boost sales and profitability. The first half discusses some basic setup strategy; then I’ll give you a few ideas on how to optimize your campaign for long-term success.
The Sponsored Products program is a pay-per-click (PPC) ad program, meaning you pay every time your advertisement is clicked. How much you end up paying per click depends on how high you set your maximum bid and what your competitors are bidding. If you set a bid maximum of $0.30, you will pay up to, but not more than $0.30 per click and sometimes less, depending on the competition for that keyword. If your bid is higher than other competitors, you’ll get better ad placement, and vice versa. Note that your ad will only show if you have the Buy Box. Amazon won’t have you paying for clicks if another seller is more likely to get the sale.
Sponsored Product ads are placed alongside organic search results as well as on the product pages themselves. You can find them on the right sidebar and either on the top row of search or bottom:
And in a carousel about halfway down the product page:
If you need some guidance on the mechanics of setting up an ad campaign, you can see a short video in Amazon Seller University. Before you jump in and start setting up ads, however, there are a few things to think about. First, you need to consider the structure you want your campaigns to have. Ads are organized at the top level by campaign, and then by ad group.
Campaigns are used to set the type of keyword targeting, automatic or manual, and your total budget for the month. An automatic campaign type will let Amazon select the keywords, while a manual campaign type means you select and input the keywords yourself. I generally recommend that you set up one of each. Use the automatic campaign to gain insights and new ideas from Amazon’s keywords, and the manual to fine-tune your advertising.
Ad groups are part of a campaign and contain all ads and their associated keywords and bids. I recommend that you set up one ad group for each product or product type for maximum control and visibility. For example, if you sell clothing, create an ad group for Women’s Shirts, one for Men’s Shirts, another for Women’s Pants and so on. You could even get more specific: Long-Sleeve Women’s Shirts, Short-Sleeve Women’s Shirts, etc. Just keep in mind that all the ads in this ad group share the same set of keywords, so they’ll need to share the same characteristics.
In your automatic campaign, you’ll get to pick a maximum bid per ad group. Depending on your category, that bid amount could be anywhere from pennies to a couple of dollars. Keep in mind that even a well-optimized campaign can have a dozen or so clicks per sale, so don’t spend so much that you end up spending more on clicks than you get back in sales. I’ll talk more in my next article on how to fine-tune your bids.
For your manual campaign, you’ll need to build your keyword list. To get ideas for keywords, look at your title and product copy, as well as the search terms you’ve put into your backend. What I like to do is take a core set of keywords, either from my copy or the Amazon Search Term Report if I’ve already been running ads, and then brainstorm variations on that word. For example some variations of the keyword “men’s swimsuits” would be “swimsuits for men,” “men’s swim trunks,” “swim trunks,” etc. Try to come up with 30-40 keywords. There are third-party keyword generators that can help you with this.
When adding keywords, you’ll need to specify the match type, either broad, phrase or exact. This tells Amazon how closely you want the customer search term to match your keyword. To see Amazon’s definitions and examples of different match types, click here or search Amazon help topics for “keyword match type.” The match type you choose will depend on your goals. If you want more keyword research, a broad match type will generate all sorts of variations on that keyword that you can review in the Search Term Report. However, it may generate variations that are not relevant to your product. The keywords “women’s hats” may trigger “blue women’s hats” or “women’s cowboy hats.” If that doesn’t describe your product, you may be paying for a click you didn’t want. An exact match is much more restrictive in the variations it will match; so you may get less impressions (and keyword ideas) but a higher conversion rate.
You can also add negative keywords to your ad group, in both automatic and manual campaigns. Entering negative keywords tells Amazon not to show your ad for specific keywords. Using the previous example, if you sell red, green and yellow women’s hats, but not blue, you can enter “blue” as a negative keyword and avoid having to pay for clicks not related to your product.
Once your campaigns have launched, you will want to monitor at least weekly and make sure you are making more money than you are spending. Keep in mind that the Campaign Manager dashboard shows impressions and clicks almost same day, but sales have a 48-hour lag. So the today, yesterday, and week-to-date time frames are almost never accurate when it comes to sales and generate poor data for decision-making. I prefer to review metrics early in the week, reviewing last-week, month-to-date, or last-month time frames.
The main metric to watch will be your advertising cost of sales (ACoS). This is your total spend divided by total sales. You can view it on the campaign, ad group, ad, and keyword level. I prefer to sort the Campaign Manager data by ACoS. That way, I can see which keywords or ad groups are costing me the most and can adjust my bids as needed.
Many ask me what a good ACoS is, and again I say it depends on your goals. If you are launching a new product and are willing to pay a bit more to start generating sales, you may tolerate a higher ACoS than someone who is focused on maintaining. That said, there is one target to keep in mind. If your ACoS is higher than your product’s adjusted gross margin (AGM), then you are losing money. (AGM = sales, less product costs, shipping, and Amazon fees.) If you want to focus on profitability, keep your ACoS below your AGM.
While it may be true that running Sponsored Product ads is another way to give Amazon your hard-earned money, with the marketplace becoming more and more competitive, paying for good placement in search is becoming a must. This is especially true for new products with little to no sales history, and is also true for established products that just need a sales boost. Now I’ll discuss how to optimize your campaigns for long-term profitability and success.
Once you have set up an Amazon Sponsored Products campaign, it needs to be monitored and optimized to maximize your profitability. It will take some work at first, but if you follow these 6 basic steps you can find problems and opportunities that you can address to ensure maximum ROI.
At the very least, you should have an automatic and a manual campaign running. The automatic campaign will serve as a research tool to help you discover keywords you may have missed when setting up the manual campaign. Let these campaigns run for two weeks or so. At a minimum, you should collect about 1,000 impressions and a dozen clicks per ad group.
You should identify your target advertising cost of sales (ACoS). As I mentioned previously, your target ACoS will depend on your business and campaign goals. A good number to keep in mind when setting your target ACoS is your adjusted gross margin, or your gross margin after all product and Amazon costs are accounted for. Long term, you really don’t want to be spending more on ads than you are making.
After your campaigns have collected enough data, you can pull the Search Term report to see exactly what search terms customers are using that are generating impressions, clicks and orders. You can find this report under Reports > Advertising Reports > Search Term Report in your Amazon Ads account. This will download as a text file. Open it in a spreadsheet, and you’ll be ready to sort and analyze your data.
The first thing you will want to do with your search term data is to create a list of high-converting search terms for each of your ad groups. Find search terms that are at or below your target ACoS. Once you have gathered a list, use it to brainstorm similar search terms. For example, if “purple women’s swimsuit” is generating a lot of sales for you, “purple swimsuit,” “purple swimsuit for women,” “women’s purple swimsuit” may also generate some sales.
After you have your list of high-converting search terms and new keywords that are similar, add this list to your manual campaign as both phrase and exact matches. The exact-match versions will let you dial in your bid for those specific search terms, and the phrase match will continue to generate new variations of that keyword.
Now that you have added your new high-converting keywords to your campaign, review the Search Term report again, this time for non-relevant search terms. For example, if you sell swimsuits, but are seeing search terms like “swimming goggles,” make note of these words and add them to your campaign or ad group as a negative exact-match keyword. This will keep you from paying for clicks from irrelevant keywords.
Your last step is to review the bids for your existing keywords in your manual campaign. Review both the newly added keywords and any that have been running for a while. For your new keywords, you can check the bid against the estimated first-page bid that Amazon Sponsored Products reports, but know that these estimates have not proven to be very accurate. However, for new keywords for which you have no click data, it will give you a place to start.
For keywords that have been running, check their ACoS numbers. Remember that the Week-to-Date, Yesterday, and Today data will not be accurate, as sales take 48 hours to report and clicks and impressions report within 24 hours. View data for a time frame previous to the current week and drop bids for anything that is above your ACoS goals. For keywords that are below your ACoS target, consider increasing the bid to see if you can gather even more impressions and sales.
For some products, especially those in competitive categories, you may find that your ACoS is too high even on words that are very relevant to your product. For example, you may sell women’s swimsuits, but that keyword just isn’t performing for you. You have two choices. You can continue to invest in that keyword with your goal being brand awareness and visibility, but not necessarily sales. If your marketing budget does not support that kind of spending, consider dropping that bid down to more sustainable levels and focusing on the more unique features of your product. Use long-tail keywords that may have less competition.
These six steps should be repeated weekly for as long as it takes for you to bring your campaign in line with your spending and sales goals. Even after your campaigns seem to be running smoothly and profitably, continue to check in and monitor performance. Updates to the algorithms in the Amazon marketplaces and new competitors will affect the performance of your Sponsored Product campaigns. You will also want to plan for peak traffic periods such as holidays. Ensure you are prepared with a larger budget and perhaps higher bids.
A well-managed and optimized Sponsored Product ad campaign can provide a lift in your sales, bringing in new revenue through ads and increasing performance of your organic sales. If you haven’t already, set up your campaigns, start your weekly optimization and see what it can do for your eCommerce business.
Originally published on July 15, 2016, updated June 30, 2020
This post is accurate as of the date of publication. Some features and information may have changed due to product updates or Amazon policy changes.