How brands are using automated budgeting on Amazon
One thing is true for nearly all conversions on Amazon: They’re captured by products on page one of the search results. And a significant share of purchases go to just the top few results.
This hard truth is why advertising is required to grow a brand’s overall business on Amazon. But the pay-for-play nature of Amazon doesn’t need to obliterate a company’s margins as long as it adheres to a few key strategies.
While every business is different, the following 10 tips work well across verticals and business types on Amazon.
Tip 1. Advertising doesn’t exist in a silo
If ad operations are divorced from inventory and marketplace teams, it’s nearly impossible to keep a business growing smoothly. For example, if an item’s price changes on Amazon, it’s wise to adjust bids accordingly. Additionally, if inventory is running low on a specific item, marketers should pause their ads to avoid stock-outs that negatively impact organic rank on Amazon. Keeping all these groups in close collaboration helps companies get ahead of issues before they impact the bottom line.
Tip 2. Establish variable, demand-based budgeting
When advertising on Amazon, the goal should be to maximize total profit, not just optimize toward a specific budget. Budget settings are guardrails, but better steering, in the form of intelligent bidding can help a brand capture more profitable sales without prematurely running out of budget and ceding those sales to competitors. Having a plan for bidding to value — ideally with an uncapped budget — gives companies the freedom to pursue every profitable sale.
Tip 3. Utilize automation to gain a competitive advantage
User behavior on Amazon changes constantly. To find and capitalize on new growth opportunities, marketers need to understand both what changes are happening, and also the optimal time to jump in and make changes themselves. To confidently commit spend, companies must ensure that the terms they add to their campaigns have significant data and conversion volume. Additionally, adjusting bids dynamically minimizes waste without sacrificing wins on key terms. To accomplish all this at scale, across dozens or hundreds of products, absolutely requires automation.
Tip 4. Identify and resource the tasks needing a human touch
Not everything related to Amazon advertising can or should be done algorithmically. Goals for individual products naturally fluctuate based on business needs or the competitive landscape. Consumer behavior changes in nuanced ways due to seasonality and sale events, and shifts can even year-over-year (e.g., the delayed Prime Day in 2020). It’s important to take an accounting of these softer aspects within the company’s larger advertising operations and have a plan for addressing them.
Tip 5. Start with margins when setting goals and bids
Before advertising, brands need a deep understanding of how much wiggle room they have to advertise based on their product margins. This understanding should include all of the fees associated with selling on Amazon, including FBA fees and Amazon’s commission, along with actual cost of goods sold (COGS). This provides the brand with a foundation to effectively formulate bids based on its goals.
Tip 6. Align goals to product life cycles
The level of advertising aggressiveness a given product needs should be tied to where that product is in its life cycle. For example, during a product launch, a brand may need to eat into its margin significantly to rank high in search and drive effective sales volume. This is because the product has no previous sales history. On the flip side, if the product is well established on Amazon and is achieving a high organic rank, marketers can focus on maximizing profit and only advertising when a clear, incremental sale is likely.
Tip 7. Set variable efficiency targets based on keyword and audience
As research shows, not every click is of the same value. An ad click poached from a competitor is better than one on the business’s own branded keyword, which could have been captured organically. Similarly, if a click on a non-branded keyword is more likely to result in a sale, the brand should bid higher than it would have on a keyword from which clicks have been historically less likely to convert. By building these nuances into campaigns, brands ensure that their bids are more aggressive on generic or competitor keywords, and more reserved on their own branded terms.
Tip 8. Create granular, product-first campaign structures
A common mistake brands make is blending brand and non-brand performance data. Outside of smaller sellers where a simpler structure may be necessary, larger brands need to tie campaigns to individual products, with ad groups split into category, branded and competitor terms (at a minimum). This allows brands to better understand where conversions are coming from, effectively add and bid on new keywords and taper back spend where it isn’t creating additional value.
Tip 9. Utilize conversion rate, TACOS, and ACOS when evaluating progress
When a brand has a high conversion rate on a given keyword and is generating a lot of sales, a high advertising cost of sale (ACOS) is not necessarily bad. This is why conversion rate, rather than CPC or ACOS, needs to be a big factor in how brands value advertising. It’s also why it’s wise to use TACOS, which includes organic plus ad-derived sales, to better determine overall business trajectory and value of ad spend for a given product.
Tip 10. Have a framework to confidently test new opportunities
Finally, e-commerce is a constantly moving target. It’s important you have the organizational structure in place to test new ad or targeting types as they debut, investigate new channels, and test selling new product variations. It’s never a good idea for marketers to rest on their laurels, even if business is in a great place. There are competitors that are bent on stealing market share, and they will find any advantage at their disposal to do so. A little paranoia — paired with careful planning and these 10 approaches to Amazon — is a good thing.