Are you trying to grow your sales on Amazon and doing so in the most optimal way? Many merchants, large and small, utilize Amazon Pay-Per-Click (PPC) advertising for this reason. It’s a great way to understand just how your individual listings are performing, helping businesses earn more by spending less through careful optimizations. However, this can be overwhelming to those unfamiliar with the process.

At Trellis, we’re proud to pioneer software solutions to simplify Amazon PPC management, ideal for merchants of all experience levels and complexities. With our years of practice and dedication to helping businesses grow, we’ve learned a lot about digital advertising and campaign management techniques. 

We’re happy to share our insights in this beginner’s guide. Here, you’ll learn more about the fundamentals of Amazon PPC advertising, starting with a glossary of relevant terms before moving into just how the process works. Plus, find out why an automated software solution can save the day!

Essential Terms for Every Pay-Per-Click Strategist

Before getting your feet wet, you first need to navigate the sea of PPC terminology. Familiarize yourself with these terms in advance – doing so will help you understand the advertising management process later on. Note that there are even more to discover, but these are the essentials:

• ACoS

Advertising cost of sale, which is a calculation of advertising spend divided by the attributed sales of products you promote. This is used to determine how your Amazon sponsored ad campaigns are performing, and whether you’re getting a strong enough return on investment.

• Ad Creative

The type of unique content used to market your products. This can include text copy, high-resolution imagery, spec sheets, videos, and more.

• Ad Placement

Where an ad is designed to appear, such as on page one, competitive product listing, a third-party site or on dedicated Amazon devices. 

• Attribution

A referral to a specific advertisement that led a customer to make a purchase. 

• Automatic Campaigns

An advertising campaign that utilizes keywords autonomously selected by Amazon. Bid pricing and budgeting can still be controlled in these circumstances. 

• Click

The action when a customer chooses to engage with your ad.

• Consumer Journey

Otherwise known as the consumer purchase or decision journey, this is simply the collective experience that a prospect has when browsing or shopping with your brand. 

• Conversion Rate

The average number of conversions per ad interaction, shown as a percentage.

• CPC

Cost per click. This is a calculation of an ad’s and keyword’s cost, divided by the number of clicks received.

• CPM

The average cost per 1,000 impressions.

• CTR

The ratio of clicks to impressions. 

• DSP

Otherwise known as demand side platform, this is amazon software used to help you implement a more effective digital advertising strategy. 

• Impressions

A calculation of how many users have seen an ad or specific product page.

• Keywords

Trending terms most commonly searched for by users. Implementing these can help your content reach more individuals. A critical component of Amazon PPC ad targeting.

• Keyword Matching

The process of matching keywords with specific types of searches. Keyword match types allow you to finetune which search queries your ads are eligible to show against.

• Keyword Bids

The highest amount you are comfortable paying to encourage users to click on an ad. This can be managed manually or automatically.

• Manual Campaigns

The manual selection of keywords and bids to target for specific ads. 

• Negative Keywords

Search terms that will prevent your ad from being generated by an exact word or phrase. When a user searches a negative keyword, your ad will not be displayed. This is also referred to as a negative match.

• Other SKU

A classification associated with a user who clicks on one listing but purchases another product of yours.

• PPC Spend

The amount you have invested in a specific keyword bid.

• Programmatic

This refers to the automated buying and selling process of product inventory. 

• Reach

A calculation of how many users are presented with the same ad.

• RoAS

Return on ad spend, used to calculate how effective your ad spend is. RoAS is a ratio of the sales generated by the ad vs how much was spent on the ad.

• Same SKU

A product purchased by a user after they access the listing through an ad.

• Self-Driving PPC Service

An automated, AI-assisted means of optimizing your Amazon PPC strategy. Useful for analyzing listing data to revise keyword bidding strategies and boosting engagement.

• Total Advertising Cost of Sale (TACoS)

Percentage of ad spend against total revenue. TACoS is a good indicator of how your ad spend impacts your overall revenue. 

Why Focus on Amazon PPC?

Over 120 million consumers shop on Amazon on a monthly basis because it is simple, approachable and offers anything they could want, from new laptops to that elusive brand of shampoo that no brick-and-mortar store ever has in their area. In fact, Forbes recently highlighted a survey showing that more than 58 percent of shoppers buy products on Amazon at least once every few weeks, and 18 percent of shoppers place an order online at least a few times a week. Conversion rates are therefore much higher than via other advertising outlets such as Google or Facebook Ads. This largely happens because people on Amazon are actively looking for products – they’re on there to browse and shop – while on social media or otherwise, they may treat ads as intrusive or an annoyance.

Amazon therefore isn’t going to lose its massive user base, even with ads festooned everywhere. If anything, your ad campaigns make it clear that there are other, possibly more affordable options out there. The user experience doesn’t suffer at the hands of Amazon ads unless they link to poor-quality products or listings that aren’t very engaging. However, that’s where your own quality assurance comes into play. Know what you really have before you start a campaign, then let the product do the talking via compelling listing copy with natural keyword insertions (more on the keyword process later in this guide).

Types of Amazon PPC Ads

Now that you’ve soaked up some of the terminology, let’s move onto the three types of advertising models available to Amazon merchants. Take a look at each and see which best aligns with your desired focus. 

Sponsored Products

These are exactly what they sound like: advertisements for specific products that target specific keywords. It’s a great option  for special promotions, new product launches, or to gain more market share. 

As we know that Amazon has the shopper volume, it’s critical for merchants to be visible on page one, but why? When it comes to making a sale, 70 percent of consumers buy from page one and 64 percent buy from the first three products on page one. This makes the top of page one the place to be. So, how do you get there? Using sponsored ads! As you invest in them, your sales velocity will increase and, in turn, your organic rankings will improve. This is known as the “flywheel effect”. The bottom line is that investing in sponsored ads is critical to your success on Amazon. 

Sponsored Brands

Sponsored brand ads are an ideal way to promote your brand. Ads modelled in this way typically lead to landing or collection pages on Amazon. You can include a few products, a compelling headline to grab the attention of users, and the logo of the brand in question. This is a great solution for making shoppers aware of your brand including special deals on a range of your products.

Sponsored Display Ads

This option is only available to Amazon merchants, enabling them to send users who click the ad directly to a specific product listing. It’s useful in appealing to those who have narrowed their search and are interested in a certain product and/or feature set. These ads are more likely to show up if a user has been performing a lot of research on a specific type of item, such as a smartphone or gardening gloves.

Are You a Vendor, First-Party Seller or Third-Party Seller?

Being a “seller” is more complicated than people realize, as not everyone can simply put a brand’s items up for sale and take a bite out of their business. There are actually three types of merchants on Amazon: first and third-party sellers, then vendors.

First-Party Sellers

First-party (1P) selling is by invitation only; you can’t just sign up and become one. These companies act as manufacturers, selling products to Amazon directly. For shoppers, these items appear on the platform with the label “Ships from and sold by Amazon.com”. They use the Vendor Central web interface to manage listings and advertising.

Third-Party Sellers

Anyone can become a third-party seller (3P); no invitation is required and it’s easy to sign up. Amazon Marketplace is where you will find these merchants ranging from small start-ups to Fortune 500 brands looking to participate on Amazon marketplaces. 3P sellers can have their products shipped to Amazon warehouses and become eligible for Fulfilled by Amazon (FBA) and Amazon Prime, which allows them to attract shoppers just like 1P vendors. 3P sellers can also choose to ship their own products using Fulfilled by Merchant (FBM), these listings do not quality for “Shipped by Amazon” and typically do not get “Amazon Prime” tags. Most of the management of listings and advertisements is done through Amazon Seller Central.

Vendors

Amazon vendors are established first-party sellers – the large brands that manage their own listings, which usually carry the “ships from and sold by Amazon” distinction. They use the Vendor Central interface for managing their listings and ad campaigns. You need to either be invited as a first-party seller or apply online in order to become one.

What About Selling a Vendor’s Items?

In addition, some sellers can offer products manufactured by vendors in their listings, giving both companies a chance to share the spotlight. This is where the Buy Box comes into play. Smaller companies often do this to improve their reputation and accumulate positive reviews; happy customers may keep coming back to the seller and vendor. This is especially useful for subscription-based purchases that recur, such as for cleaning products. To do this, the seller has to obtain approval to sell a vendor’s items.

Some other points to consider when comparing sellers to vendors:

Sellers:

• Have full control over all aspects of their listings and inventory shipments, which can also mean higher profit margins and greater flexibility
• Can create advertisements via Seller Central
• Can utilize keyword-level ad targeting processes

Vendors:

• Sell items in wholesale (bulk) quantities to Amazon, who then markets them under their own brand (though your brand will still be mentioned in the listings)
• Must adhere to Amazon’s standard pricing terms; this can lower profit margins, but you may move more product in general
• Have the ability to target ads at the keyword, interest and product level
• Create ads via Amazon Vendor Central

Keyword Bidding and Optimization for Sponsored Ads

Why Do Keywords Matter?

If you have the right keywords naturally inserted in your listing content and product names (so they flow nicely with other text and don’t feel spammy to users), Amazon’s search algorithms will match your listings to relevant search terms. It’s a great way to get into the mindset of other users instead of other companies!

As an example, let’s say that you sell gaming laptops with OLED displays in common sizes. Using the term “14-inch OLED gaming laptop” is going to draw more users searching for such specific products than simply “14-inch laptop” ever could. Why? Because every computer manufacturer makes laptops, which means you have a lot of competition already on Amazon. You need the product to have its own voice. This is why keywords not only matter, but proper keyword discovery and utilization is critical to increasing conversions. 

This is where bidding comes into play, which involves securing the most relevant and sought-after keywords for the best possible price. Combined with compelling, insightful content that engages the right audience, your chances of accumulating more interest will increase. We’ll dig further into the art of keyword bidding a little later on.

Aren’t Search Terms the Same Thing?

Search terms are what a user enters in the search field when they’re looking for something specific. Keywords are words or phrases inserted in your content to match these terms as closely as possible. The most sought-after keywords tend to match multiple search terms, giving you a chance to draw even more eyes to your listings. It’s important to note that not only do these tend to generate more volume but they also cost more per click. 

Of course, your keywords don’t always have to be a perfect, precise match to the term itself – this would limit how you can market yourself. There are three ways keyword insertions can be optimized for specific matching methods:

• Broad matches contain the keyword in any order, allowing for the flipping of words as opposed to how the search term reads.
• Phrase matches contain the keyword in identical order. For example, if a user is searching for women’s cardigans, you can’t flip the wording around to be “cardigan for women”
• Exact matches mean that your keyword, even if it’s a series of words, must identically match that of the search term. 

What is the Point of Keyword Bidding?

Sneaking in phrases that match relevant search terms is not enough; your keywords need to be competitive. We can identify how much so through the bidding process.

Amazon generates sales by showing ads that make sense for shoppers and their search histories. For this reason, it’s important to bid on keywords that are relevant to your product. Amazon’s bidding algorithm is similar to an auction, used to get the best prices on the most lucrative keywords. Sellers who make the highest bid and utilize the keyword in question then get their listings bumped up in search results. How it differs from a standard auction is that you actually pay the second-highest bid price, not yours. 

However, the worst thing you can do is go all-in and bid large amounts for every keyword – don’t forget, PPC means pay per click! If you have the wrong shoppers drawn to your listings, this will drastically increase your cost per click (CPC) and advertising cost of sale (ACoS), which means lower profits and more headaches when it comes to optimizations. In order for your PPC efforts to succeed, you need to be strategic. Let data decide what keywords are effective and bid only what you can realistically afford.

The ABCs of Generating Profit Via Amazon PPC Campaigns

If you’re spending more than you’re taking in, then your campaign can be a real money sink. Monitoring what you’re spending on every keyword and listing, and subsequently, your ACoS is critical to a well-optimized and cost-effective sponsored ad campaign. Combined with order volume, it’s how you’ll get the best possible return on ad spend (RoAS). Organic sales are also key to generating profit via Amazon PPC campaigns, achieved through the winning combination of sponsored ads and strong Amazon SEO with engaging content, reviews, sales velocity, and more. 

So, you need to lower ACoS and raise RoAS. Sounds simple enough, right? Veering below the RoAS costs you money but driving the ACoS lower does the opposite. Without this balance, you won’t be generating enough income from Amazon sales. To calculate this break-even point, we need the following data:

• Your current revenue
• All expenses leading to a product listing and sale
• Profit margin per product sale

A: Figuring Out Your Profit Margin

Before figuring out your ACoS, you need to determine what your profit margins are. This is done by deducting all costs (manufacturing, shipping, referral fees – anything to do with your product and listing) from the price you have in your listing. So, if you’re selling an easel for $300 and your costs per unit come to $225 each, your profit margin for that product is at 25 percent per unit sold. 

B: Calculating Break-Even ACoS

With this data, figuring out the break-even point is easy. If your advertising cost of every sale doesn’t exceed your per-sale profit margin (25 percent in our case), you’ll be generating a profit. That’s why it’s important that sellers drive their ACoS down as much as possible.

C: Determining Target ACoS

With steps A and B out of the way, continuing with our easel example, let’s make sure that you can actually sustain profitability in the long run by keeping the product listing and ad campaign active. First, you need to figure out just how much profit you want to get from every sale after factoring in ACoS.

Let’s say that you want to pocket at least 15 percent. If so, factoring in the 25 percent profit margin per easel sold, you can only allocate up to 10 percent towards your advertising cost of sale.

Efficiently Optimize to Effectively Strategize

To recap, what you need to do is spend as little as possible on keywords that generate sales while ranking higher in relevant search results. This allows you to engage a wider audience without paying an arm and a leg, resulting in a lower cost per click (CPC). That lower CPC translates to a lower advertising cost for every sale, which is why you need high-quality products and listing content to compel users to purchase. 

Where it’s not so simple is when it comes to managing multiple products or campaigns. You need to repeat this entire process, from keyword discovery and bidding to ACoS calculations, for each individual product listing. Only then can your campaigns be efficiently optimized. 

Another key point to note is that once your sponsored ads are up and running, it’s highly recommended that you keep the momentum going. When you stop running your sponsored ads, your current position is put at risk, and you may experience a drop in sales that can be hard to come back from. Should you be low on inventory and are considering stopping your sponsored ads, a better solution would be to reduce bids as opposed to completely pausing your campaign. 

Automation Saves the Day

We’ve only scratched the surface of the Amazon PPC landscape here, but beginners are off to a great start by consulting this walkthrough of the fundamentals. The continued success of your sponsored ad campaigns is in your hands via further education and practice – but you also don’t have to guess at which optimizations to make or stress over whether you’re making the smartest calls. In fact, solutions exist that can do this work for you! Self-driving software like Trellis can literally save the day – and tomorrow – by autonomously discovering keywords, setting up ad campaigns, and performing bid and budget management without any manual intervention. Think of it as PPC on autopilot! 

Start Your Trellis Journey. Explore Our Amazon PPC Solutions and book a free demo!