The 3 Most Misunderstood Principles of PPC Advertising on Amazon

By Buy Box Experts on January 10, 2020

One of the most underutilized and misunderstood tools on Amazon is pay-per-click (PPC) advertising. Just about every seller knows they need to be spending money on advertising their products, but many of those sellers don’t understand the basic principles that will help their advertising efforts succeed. They don’t know what keywords are most important to bid for in their PPC campaigns or how many keywords they should be bidding on. Many sellers don’t know how much to spend on a given product, whether they should turn on dynamic bidding, or even what type of PPC campaigns they should be running.

Here’s the thing: PPC is a recipe that calls for just the right amount of each ingredient or it can go sour in a hurry. The recipe isn’t the same in every instance either, which can make it a tricky dish to get correct every time. However, there are 3 guiding principles that, when properly understood and implemented, will help you be more successful with your ad spend on Amazon. 

PPC Principle #1: Amazon’s Algorithm Rewards PPC Spend

Amazon makes money off of your PPC spend. So the algorithm was naturally created to incentivize you to spend more on PPC. This means that the more traffic and subsequent sales you drive to your listings via PPC, the bigger the boost will be to your Best Sellers Rank (BSR) in that category, and the bigger the boost to your individual keywords that led to those sales.

Amazon’s algorithm is also a decaying algorithm. This means that if you aren’t getting traffic and sales then your BSR will drop, as will the keyword rankings attached to your listing. This means that to be successful on Amazon, you need to spend. The phrase “it takes money to make money” is truer on Amazon than at any other time in history. (That might be hyperbole, but you get the point.) Just remember that at some point as you increase your spend you will hit a point of diminishing returns. Your goal is to find the sweet spot above outbidding your competition and boosting your BSR but below the point of diminishing returns. This will take a fair amount of trial and error as well as market research in order to find the exact point you should be spending for each product. 

Principle #2: You Win Search by Dominating a Few Top Keywords

Now that you know how important it is to outspend the competition, you need to know which keywords are most relevant to win for your listing. There are a number of sources you can use to research which keywords are most likely to get you the most sales. Using third-party software such as Helium 10 or Merchant Words is a good start. That data, cross-analyzed with keyword data from the Brand Analytics section in your Seller Central dashboard, can help you identify which keywords have the highest likelihood to boost your BSR and pull up your other keyword rankings. If you can win the top keywords—the most relevant and highly searched for your category—that success will naturally pull up the rankings of your other keywords and will help your products show up higher in search results for all of your keywords. Most sellers miss the mark here and use too much of a “shotgun” approach to keyword strategy and spread their spend too thin on every related keyword known to man when most of the sales in their category are actually coming from a few top keywords. 

Principle #3: ACOS Doesn’t Tell the Whole Story

Before you even create your first campaign, you should probably know what metric will help you the most in your journey for the perfect PPC recipe. Most sellers use the metric Advertising Cost of Sales (ACoS, defined as PPC spend ÷ PPC sales) to calculate the efficiency of their PPC campaigns. But ACoS only tells a part of the story—and it can seriously damage your overall performance on Amazon if you rely solely on this metric.

On Amazon, more so than any other e-commerce channel, PPC spend is tied directly to organic sales, not just PPC sales. This is because PPC spend provides a boost in BSR and in the hundreds of a given listing’s keyword rankings. The higher your PPC spend, the more likely your listing is to get organic sales down the road, which means it’s preferable to measure PPC spend as correlated to organic sales. We call this metric Total ACoS (PPC spend ÷ overall sales). You can use Total ACoS to determine how your spend is affecting your PPC sales and your organic sales, and better understand your advertising performance on Amazon.

(Learn much more about why looking only at ACoS may be hurting your Amazon business.)

Total ACoS isn’t the be-all, end-all metric, but it should be one of your main points of focus when analyzing PPC efficiency. You can also use total return on ad spend (Total ROAS), which is your total organic sales ÷ PPC spend. Total ROAS will also tell you the same story of how your PPC is affecting your overall organic sales. The point is to make sure your PPC metrics are taking into account the overall organic growth of your account because PPC directly affects your organic sales.

Put These Principles Into Action

Now that you know these three guiding principles to success with PPC, you should be better equipped to conquer any category on Amazon. There is much more to know than just these three principles, but they should be the foundation for all of your decision-making as you begin creating your next PPC campaign. If you need any help building and managing your PPC ads, we’re more than happy to help. The Buy Box Experts ad team has extensive experience with PPC and can help you improve your performance as a seller on Amazon, so send us a note.

Buy Box Experts
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