Amazon Advertising Optimization: Lower Amazon Advertising Costs and Increase Profits

Matt Clark

Gain a competitive advantage by lowering your Amazon Sponsored Ads costs while increasing profit: Cherie Yvette is a leading expert in Amazon advertising. She and Amazing teamed up to teach you Amazon advertising optimization and how to master Amazon Sponsored Ads.

In the third video of the free four-part training series, Cherie provides her insider tips for winning advertising “showdowns” with total domination, her tiered bidding strategy, and details on how to gain competitive advantage by lowering advertising costs while increasing profitability.

Cherie recommends that Amazon Sellers quickly optimize campaigns with max CPC, lower bids on keywords that aren’t profitable, pause keywords in campaigns that aren’t converted to sales in 10 clicks, segment best performing keywords into single keyword ad groups, and then bid for rank with those ad groups—shooting for the number one position in desktop and mobile.

WATCH TO LEARN HOW TO MANAGE AMAZON ADVERTISING COSTS AND QUICKLY OPTIMIZE SPONSORED ADS CAMPAIGNS

YOUR FREE DOWNLOAD: HOW TO SET UP TIERED BIDDING STRUCTURE AND DETERMINE KEYWORD-LEVEL MAX CPC

Jason Katzenback, co-founder of Amazing.com, interviews Cherie Yvette in part 3 of their 4-part, free training series that teaches sellers how to gain mastery over Amazon sponsored ads. In the third video, Cherie explains how sellers can eliminate their competition and manage their advertising cost to dominate their category. She also reveals how sellers can optimize their campaigns quickly, using a key metric she’s found to increase profitability: Your Max CPC.

During a six-month period, Cherie was able to help a client scale from $450k to $850k in sales a month. After that peak, they saw sales start to decline. Cherie reduced ad costs by $42,000 a month, lowered the client’s average CPC by a dollar, and hit her target ACOS goals. That change allowed the client to sell a little over $800k, maintain sales velocity, and keep their seller badge, all while lowering advertising costs.

Amazon Advertising Optimization

Sellers should never invest in keywords that aren’t profitable just because that’s what the competition is doing. When it comes to a bidding strategy, it’s important to start with an end in mind.

It’s important to force your competition to differentiate against your product, rather than compete with you head on. Your product and category look less interesting to aspiring entrepreneurs when you visibly raise the barrier of entry into your market.

When someone else is doing product research on Amazon before they begin, you want your dominance to intimidate them and force them to differentiate their product.

You can drive significant growth in your business by establishing yourself as a leader in your category through advertising. That status will allow you to consume market share and sales at a faster rate than competitors. You’ll establish yourself as a “Category Killer.”

The only three things you need to profitably optimize your Amazon advertising campaigns are:

Break-even CPA
Click-to-sale ratio
Max CPC

Breakeven CPA

The breakeven CPA is the price of an Amazon product, minus the cost of the goods sold. The amount leftover is what you pay to land a new customer. This is the money you have to invest in advertising. If your Amazon sale price was $24.99 and your cost of goods sold was $12.99, your max CPA should be $12.

Click to Sale Ratio

The click to sale ratio is the number of clicks it takes for a paid advertisement to convert to a sale. You can find the click to sale ratio by dividing average clicks by advertising orders. For example, if you paid for 120 clicks and 20 converted to orders, the click to sales ratio would be six. That means it takes six clicks on that keyword to convert a sale.

Max CPC

The max CPC is your golden metric. This metric slays ACOS and reduces it rapidly. It makes all the numbers in the campaign balance out. To find this, calculate the maximum that you can pay per click. You find that amount by dividing the max CPA by your click to sale ratio.

As long as you never let your click price exceed your max CPC, you’re going to break even on your advertising. For example, if you have a max CPA of $12 and a click to sale ratio of 6, your max CPC will be $2.

The way you leverage this formula is by capping your bids to lower your ACOS and reduce wasted ad spend. When you see a keyword costing more than your target ACOS in your campaign performance reports, lower the bid on that keyword and cap it. What happens over time as you manage your max CPC is a lowered ACOS.

While max CPC is good for reducing spend on keywords that aren’t profitable, you don’t want to set a max CPC on every keyword in your campaign. Max CPC should be used as a lever to lower ACOS on the keywords that cause trouble.

Winning with a Tiered Bidding Strategy

Cherie uses a tiered bidding strategy in her campaigns. Her first bidding tier is a bid-for-rank strategy. She sets her bids high and lets her CPC come out. She uses data to place small bets on keywords that might perform well, uncaps those bids, fights for rank, wins market share, and lets those bids stay completely uncapped. The uncapped bids drive velocity and sales on the most important keywords and any keywords that drive scale in the advertising campaign.

Her second bidding tier is the breakeven strategy reviewed above. In this tier, if there is a keyword that’s bleeding ACOS or doesn’t look good in the reports, she caps that bid to her max CPC to ensure she doesn’t waste any advertising dollars.

Her third bidding tier is very important to the bidding strategy. This tier is paused keywords. If she has keywords that aren’t converting to sales, she pauses them. She usually gives a keyword 10 clicks to convert a sale, maybe even 15. She looks through a couple times a week to find these keywords that are driving up click prices, but not converting sales.

Lower Ad Costs for a Competitive Advantage

It’s a huge competitive advantage to lower costs. When you focus your budget on the keywords that drive sales and profits using the bid-for-rank strategy, while capping non-profitable keywords, your advertising investment can deliver sustainable business growth.

If you already have active advertising campaigns, you are going to see big improvements when you implement the steps explained in her free training series.

Cherie encourages everyone to lower bids on keywords that aren’t profitable, pause keywords in campaigns that aren’t converted to sales in 10 clicks, segment best performing keywords into single keyword ad groups, and then bid for rank with those ad groups, shooting for the number one position in desktop and mobile.

DON’T FORGET YOUR FREE PDF DOWNLOAD ON HOW TO SET UP TIERED BIDDING STRUCTURE AND DETERMINE KEYWORD-LEVEL MAX CPC

Video Transcript: How Not To Lose Money On Sponsored Products… Learn The Simple Structure Responsible For Big Profits

Jason: Hi there, I’m Jason Katzenback.

Cherie: And I’m Cherie Yvette. Welcome back to the third video in our free training series, teaching you how to gain mastery over Amazon sponsored ads.

Jason: If you’ve not already watched the first two videos in these series, please stop this video and click the link above to watch those first. If you have already watched both video one and two, then please keep watching.

Cherie: So far in this series, we talked about the increasing competition on Amazon, and how that affects ad cost and how to rank your ad at the top.

Jason: We also talked about how to stay ahead of the constant algorithm changes, and how to structure your campaign for easier management.

Cherie: In today’s video, I’m gonna talk about how to manage your advertising cost to dominate your category so that no one will want to compete with your brand. I’m also going to teach you how to quickly optimize your campaigns, based on a metric that I’ve found to be the key metric to increasing profitability.

Jason: You’re gonna want to pay close attention and take notes, as most people aren’t doing this correctly, and this could very well be the strategy that you’ve been looking for to scale to the next level.

Cherie: This is the map of Tombstone in 1881, where the legendary O.K. Corral showdown took place between Wyatt Earp and the cowboys.

Cherie: There’s two ways to win a showdown on Amazon. The first is to be the most feared man in town, and when you establish your reputation, bad men avoid a confrontation with you in the first place. The second is to be deadly enough, that when you do engage in conflict, you’re the last one standing when the smoke clears. When it comes to winning a showdown on Amazon against your fiercest competitors, you want to take the long view, leveraging paid ads to lead the market.

Cherie: In today’s video, I’m gonna show you how to gain a competitive advantage by lowering your advertising cost and increasing your profitability.

Cherie: This is a screenshot from one of my client accounts, in May of this year. Now this client had several products that we’d been scaling successfully with advertising. And we went from about 450K to 850K total sales in a six month period. But in April and May, our profits started to decline. Now these are the same numbers in June, and the same exact campaign stats. I was able to reduce my ads spend by 42000 a month, and lower our average CPC by a dollar, and hit my target ACOS goals. The big win that I was able to do was maintain sales velocity and keep the best seller badge, lowering our advertising cost. We sold a little over 800K in the last 30 days.

Cherie: In the showdown, we want to be aggressive and capture market share, but we’re also gonna be strategic. We aren’t going to invest in keywords that aren’t profitable for our business, regardless of what our competition is doing. Wyatt Earp was without question the baddest man on the frontier. He was known among fellow lawmen as a man that had no quit in him. He was absolutely fearless. When you got in a confrontation with Wyatt Earp, you knew he was gonna finish it. We’re gonna take the same approach with our bidding strategy, we’re gonna start with the end in mind.

Cherie: Okay, so, you want to force your competition to differentiate against your product, rather than compete with you head on. When you visibly raise the barrier to entering your market with aggressive advertising, your product and category look less interesting to an aspiring entrepreneur. When someone is doing product research on Amazon, and looking for an opportunity, your market dominance will intimidate them, forcing them to differentiate their product to avoid competing with you directly.

Cherie: When you establish leadership in your category through advertising, you’ll drive significant growth in your business. You’ll be consuming market share and sales at a much faster pace than your closest competitors. This will in effect make you a “Category Killer”. There’s only three numbers that you need to optimize in your Amazon advertising campaigns for profitability. You need to understand what your Break Even CPA is, your Click to Sale ratio, and more importantly, we want to understand what your Max CPC is.

Cherie: Okay, so here’s the first number that you’re gonna tackle. Let’s start with our Break Even CPA. The Break Even CPA is the price of your product on Amazon, minus your cost of goods sold. What’s leftover is gonna be the amount that you can pay to acquire a new customer. So this is gonna be the money that you can invest in advertising to power your business growth. For an example, if your Amazon sale price was $24.99, and your cost of goods sold was $12.99, your Max CPA would be $12.

Cherie: Okay so now the second thing we’re gonna tackle is our Click to Sale ratio. This is the number of clicks that it takes you with paid advertising to convert a sale. It’s a basic formula. We’re gonna divide our advertising clicks by our advertising orders, and then you’re gonna know what that number is. So in the example, if you paid for 120 clicks, and you converted 20 to orders, your Click to Sale ratio would be six. In effect, it takes you six clicks on that keyword to convert a sale.

Cherie: Okay, third number is our Max CPC. This is the golden metric. This is the metric that slays ACOS and reduces it rapidly, and makes all the numbers in your campaigns balance out. You need to calculate the maximum that you can pay per click. Now this is done by dividing our max CPA by your Click to Sale ratio. So as long as you never let your click price exceed your max CPC, you’re always going to break even on your advertising. For example, with a $12 max CPA in the previous slide, and a Click to Sale ratio of 6, your max CPC will be $2.

Cherie: So the way you want to leverage this formula is you want to cap your bids to lower your ACOS and reduce your wasted ad spend. The key to make that happen, is when you see a keyword costing more than your target ACOS in your campaign performance reports, simply lower the bid on that keyword, and cap it. The result of this, when you manage to your max CPC, what’s gonna happen over time, is your campaigns, your ACOS is gonna go down. So the one thing to keep in mind is while max CPC is fantastic for reducing spend on keywords that aren’t profitable, we don’t want to set a max CPC on every keyword in our campaign. We only want to use it as a lever to lower ACOS on the keywords that are causing us trouble.

Cherie: So I use a tiered bidding strategy in my campaigns. I start, my first keywords are what we have reviewed in video one and two, right? I bid for rank. So my first bidding tier is a bid-for-rank strategy. I set my bids high, and I let my CPC come out. I put small bets on the keywords that I think are gonna perform for me, based on data, then I go ahead and uncap those bids, fight for rank, win market share, and then I let those bids stay completely uncapped. I’m not putting anything on the keyword, I’m not trimming it down in any way. So my uncapped bids drive velocity and drive sales on my most important keywords, and all of the keywords that drive scale in my advertising campaigns.

Cherie: And then my second bidding tier is a break even, which I just reviewed with you. At this point, if I have a keyword that’s bleeding ACOS or I have a keyword that doesn’t look good in the reports, I go ahead and cap that bid to my max CPC, to insure that it doesn’t waste any of my advertising dollars. And then the third tier, which is so important in your bidding strategy, is just to pause your keywords. When you have keywords coming through that aren’t converting to sales, I usually give a keyword about 10 clicks, 10 clicks to convert to a sale on my average account. And I may push it to 15 if I need to, but most of the time, I can see at 10 clicks if that keyword is gonna work in my campaigns to produce velocity.

Cherie: So keywords that don’t covert to sales, I absolutely pause, and I usually do that a couple times a week, just go through my campaigns and prune out the keywords that are driving up click prices but not converting to any sales.

Cherie: The key with lowering your costs is that it’s a huge competitive advantage in your business. By focusing your budget on the keywords that drive sales and profits, with a bid-for-rank strategy, and then capping your keywords that are not profitable, your advertising investment will deliver sustainable business growth.

Cherie: Okay, so this is our final video in this three part series on sponsored products. I’ve enjoyed sharing my strategies on ad-rank and campaign structure and CPC bidding with you. And the good news is that Amazon advertising is still in its early years, and most sellers are not leveraging the platform to its full potential. I’ve partnered with Amazing.com to teach a 12 week, live sponsored products boot camp, so look for emails from Jason this coming week to learn more about it.

Cherie: So my final takeaway. Since you probably know about sponsored product ads and if you’ve stayed to the end of this series, it’s most likely there’s a good chance that you already have active advertising campaigns. So if you’ve already invested money in advertising, you’re gonna see the biggest performance improvements if you do the steps in this video series in reverse. Three, two, one. So start out by lowering your bids on keywords that aren’t profitable. And pause all the keywords in your campaigns that haven’t converted to sales that have 10 or more clicks. Next, segment your best performing keywords from your search term report into single keyword ad groups, set to “Broaden phrase match.” Then bid for rank on those ad groups, shooting for the number one position in desktop and mobile.

Jason: Wow, Cherie. That was awesome. I’m sure that you’ve made a lot of gurus very angry with this.

Cherie: Thanks, Jason. I have no doubt that they’ll only be mad until they try it for themselves, and see the results. This information is absolutely incredible, which is why I want to remind everyone to make sure you download the training guide included under the video, that outlines exactly how to determine your max CPC at the keyword level.

Jason: We’ve covered a lot in this training series, but there’s a lot more you need to know in order to run successful, and most importantly, profitable Amazon advertising campaigns for your business. And as you’ve had the chance to see, Cherie is the person to learn from.

Cherie: In a few days, we’ll be releasing video four, and in this special video, we’ll tell you more about the brand new amazing showdown, where you will have the opportunity to learn directly from me how to gain complete mastery over Amazon sponsored products. You’ll get an insider’s view on the exact same strategies I used to achieve 3X business growth for my clients.

Jason: Make sure to download your guide, and remember to keep an eye out for an important email about the next video. Have a great day and we’ll talk to you soon.

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