How to create a sustainable Amazon advertising campaign

Running an Amazon ads campaign is exciting. Working to get a low ad-cost-of-sale (ACoS) and high sales is a challenging but rewarding task. We can speak to this with some authority. Kaspien has been doing this with our Amazon sponsored products for 12 years, and we’ve become quite adept along the way.

In 2019, Kaspien generated over $1.5MM in ad sales at a hyper-sustainable ACoS of 6% for our high-opportunity products campaigns using Kaspien AdManager, our proprietary Amazon ad management software. Over its lifetime, AdManager has generated over $50MM at a 10% ACoS for our partners.

In this post, we dive into how you too can create a hyper-sustainable pay-per-click (PPC) ad campaign. 

Incremental Sales – At What Cost? 

Let’s say your product has a gross margin of 40% after manufacturing and shipping costs. Then you list it on Amazon, leaving you with a margin of 20% after FBA fees. What amount of that remaining 20% margin are you willing to spend on marketing1, 2, maybe even 5%? Put simply, what is the maximum ACoS you can commit to?  

Once you have your maximum ACoS selected, you can start creating ad campaigns. If you structure your campaigns in a way that allows granular insights, you can actually create an always on, sustainable marketing campaign 

In theory, the more efficient your ad campaigns are, the more you’ll be able to contribute additional dollars to fuel the fireUsing the below graph as an example, let’s say your campaigns are performing with an average ACoS of 25% and you’ve spent your entire monthly budget, but there are still 10 days left in the month 

how to create sustainable Amazon advertising

You could pause all of your campaigns, which is what most brands do. Or, if you’ve structured your campaign architecture in a nuanced way, you could selectively pause different campaigns or ad groupsmaintaining the most sustainable keywords to maximize profitability. For example, if we divide our graph into different sections based on sustainability (indicated by the red lines), you could continue running ad groups for keywords that fall within the hyper-sustainable range of sections 1 and 2, while pausing keywords that fall in 3 through 7By doing so, you increase sales while minimally increasing spend 

how to create sustainable Amazon advertising

How to Create a Self-Sustaining Ad Budget 

The ability to make these strategic adjustments and create a truly sustainable marketing campaign is dependent primarily on your margins and how you structure your ad campaigns. Here’s how to get started: 

  1. Determine Your Product Margin 

Margins are shaped by many factors, such as labor costs, FBA fees, production costs, etc. Margin generally remains fixed, although factors such as tariffs or updates to Amazon’s fees can impact them. 

  1. Create a Strategy Around Your Margins

Once you understand your margin constraints, you can build a strategy around them.  

One way to do this is to ask yourself, “Where do I want my brand to be in five years?” Set an ambitious goal to aspire to. Once you set your long-term goal, you can set about the process of creating short-term objectives that will get you there.  

With an ambitious goal, you need to be able to measure your progress. That requires good reporting. What metrics do you need to track in order to discern whether you’re trending toward your objectives? For example, keeping track of marketing spend by product will allow you to see exactly what your ROI is by product.  

Another key factor in good reporting is the ability to isolate variables. Your marketing and sales performance does not exist in a self-contained environment. Countless factors can influence their performance, and your reporting needs to take that into consideration. If you don’t, you risk making decisions based on an incomplete understanding, and that may do more harm than good.  

  1. Create a Nuanced Campaign Structure 

Now, campaign structure is technically part of strategy, but it’s so important that it’s getting its own section. How you structure your ad campaigns on Amazon will influence how granular your reporting and optimizations can be, which directly affects your ability to improve strategy. You need a campaign structure that is conducive to reporting.  

We’ve seen great success in structuring campaigns with one product per ad group, enabling us to see insights and make adjustments at a product level.  

Poor architecture doesn’t mean poor performance, but it does mean poor insights. A poor campaign structure is like a firing a shotgun at a target. You can still hit the board, but it’s sloppy and wasteful. A well-structured campaign is much more precise and efficient, hitting near the bullseye and then making careful adjustments to improve every time. 

The Brass Tacks 

To be clear, we’re not advocating for an unlimited marketing budget across your entire product line, but there are product lines with enough margin and velocity that a self-sustaining budget is entirely possible. 

This isn’t a get rich quick scenario, and it’s not really going to be unlimitedNaturally, your products, regardless of the bid and daily budget, have a natural cap on the amount of clicks Amazon customers are going to execute in a day. If you’re in a hightraffic category, your clicks per day could be astronomical. If you’re in a niche category, you may see clicks in the single digits each day. However, if ACoS for your product ad was 1%, wouldn’t you spend there? 

Hopefully yes, and hopefully yes 100% of the time (barring end of life products sold at a loss, but there’s a good argument there as well). 

Ideally, implementing this strategy doesn’t involve you downloading and juggling a mess of spreadsheets every day because you use the exceptional Amazon marketing software we developed, but if it does, you’re still well on your way to leveling up your Amazon advertising efforts. 

Amazon Keyword Analysis for Sponsored Product Ads

As a search marketer, it’s critical that you understand how each individual keyword is performing, and one key indicator of performance is keyword distribution. By graphing your keyword distribution, you can discern if your bank of keywords is too narrow or too broad, helping you refine your Amazon marketing strategy. Two statistics that are particularly important for Sponsored Product and Sponsored Brand keyword analysis are Skewness and Kurtosis. 

SKEWNESS 

Skewness is a measure of symmetry or the lack thereof. A symmetrical distribution will give you that much sought-after bell curve. A perfect bell curve shows that your keyword pool includes a good balance of investment keywords – keywords that are more expensive than desired now, but are important to your strategy and are likely to return a profit in the long-term – and highly efficient keywords that keep your campaigns profitable (enabling you to sustain the investment keywords). If your keyword distribution shows a bell curve and your target advertising cost of sale (ACoS) is equal to the campaign’s average ACoS, you’ve nailed it.

A deviation from this bell curve symmetry indicates that your campaign is under-optimized, and should drive revisions in your strategy. The keyword distribution – skewed to the left or skewed to the right – can be used to understand how exactly your strategy should be adjusted.

Left-Skewed 

Left Skewed Distribution

A distribution skewed to the left (negative skewed distribution) indicates a majority of keywords are performing above the average ACoS; your campaign is spending too much per conversion. When your target ACoS is below the campaign’s average ACoS, you can make optimizations to improve the efficiency of ad spend, but it may come at the cost of total sales. This occurs because the optimizations will bid down the poor performing keywords (those driving up spend) until the bids are no longer competitive. It restores your target ACoS, but leaves you with a small pool of keywords.

If you can justify keeping the high ACoS keywords, leverage inbound marketing services like paid social and influencer marketing to drive traffic to those keywords. A social ad may refer to your product with a specific, high-ACoS term, for example. As more consumers see the ad, more will use that specific term to search for it. In this way, your inbound marketing efforts can help build relevancy and lower the keyword cost.  

 Right-Skewed 

right-skewed-distribution

A distribution skewed to the right (positive skewed distribution) indicates a majority of keywords are performing below the average ACoS. In other words, the majority of keywords are operating at an efficient ACoS, but are driving few conversions.

If you are consistently winning auctions on these keywords and not running into budget issues, you can use a similar tactic as mentioned above, leveraging off-Amazon marketing to drive additional traffic to these keywords to boost sales volume for those keywords.  

KURTOSIS 

Kurtosis is a measure of heavy or lighttailed distribution within a data set. Data with heavy tails indicate the presence of outliers. Conversely, a lighttailed distribution indicates the lack of outliers.  

Light-tailed Distribution 

Kurtosis light-tailed distribution

A lighttailed keyword distribution represents a very targeted keyword mix. This may indicate missed opportunities because your current keyword selection is too refined. To correct this issue, add a greater variety of keywords in your campaign. This widens your net, helping you capture more sales, although it may increase your ACoS. This strategy works best when in conjunction with off-Amazon marketing, for the aforementioned reasons. 

Heavy-tailed Distribution 

Kurtosis-heavy-tailed-distribution

A heavytailed distribution represents a broad keyword mix with a significant number of outliersIn other words, you’ve cast too wide a net. These outliers spread your budget too thin and detract from campaign performance.  

To resolve this issue, you need to identify the most egregious outliersIf they happen to be terms that you consider highly relevant to your product, don’t cut them from your ad campaigns. Instead, use social media marketing and influencer marketing to drive external traffic to these terms and build up their relevancy. If the terms are not highly relevant to your product, cut em loose.  

SIMPLIFY THE PROCESS  

Using these two measurements of keyword distribution will help you better understand and improve your Sponsored Product and Sponsored Brand campaigns. However, repeating this process for multiple campaigns quickly becomes time-intensive and tedious, especially as you repeat it on a monthly, weekly, or daily basis.  

To simplify the process, you have two options:  

Excel Plugin 

Use the Data Analysis ToolPak in Excel. This plugin is a fantastic tool for users who spend some of their time managing ad campaigns in Excel. The plugin does enables you to effortlessly create summary statistics which includes skewness and kurtosis.

Instructions for installation can be found here.

Ad Management Software

Excel may not cut it for users who are managing many campaigns, dealing with large budgets, spending hours in Excel even with the plugin, or are generally looking to further professionalize their operation.

If that’s the case, it’s time to invest in a dedicated ad management tool. Kaspien began as a third-party seller in 2008, and we’ve gone through the full process of using increasingly massive and complicated Excel spreadsheets and macros to optimize our Sponsored Product campaigns. Eventually, we outgrew Excel. Literally. So, our engineers set to work  on creating a custom solution. Over three years in the making, we’ve built and refined Kaspien AdManager until it became a search marketer’s dream tool. With AdManager, we’ve achieved: 

  • 10% avg. ACoS and 10:1 avg. ROAS on over $50MM in ad spend 
  • Generated 30% sales growth on Amazon for retail and agency partners 
  • Reduced ACoS by 50% for key partners  

AdManager is currently available as a managed service, where our experts use the software to manage your ad campaigns for you. A self-service model will be released in March 2020 for users who want to handle the process entirely themselves.  

Join the AdManager waitlist to receive a free 30-day trial when AdManager launches, as well as emails about product features, case studies, and strategic advice.