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Amazon Advertising Guide to Sponsored Product Ads

Amazon Sponsored Products Overview

Amazon is becoming increasingly saturated and competitive, and so too is the importance of Amazon advertising. There are a variety of ways companies can advertise on Amazon, including Sponsored Product Ads, Sponsored Brand Ads, Sponsored Brand Video Ads, Sponsored Display Ads, and Amazon Demand Side Platform (DSP). Each plays an important role in a brand’s Amazon success.

Kaspien’s Digital Marketing Manager, Jeremy Rossow, stressed the importance of Amazon ads:

Having a sponsored ads strategy on Amazon has become an absolute necessity for brands to be successful on the platform. Brands should view advertising in the same way they view inventory management and listing optimization: it’s a must for continued sales and growth on Amazon.

When starting your advertising campaign, determining which types of ads would be the most beneficial for you can be confusing. Generally, Sponsored Product Ads are a great place to start.

What are Amazon Sponsored Product Ads?

Amazon’s Sponsored Product Ads are likely a familiar sight to those who frequent the marketplace. These types of ads appear in many places throughout the SERP (nine times to be exact) and look like regular listings. The only difference between these listings and non-sponsored listings is that these have the word “Sponsored” located near the lower left corner of the product photo.

Amazon Sponsored Product Example

The resemblance to a normal listing can decrease buyer hesitation. Sometimes, consumers are hesitant to engage with advertisements as they can seem ingenuine or forced. A study done by the American Association of Advertising Agencies showed that 96% of consumers don’t trust advertisers — which also means they don’t trust the ads they produce.

However, this study was not specific to Amazon, and that’s important. When consumers are going about their daily lives, it makes sense that receiving an ad can be intrusive. But, when consumers are on Amazon, they are looking to buy, or at the very least considering a purchase for the future. That shift in headspace is key, and a big reason why Sponsored Product Ads perform so well. In the last twelve months, Kaspien’s Sponsored Product Ads have averaged an 11% conversion rate!

How Amazon Sponsored Product Ads Work

Sponsored Product Ads work in a similar fashion to other forms of advertising on Amazon: They run on Amazon’s PPC (pay-per-click) model. This allows brands to pay only for the ads that are clicked on, which is extremely beneficial for companies as they are not paying for ad campaigns that are unsuccessful in boosting recognition or revenue.

Sponsored Product Ads also work on an auction model. Sellers bid on specific keywords, telling Amazon that if a shopper searches “____,” they are willing to pay X dollars or cents for their ad to appear on the SERP.

When setting up their campaign, sellers specify the greatest amount they would be willing to pay to be featured as a Sponsored Product for the specified keyword. As various sellers bid on keywords, Amazon assesses the bids in order to determine who wins the auction. Amazon’s algorithm considers product rank, product ratings, customer reviews, product relevancy, and various other attributes to make the decision. Amazon charges the winner of the auction only $0.01 more than the second highest bidder. For example, if the highest bidder bid $1.00 and the second highest bid $0.55, the winner would only pay $0.56.

What are Good Performance Metrics for Sponsored Product Ads?

When implementing a Sponsored Product Ad campaign, it is important to keep your ideal metrics in mind. Key performance indicators include:

Click-through-Rate (CTR)

The CTR is an extremely important KPI, as it measures your ad’s effectiveness with the target audience. To calculate, divide the number of ad clicks by the impressions that it received on the SERP (clicks/impressions). If your CTR is low, it indicates that your ad is either targeting a non-ideal audience or the audience is not intrigued enough by your product.

To improve CTR, you may need to adjust which keywords you’re targeting and/or update your listing title and image, since the title and image appear in the ad. Finally, you may need to consider pricing and reviews. If your product is priced too high or has few or poor reviews, that can also impact CTR.

Conversion Rate (CR)

Conversion rate measures your listing’s ability to attract Amazon users and convert them into customers. This metric is measured by dividing the number of orders you received by the number of clicks your listing got (orders/clicks). The result indicates how well your listing is optimized for converting shoppers who clicked your ad.

To increase your conversion rate, it may be a good idea to review your listing copy, work to increase positive reviews, alter your optimized keywords, or review your competitor tactics and respond appropriately. All these changes can make a big difference in your ability to convert more shoppers.

Return on Ad Spend (ROAS)

Return on ad spend shows how much revenue you received from an ad campaign vs how much you spent. It can be calculated by dividing your ad revenue by the ad spend (ad revenue/ad spend).

If your ROAS is not where you would like it to be, you may not be taking full advantage of the opportunities presented to you. To increase your ROAS, take advantage of Amazon promotions, optimize for less competitive keywords, or use exact match bids.

Advertising Cost of Sale (ACOS)

Advertising Cost of Sale measures how much you spent on advertising to obtain your product revenue. ACOS is the inverse of ROAS, though ACOS is used more often in the industry. This metric is calculated by dividing the amount you spent on advertising by the revenue you received from product sales. As a good rule of thumb, you will want your ACoS to be around 15-20%, though lower is better.

If your ACOS is too high, it suggests that your ads are not targeting ideal shoppers and/or, similar to conversion rate, that your listing is not optimized to convert shoppers after they click into your listing. Amazon ad costs are rising in 2021, but we’ve written a blog post about key ways to reduce Amazon ad costs without sacrificing sales.

Kaspien’s Advertising Performance Metrics

At Kaspien, our average 2020 metrics across all product categories included a CTR of 0.42%, a Conversion Rate of 10.48%, ROAS of 12.43, and an ACOS of 8.04%. Our digital marketing efforts boost total sales by 30% on average. If you are looking for help to increase your Amazon advertising performance, feel free to contact us!

Amazon Sponsored Product Ads Best Practices

Set Competitive Bids

For keywords that are long-tail and specific to your product, set aggressive and competitive bids. This will allow you to have a better chance against your competitors and will boost your chances of being featured. For keywords that are broader and more generic, we recommend you still bid, but at a lower value, as you’ll reach a broader and potentially less relevant audience with these keywords.

Keep a Close Eye on Trends

Shopper habits and trends ebb and flow easily, so it is vital to stay ahead of these trends and notice them as they are happening. Keep a close eye on trending keywords and adjust your ads and listing as needed. Just be careful not to make edits too frequently, as doing so means there isn’t enough time to collect data on how your previous edits impacted performance.

Do not “Set It and Forget It”

Shopper habits change, as do competitors’ ad strategies. Because of this, merely setting bids and leaving them will not work. Amazon is a dynamic and ever-shifting marketplace, so in order to maximize advertising profitability, you must regularly manage and optimize your ad campaigns.

Using these fundamentals leads to results like this (read the full JumpOff Jo case study here):

Amazon Advertising Performance Graph

Learn the Best Way to Structure Ad Campaigns

Download the free eBook: Architecting Amazon Sponsored Ad Campaigns.

Amazon ad architecture eBook

Requirements for Amazon Sponsored Product Ads

Comply with Amazon’s General Guidelines

To create Sponsored Product Ads, sellers must comply with a list of guidelines and requirements set out by Amazon. Fortunately, these guidelines are quite easy to meet. They include:

  • Content must be suitable for a general audience
  • Content must accurately depict advertised product with correct information
  • Only advertise products you have the right to advertise as you are the registered seller or brand itself

Amazon also has a list of prohibited content for Sponsored Product Ads. This content is restricted for a variety of reasons, from trademarks to the glorification of harmful activities. Some of this prohibited content includes:

  • Amazon Trademarked products or services
  • Content that promotes drug use
  • Culturally inappropriate content
  • Content that promotes dangerous activities

Amazon also prohibits certain types of photos and videos to be used within their Sponsored Product Ads. These visuals include:

  • Content of weapons that are threatening, gruesome, directed, or associated with a minor
  • Visible intimate body parts
  • Sexual content

For a full list of Amazon Sponsored Product Ads prohibited content, hop over to their website for the full list!

If you are looking for a place to start your Amazon Advertising campaign, then Sponsored Products are likely an advantageous option for you and your company. They are a great option and prove to be beneficial to companies of all sizes!

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