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 marketing? 1, 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 fire. Using 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.
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 groups, maintaining 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 7. By doing so, you increase sales while minimally increasing spend.
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:
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.
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.
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 unlimited. Naturally, 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 high–traffic 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.