Everything you need to know about Amazon advertising, including the different types of ads, how much it costs and how to optimise campaign performance.
Amazon is the world’s largest online marketplace with more than half of all product searches now taking place on the platform. This means Google is no longer the top destination for product searches and Amazon now has the visitor clout to build an advertising network that could fracture the duopoly of Google and Facebook.
Amazon’s ad network is growing at a much faster rate than the top two, as well, and the eCommerce giant has benefited greatly from the post-Covid surge in online shopping. The company reported a 37% YoY sales increase in Q3 2020, cementing its position as the go-to platform for online product purchases.
So, if you’re not already advertising on Amazon Ads, now is a good time to take a closer look at the platform.
Types of Amazon ads
The company has heavily expanded its ad products over the past couple of years so, even if you’ve taken a look at Amazon Ads before, you may not have seen some of these ad formats before.
In many ways, these are similar to text ads in Google Ads, appearing above the top of search results on Amazon or in between the results themselves. You choose which products you want to advertise, bid on three different types of keywords (broad, phrase and exact) and your ads will show with a small ‘sponsored’ tag.
Sponsored Product Ads are quick to set up, require very little maintenance and get your ads seen by people actively searching for the kind of products you sell. When a user clicks on your ad, they’re taken to the product detail page and you can target these users with remarketing ads if they don’t buy from the first viewing.
While Sponsored Product ads look almost identical to regular Amazon product listings, Sponsored Brands include your logo, a custom headline and up to three products.
Naturally, these campaigns are most effective for companies with a strong brand image and they’re great for targeting broader searches, too. For example, a company selling consumer electronics goods can create Sponsored Brands campaigns for category types, such as headphones and TVs, featuring their top three products in each category and target users who aren’t yet looking for specific products by name.
Sponsored Display Ads show across Amazon and third-party sites, much in the same way Google Display Ads do. They allow you to reach users across the entire customer journey and this is also the ad format your Amazon remarketing campaigns will use.
One thing that makes Amazon’s Sponsored Display Ads different from Google’s is that you can use them to get your products seen on similar or complementary product pages. So you can target someone looking to upgrade their computer’s graphics card with ads for a nice, new 4K monitor to go with it – or even one of your own graphics cards to steal the sale from a direct rival.
Amazon Video Ads provide the opportunity to advertise your brand across Amazon, Amazon Prime, subsidiaries like IMDb, devices like Fire TV and third-party websites.
The really interesting thing about Amazon Video Ads is that you don’t have to sell products on Amazon to buy them. So you can target audiences on platforms like Amazon Prime and show video ads to them as they browse for entertainment, which opens up a unique advertising opportunity that you might not expect to find on a marketplace like Amazon.
Audio Ads (beta)
At the time of writing, Audio Ads are still in the beta stage but they should be available to all advertisers soon. This ad format is designed to help brands engage audiences during “screen-free moments” in the home, at work or out and about.
The ads are delivered through the free version of Amazon Music, which is popular on Alexa-enabled devices, such as Echo and Fire TV.
How does advertising work on Amazon?
In terms of creating and managing advertising campaigns, Amazon Ads isn’t all that different from Google Ads. Amazon is a search engine itself and Promoted Products basically function in the same way text ads do in Google Search.
So the process is, more or less, the same: you create your ad, define your keywords and set your bids.
Once a user types in your target keyword, your ad enters into Amazon’s auction and you compete against the other advertisers bidding on the same keyword. Much like Google Ads, having the highest bid on a keyword gives you the best chance of winning the auction but it’s not the only factor Amazon considers.
Amazon doesn’t publicly state which factors weigh into its auction algorithm but these are the key ingredients we’ve identified:
- Max bid amount: The maximum bid you’ve set for the keyword in question.
- Ad Quality Score: A multifaceted calculation Amazon runs to determine the quality of your ad campaign – including relevance, reviews, shipping speed and a range of other factors.
- Ad Rank score: A score calculated by multiplying your max bid by your Ad Quality Score (Ad Rank = max bid X Quality Score).
- CPC calculation: How much you’re expected to pay per click, based on Amazon’s calculations.
Much like Google Ads, setting the highest bid doesn’t necessarily mean you win the auction and the ad showing in position one doesn’t always pay the highest CPC. Once again, if you’re already used to managing campaigns on Google Ads, you’re in a good position to optimise your Amazon campaigns for the best performance, looking at the quality of your product pages, relevance of your keywords and the effectiveness of your bid optimisation strategy.
The good news is, it’s generally easier to optimise Amazon campaigns because everything takes place within the platform. When you’re advertising on Google, the performance of your website, the quality of your hosting service and a wide range of other factors – some of which you can’t identify within the Google Ads interface – can hurt campaign performance.
This is less of an issue with Amazon Ads because the customer journey begins and ends on the platform.
However, the biggest benefit of advertising on Amazon is that users go there to buy products. This is the only purpose of Amazon, meaning your ads are seen by people who are ready to pull the trigger on their next purchase. This is why ROI from Amazon campaigns is so high with 59% of brands selling on Amazon saying the platform generates their highest return on media spend of all platforms.
That’s a telling statistic but it shouldn’t come as a major surprise, given the purchase intent that’s inherent in Amazon users. There are downsides to this too though. For example, Amazon isn’t the best platform for building brand awareness or capturing leads at earlier stages of the sales funnel and you don’t get the opportunity to bring visitors to your website.
In terms of ROI vs CPCs, though, Amazon is storming ahead of the other advertising platforms.
How much does Amazon advertising cost?
If Amazon generates the highest return on investment among the major advertising platforms, how much does it cost to get in on the action? Well, the first metric you might want to look at for this is the average CPC (cost per click) and, depending on where you get your data from, the average Amazon CPC in 2020 ranges from around $0.70 to $0.81, which translates to less than 60p in local money.
So the idea that Amazon CPCs are cheaper than Google’s is a little misleading. Likewise, Google Shopping boasts the better average click-through rates at 1.25% vs Amazon’s 0.41%.
However, Amazon pulls well into the lead with one of the KPIs that matters most: conversion rates. While Google Shopping tallies an impressive 1.91% average conversion rate, Amazon offers its advertisers an unrivalled average conversion rate of 10% vs the industry average of 1.33%.
This explains why Amazon advertisers report such impressive ROIs and highlight the value of its users who are already in shopping mode when they see your ads.
That being said, there is an extra expense that comes with advertising on Amazon Ads that we need to mention. When you sell a product through Google Shopping, you pay for the click and nothing else. However, when you sell a product through Amazon Ads, you have to pay for the initial click and, then, pay the seller fees for each sale.
So you need to factor these selling fees into your ROI calculations.
If you don’t like the sound of Amazon’s seller fees, there’s a major benefit to this that you should keep in mind. Google’s priority is to maximise its revenue through clicks and this doesn’t align with your priority of selling the most products and generating the most revenue.
On the other hand, Amazon’s priority is to maximise revenue through ad clicks and product sales, meaning its goals are perfectly aligned with yours. So your selling performance is considered in Amazon’s ad auction and its ad formats are optimised to maximise sales.
Perhaps, more importantly, you know that its automated bidding strategies are optimised to help you maximise sales because this is part of Amazon’s revenue stream. We’re not saying Google doesn’t optimise its own automated bidding strategies to maximise sales as well; it’s just more reassuring to know Amazon has the same goals you do.
How to optimise your Amazon ads
In Amazon Ads, there are five crucial KPIs that should guide your optimisation efforts – most of which you should be familiar with if you have any PPC experience on other platforms:
- Impressions: The number of times your ad is visible to users.
- Click-through rate (CTR): The percentage of users who click on your ad after seeing it.
- Cost per click (CPC): The amount you pay for each click on a specific ad.
- Advertising Cost of Sale (ACoS): The ratio of advertising costs vs revenue (basically an alternative to ROI).
- Conversion rate (CR): The percentage of users who buy your product after clicking through from your ad.
From these five KPIs, you can optimise all of the most important elements of your Amazon Ads campaigns, provided you understand how to interpret them and diagnose potential issues.
Optimising campaigns based on impressions
If your ads aren’t generating enough impressions, it means you’re either not entering into the Amazon ad auctions often enough or you’re not winning them when you do. So your first task is to reassess your keywords to ensure that you’re targeting the most relevant queries. Next, you need to look at your bids and look into testing higher maximum bids to give yourself a better chance in the actions.
As we explained earlier, though, maximum bids aren’t the only factor to determine success in the auction. So you also want to look at the quality of your product pages, product descriptions, review scores, shipping speed and other marks of a quality seller.
You also need to factor in your conversion rates because Amazon wants to prioritise ads that are most likely to sell products.
Optimising campaigns based on click-through rates (CTRs)
Click-through rates are perfect for telling you how compelling your ads are. If your ads are getting impressions but falling short on clicks, there are two key areas you need to address:
- Your keyword/product targeting
- Your ads
Generally speaking, low CTRs on Amazon Ads suggest your ads either aren’t showing for the right searches or the quality of your ads isn’t up to par. If people aren’t interested in your products, they’re not going to click on your ads – so make sure you’re targeting the right keywords to get your ads seen by audiences most likely to buy your product.
In terms of optimising your ads, let’s look at Promoted Products as an example:
There are five elements here that decide whether a user is going to click on your ad:
- Product image
- Product title
- Review score
- Delivery info
Amazon has fairly strict product image guidelines so make sure you have professional images to showcase your items. You have a lot more freedom with your product title and you want to optimise these to be descriptive, informative and compelling while including keywords wherever possible.
Review scores are crucially important across campaign performance (not only click-through rates) and there are two types of reviews you have to manage on Amazon:
- Seller feedback: Rating the experience in dealing with you as a seller, including delivery, quality of the packaging, response to concerns, etc.
- Product reviews: Reviews of the products themselves, the quality of the product and accuracy of the product page.
Seller feedback is visible on your profile and product reviews are visible on the product pages and your ads. Product reviews have more weight in Amazon’s algorithms and a greater influence over CTRs as they’re visible on your ads.
You also have to make sure your items are competitively priced but it’s not always a case of the cheapest price winning the sale. Keep an eye on the price of competing products (organic and paid) while constantly looking at ways to differentiate your listing, especially if you’re trying to justify a higher price than some of your rivals.
Finally, the other visible item in Promoted Product Ads is the delivery information that estimates how quickly buyers could have the product in their hands. Listings show any delivery fees included or state that delivery is free and may also display a Get it as soon as line, including the earliest expected delivery date.
Naturally, free delivery and fast delivery estimates are a powerful weapon for increasing CTRs.
Optimising campaigns based on cost per click (CPC)
CPCs are a key metric for calculating the profitability of your Amazon Ads strategy. However, you should be careful about using CPCs as a KPI for campaign optimisation because you run the risk of limiting performance (and profit) by holding back on your bids when opportunities emerge.
That said, if certain campaigns or keywords have unreasonably high CPCs, it’s perfectly justifiable to take action.
One option is to pause the campaigns/keywords in questions to stop any further budget being used on them. However, you can actively lower CPCs by taking the following steps:
- Schedule ads to show at the most effective times with the aim of increasing conversions and reducing CPCs.
- Rethink your keywords: Optimise your keyword lists to increase relevance and target stronger purchase intents.
- Optimise your Quality Score: This can significantly reduce the amount you need to pay to win auctions.
- Test ad positions: Don’t assume the highest ad position always wins the sale.
- Optimise your bids: Experiment with lower maximum bids to find the right balance between performance and CPCs.
If you find Amazon CPCs are too high on campaigns using automated bidding strategies, there’s a good chance you’ll be able to improve your numbers by manually optimizing campaigns – although, it can take a lot of work.
Optimising campaigns based on Advertising Cost of Sale (ACoS)
Advertising Cost of Sale (ACoS) describes the ratio of advertising costs to revenue from advertising. So, for example, if you have an ACoS of 18%, you’re spending £18 to generate £100 from your Amazon advertising campaigns.
ACoS is calculated using the following formula:
ACoS = Advertising cost / Attributed sales
One of the great things about advertising on Amazon is that its closed infrastructure means you can attribute every sale with ease. Likewise, it’s easier to consider all of your advertising costs with fewer external variables, such as landing page design, losing time optimisation and other expenses that need to be considered with inbound advertising strategies like Google Ads.
From an optimisation point of view, ACoS is valuable because it allows you to measure the relationship between spend and revenue. So you can increase bids and see if there’s a comparative increase in sales to find the ideal balance of spend vs revenue.
In the last section, we warned against using CPCs as a KPI for optimising ad spend because you risk limiting performance. But, by using ACoS as your key performance indicator, you can optimise CPCs while keeping track of sales and revenue vs cost, allowing you to see where lower CPCs might be limiting performance and instances where higher CPCs are actually more profitable.
Optimising campaigns based on Conversion rate
Optimising conversion rates in Amazon can be tricky because you have fewer opportunities to optimise performance and differentiate your offer compared to channels like Google Ads and Facebook Ads.
The good news is, Amazon boasts some of the best conversion rates in the business – the best, according to the Feedvisor study we linked to earlier.
That said, if your impressions and clicks aren’t generating enough conversions, there are some key steps you can follow:
- Optimise your product pages
- Optimise your product titles
- Focus on higher-intent keywords
- Analyse your competitors’ ads and product pages
- Keep your prices competitive
- Improve your delivery service
- Ensure your products are eligible for Amazon Prime
- Improve your review scores
By following these eight steps, you should improve the overall performance of your campaigns across all five of the KPIs we’ve looked at in this section but, ultimately, it all comes down to making sure users buy from you and not one of your competitors.
Should you advertise on Amazon?
If you’re selling products online, then you should seriously consider advertising them on Amazon. This was true before the coronavirus pandemic but the outbreak has only reinforced Amazon’s position as the biggest online marketplace as more people turn to the internet for their shopping needs.
Platforms like Amazon and eBay are providing crucial channels for retailers that need to build an online presence fast but don’t necessarily have the resources to build their own online store.
When you consider the fact that more than half of all product searches take place on Amazon, you have to think this is a crucial channel for any retailer selling online.
Here’s a quick summary of the reasons you should consider Amazon in your PPC strategy.
- Purchase intent: People see your Amazon Ads when they’re in shopping mode, with high intent.
- Higher conversion rates: Thanks to the high purchase intent, Amazon boasts the best conversion rates stats in the business.
- Simplicity: You don’t need to spend time writing and optimising ad copy or headlines – you just choose your keywords and place your bids.
- Lower CPCs: As things stand, the average cost per click (CPC) on Amazon Ads is far lower than what we’re seeing from Google Shopping campaigns and Facebook Ads.
- Reach: Advertising on Amazon Ads, Google Shopping and eBay Ads gives you the best possible reach for online product ads available online right now.
- Easy online selling: Amazon is possibly the fastest way to start selling products online.
Of course, if you want to maximise your online presence and sales across every channel, you should build advertising strategies across Amazon, Google Shopping and eBay Ads to cover the top three platforms for online purchases in the UK.
As things stand, Amazon could well be your top performer among these three platforms but Google isn’t far behind and it’s constantly working to make Google Shopping the top platform in digital retail. Meanwhile, eBay has built an impressively mature advertising platform in a very short space of time, compared to Google and Amazon.
In truth, it doesn’t really matter which of these platforms comes out on top at any given time because you want to be present on all three to maximise coverage.
We are certified Amazon Advertising Partners. If you’re unsure how to add Amazon Ads into your PPC strategy or you’re struggling to find the right mix between Amazon, Google and eBay, speak to our retail advertising experts by calling us on 02392 830 281 or email email@example.com.