The Truth: How to Get Profitable Amazon Ads

Summary

Elizabeth Green, owner of an Amazon Ad Agency, discusses the importance of bid management in advertising strategy. She addresses a question about optimizing bids for a product with a 10% conversion rate and a $3.50 cost per click, using mathematical calculations to illustrate potential profitability. Green suggests strategies such as lowering bids, optimizing for conversion, and budgeting to maintain ad effectiveness while reducing costs. She emphasizes the need for a tailored approach to ad strategy, especially in niche markets.

Takeaways

• 😀 Elizabeth Green runs an Amazon Ad Agency that helps brands achieve growth goals using a three-step ad strategy development process.
• 📈 Bid maintenance is crucial for ad strategy and performance, and it's important to be highly customized depending on the product.
• 🔢 The speaker emphasizes the importance of doing quick math to understand the cost per click (CPC) and conversion rates in relation to profitability.
• 💡 For a product with a conversion rate of 10% and a CPC of $3.50, the expected ad spend and sales price must be calculated to determine profitability.
• 🧮 A cost (ACoS) is calculated by dividing the ad spend by the sales price; a high ACoS indicates unprofitability.
• 📉 Lowering bids or search placement percentages can lead to a drastic drop in impressions and clicks, especially for high-importance keywords.
• 🤔 The script suggests exploring options like optimizing the main image or keyword to improve conversion rates to offset high CPCs.
• 🚫 If lowering the bid isn't feasible, controlling ad spend through budget allocation rather than keyword adjustments may be necessary.
• 🔑 The importance of the keyword in the overall ad strategy should be considered when deciding how to manage ad spend and bids.
• 💻 The speaker provides a method to calculate the number of clicks and conversion rates needed to achieve a target ACoS.
• 🗣️ There's an invitation for viewers to submit their Amazon advertising questions for personalized advice and potential video responses.

Q & A

What is Elizabeth Green's profession and how does it relate to Amazon advertising?

Elizabeth Green runs an Amazon Ad Agency that focuses on helping brands with annual revenues between one and five million dollars to aggressively hit their growth goals using a three-step top-down goal focus ad strategy development process.

Why is bid management considered crucial in Amazon advertising strategy?

Bid management is crucial because it directly impacts ad performance and the efficiency of an advertising campaign, allowing businesses to optimize their ad spend for better results.

What is the significance of connecting the highest number of clicks to the conversion rate in bid management?

Connecting the highest number of clicks to the conversion rate helps in determining the effectiveness of an ad campaign. It allows for adjustments to be made only after a certain threshold of clicks has been reached, ensuring data-driven decision making.

How does Elizabeth Green approach the scenario of a product with a conversion rate of 10% and a cost per click of $3.50?

Elizabeth uses mathematical calculations to determine the expected number of clicks per conversion rate and compares it with the cost per click to assess the profitability of the campaign.

What is the expected number of clicks for a product with a 10% conversion rate?

The expected number of clicks can be calculated by dividing 1 by the conversion rate (in decimal form), which in this case is 0.10, so you would expect 10 clicks for one conversion.

What is the expected ad spend for 10 clicks at a cost per click of $3.50?

The expected ad spend is calculated by multiplying the cost per click ($3.50) by the expected number of clicks (10), which equals $35.

How does the cost per click affect the profitability of an ad campaign for a $20 product?

The cost per click affects profitability by determining the allowable ad spend relative to the product's sale price. If the ad spend exceeds the profit margin, the campaign becomes unprofitable.

What is the target conversion rate needed to achieve a 50% cost of advertising (Acost) for a $20 product?

To achieve a 50% Acost, you would need a conversion rate that allows you to spend $10 on ads for every $20 of product sold, which is half the sale price.

How can lowering the bids or adjusting the top of search placement percentages affect ad visibility?

Lowering the bids or adjusting the top of search placement percentages can result in fewer impressions and clicks if the ad does not appear as prominently, which can negatively impact visibility and sales.

What strategies can be employed to lower ad spend on a specific keyword while maintaining necessary volume?

Strategies include bid optimizations to lower the cost per click, limiting the budget on that specific keyword, and assessing the overall account structure to ensure profitability is maintained across all campaigns.

How can a business determine the importance of a keyword with a search volume of around 500 in their ad strategy?

A business can determine the importance of a keyword by evaluating its relevance to the product, the potential for sales it generates, and its contribution to overall ad campaign performance and profitability.

What is the recommended approach if the ad spend on a keyword is too high to maintain profitability?

The recommended approach is to control the ad spend through budget limitations rather than adjusting the keyword bids, ensuring that the overall account remains profitable.

Outlines

00:00

📈 Introduction to Bid Management Strategy

Elizabeth Green introduces herself as an Amazon Ad Agency owner specializing in helping brands achieve growth goals using a three-step ad strategy development process. She emphasizes the importance of bid management in ad strategy, explaining that it can significantly impact advertising performance. Elizabeth expresses excitement about addressing a detailed question on bid maintenance and how to customize strategies based on specific products and their characteristics.

05:01

🔍 Analyzing Bid Management and Conversion Rates

Elizabeth dives into the question about bid management, focusing on a specific case where a $20 product with a 10% conversion rate and $3.50 cost per click poses a challenge. She calculates the expected ad spend and discusses the implications of maintaining or adjusting bids to optimize ad performance. She explains how to balance clicks, conversion rates, and ad costs to ensure profitability while customizing strategies for specific products.

10:03

📊 Further Calculation and Strategic Recommendations

Elizabeth continues with more in-depth calculations, exploring different scenarios to determine the optimal conversion rate and ad spend for a specific keyword. She discusses the limitations of lowering bids and offers alternative strategies, such as optimizing the main image or adjusting keyword budgets. The focus is on finding a balance between maintaining search visibility and controlling ad spend to achieve overall account profitability.

❓ Encouraging Further Questions and Engagement

Elizabeth concludes by inviting viewers to submit their Amazon advertising questions through a dedicated form on her website. She expresses her commitment to providing customized video responses to help viewers understand the complexities of Amazon advertising and improve their strategies.

Keywords

💡Amazon Advertising

Amazon Advertising refers to the various advertising services provided by Amazon to promote products and brands on its platform. In the video, Elizabeth Green discusses her expertise in running an Amazon Ad Agency, which focuses on helping brands achieve their growth goals through strategic advertising. The script mentions Amazon Advertising as the main topic and context for the discussion on bid management and ad strategy.

💡Conversion Rate

Conversion Rate is a metric used in advertising that measures the percentage of clicks that result in a desired action, such as a sale. In the script, the conversion rate is used to calculate the expected number of clicks needed for a sale, and it's a critical factor in determining profitability and ad strategy effectiveness. For example, the script discusses a product with a 10% conversion rate, which means 10 clicks are expected to lead to one sale.

💡Bid Management

Bid Management is the process of adjusting the amount a company is willing to pay for each click on an advertisement. In the video, bid management is highlighted as an essential aspect of ad strategy, with the speaker providing recommendations and strategies for optimizing bids to improve ad performance. The script discusses the importance of bid adjustments in the context of maintaining profitability while achieving visibility.

💡Cost Per Click (CPC)

Cost Per Click, or CPC, is the amount an advertiser pays each time a user clicks on their ad. In the script, the speaker uses the CPC of $3.50 as a basis for calculating the expected ad spend and profitability. The concept is integral to the discussion on how to manage ad costs effectively while maintaining a competitive position in search results.

💡Top-Down Goal Focus Strategy

The Top-Down Goal Focus Strategy is a method mentioned by Elizabeth Green as part of her agency's approach to developing ad strategies. It involves setting high-level goals and then working downwards to create strategies and tactics that align with those goals. The script uses this strategy as a framework for discussing how to set and achieve growth objectives through Amazon Advertising.

💡Ad Spend

Ad Spend refers to the total amount of money spent on advertising. In the video, ad spend is a central concern as the speaker calculates the expected costs and profitability of ad campaigns. The script discusses managing ad spend through bid adjustments and budget limitations to ensure profitability, especially in the context of a high CPC and a specific product's sales cycle.

💡Exact Match Keyword

An Exact Match Keyword is a type of keyword in advertising that is intended to match the search query exactly. In the script, the speaker discusses a campaign with an exact match single keyword that is highly relevant, indicating the importance of keyword selection in ad targeting and performance.

💡Search Volume

Search Volume refers to the number of times a particular keyword is searched for within a given time frame. In the script, the search volume of around 500 for a specific keyword is mentioned, which helps to illustrate the niche nature of the product and the importance of keyword targeting in a smaller market segment.

💡Budget Optimization

Budget Optimization involves allocating advertising funds in a way that maximizes returns based on performance metrics. The script discusses the idea of limiting the budget on a particular keyword as a strategy to control ad spend and maintain profitability, suggesting that careful budget management is key to effective advertising.

💡Profitability

Profitability is the ability to generate more income than costs, resulting in a profit. In the video, profitability is a key metric for evaluating the success of ad strategies. The speaker uses profitability calculations to determine the feasibility of different bid levels and conversion rates, emphasizing the need for ads to be profitable to be sustainable.

💡Product Niche

A Product Niche refers to a specific segment of the market that has particular needs or interests, often with less competition. In the script, the product in question is described as being in a 'relatively small niche,' which influences the ad strategy and the importance of targeting specific keywords with high relevance to the product.

Highlights

Elizabeth Green introduces herself as an Amazon Ad expert, running an agency focused on helping brands achieve growth through a three-step goal-focused ad strategy.

The importance of bid management in Amazon advertising strategy is emphasized, particularly how it affects overall performance.

A key strategy discussed is connecting the number of clicks to the conversion rate to optimize bids.

Elizabeth acknowledges the need to customize bid strategies based on the product and its specific market.

The transcript includes a practical example involving a $20 product with a 10% conversion rate and a $3.50 cost per click, highlighting the challenges in making profitable ad decisions.

She demonstrates a mathematical approach to calculating expected clicks based on conversion rates and cost per click.

The discussion dives into adjusting bids to achieve a target ACOS (Advertising Cost of Sales) and the implications on profitability.

The video covers the necessity of potentially increasing conversion rates to justify higher costs per click.

Elizabeth discusses the importance of evaluating how crucial a specific keyword is to the overall advertising strategy.

She explores alternative methods to manage ad spend, such as limiting budgets on specific keywords rather than just adjusting bids.

The suggestion is made to view individual keyword performance as part of a larger campaign budget strategy, ensuring overall profitability.

Elizabeth emphasizes the value of testing and adjusting strategies to find the most effective approach.

The video concludes with a recommendation to submit Amazon advertising questions on her website for personalized advice.

The importance of maintaining profitability across the entire ad account, rather than focusing solely on individual keywords, is highlighted.

Elizabeth reiterates the need for flexibility and adaptability in managing Amazon ads to achieve growth goals.

Transcripts

okay let's get into answering this

Amazon advertising question hey why am I

qualified to answer the question my name

is Elizabeth green I run an Amazon Ad

Agency we help focus on Brands doing

between one and five million dollars a

year aggressively hit their growth goals

by using our three-step top-down goal

focus ad strategy development process

and so as you can imagine we're all

about developing ad strategy and this is

a great question around this and I hear

this a lot and this is actually going to

require some quick math so I'm super

excited to get into it all right so the

question was on bid maintenance overview

and it was actually vibing off a

particular post I had some

recommendations on some bid management

and this is honestly why your bid

management is insanely important to your

ad strategy and how your advertising

performance is going then two why you

have to get super custom depending on

the product so I love the context in

this question it's going to help us kind

of get a lot of answers and get some

really good me maybe some more advanced

level strategies here so the question

was you know thank you for the bid

management overview I like your aspect

when you connect the highest number of

now clicks to conversion rate for

example say allowing 10 to 12 clicks and

a product with a conversion rate of 10

before doing any changes I agree very

much with this approach however and this

is where again getting super custom and

in the weeds is important one more

question regarding this concept on a 20

product with a conversion rate of 10

with a cost per click of three dollars

and fifty cents on an exact match single

keyword campaign highly relevant keyword

we can't afford to wait for 10 clicks as

we would be losing doing a big loss it

is a consumable product but not like

supplements which are bought monthly

this product could be bought quarterly

if we reduce the bids or top of search

placement percentages we don't get any

Impressions and clicks we want to be

Atop The search to get eyeballs if we

lower on the page or rest of search

Impressions and clicks fall drastically

as the keyword has a search volume of

around 500 words with a relatively small

Niche what do you suggest in such a case

this is a phenomenal question again

chock full of so much context which is

going to allow me to give a very

specific answer there's actually

something that I would probably

recommend here so again let's do some

quick math okay I'm gonna pull up my

calculator and let's bring this over

here and let's start doing some quiz

mathematics a good way to calculate your

expected number of clicks per your

conversion rate is you can actually take

one and you can divide it by your

conversion rate represented in a decimal

point so this point is going to be in

0.110 so we can expect 10 clicks on this

particular keyword if we have an average

conversion rate of 10 now take into

account this cost per click of three

dollars and fifty cents so if we took

three dollars and fifty cents with 3.5

and we multiply that by 10 what we're

going to get is 35 so even if you are at

your average conversion rate and you

have all things remaining equal right

you're saying like I can't afford to do

10 clicks on this particular keyword at

1.50 because if we have expected ad

spend of 35 and we're going to divide

this by 20 which is actually our sale

price you can see how you're going to

have 175 percent a cost this is that a

cost recommend represented in a decimal

point and so in this case even if

everything worked well or we're still

going to be unprofitable so say even if

we wanted to get this a cost down to say

100 what kind of conversion rate do we

have to have to be able to do that so I

would say we can afford to do let's say

we had 20 dollars is our price point and

I wanted to say okay maybe I'm fine with

50 conversion rate which is going 50 a

cost which is going to be 20 multiplied

by 0.5 because 0.5 is a decimal

representation so I can afford to spend

ten dollars if I I have a conversion

rate of 10 which we already said and

calculated is going to give us a average

number of clicks of 10 I mean 10 divided

by 10 we could do the math on our head

but for representative purposes let's

just do it on the calculator that means

I can't afford to spend a 10 conversion

rate and a target of 50 a cost I'm just

spitballing here like if we went up a

little bit like say we did 20 multiply

by 0.75 like maybe we can afford that

and that's going to give us 15 then we

can divide that by 10 we could say okay

we can afford to spend 1.50 that's how I

would figure out what kind of cost per

click do I need at that average

conversion rate to be able to make the a

cost numbers work now it sounds like

that has already that sort of testing

has already taken place so my question

without the additional context of hey

we've already tried to lower the bids

and what we're seeing is that we're not

getting the sales acceleration that we

made it because I would have done that

mathematics and I would have said okay

let's see if we can get from you know

what happens when we do like three

dollars and fifty cents and we get like

conversion or the cost per clicks of a

dollar or 50. how what does that shake

up that is not working here so maybe

another question would be what kind of

conversion rate do I have to have at

three dollars and fifty cents to be able

to make this work and so what you could

do to calculate that is I would say okay

let's say 20 let's just give ourselves

some wiggle room and we'll say we're

gonna bring it down to 75 so again we're

going to say okay we have 15 to spend

what we'll do now is we'll divide that

15 by 3.5 which is 3.50 and this gives

us

4.28 clicks so we can afford to get 4.28

clicks to be able to make that thing

work okay so then my question is at

three dollars and fifty cents what kind

of conversion rate do I need to have to

be able to make those things work right

and so what you would do for that is you

would say it's twenty dollars and I

would multiply that again I'm assuming a

75 a cost Target here again I know

that's super high and that might not be

sustainable so that would be something

to look at so then I would say okay if I

can afford to spend 15 at that then let

me take that and let's divide it by 3.5

which is my amount each time of my cost

per clicks and then I can see how many

clicks can I afford so I can afford

4.2 clicks so then my question would be

if we can afford

4.28 clicks what does that look like in

terms of our conversion rate that means

we have to have a 23.3 conversion rate

to be able to make those mathematics

work so you're kind of left at an

impasse here again why I'm going through

these mathematics is just to kind of

illustrate why a lot of times when we're

coming up against things like this

people are saying like how do I make

this thing work sometimes when you do

the mathematics it's difficult to make

it work so you you have a couple options

here one of them would have been

lowering the bid to that kind of a

dollar fifty that we pulled out which

we've kind of determined like that's not

really going to work and then so then

our other question is at 3.50 cost per

click can we essentially more than

double the conversion rates here to make

that work again how possible is that I

don't know I mean maybe you can optimize

for this particular keyword maybe you

can see if there's something you can do

with the main image that would cause

better conversion rates can you speak to

this individual keyword and then the

other thing I would ask is how important

is this keyword so it says that it has a

keyword search volume of around 500

which is a smaller Niche so is this

keyword again like super important to

your strategy the other thing that you

can do in these instances honestly what

you're looking to do here is how can I

lower the ad spend on this one

particular keyword and still maintain

the volume that I need to so there's two

ways that you can lower ad spend

actually one of them is through bid

optimizations again lowering the cost

per click which we've already

established but the other thing that you

can do potentially is limit the budget

on that particular keyword so you'll

want to make sure that you have this in

a campaign that allows you to put a very

specific budget but the other thing is

if we had again a more limited budget on

this particular keyword you want to look

at it as pieces of a whole so it is

entirely possible for you to spend some

money on certain campaigns at a much

higher a cost and have your overall

Blended a costs were out to be

profitable again how possible this is is

going to be determined by kind of what

does the rest of the structure look like

in the account and can you maintain this

top of search placement at these high

bids can you be able to allocate the ads

when needed to get the amount of orders

needed to really be able to move the

needle so I'm going to assume if it's

like say around search volume of 500

maybe we only need two orders a day so

in that case what I would say is I 0.35

bid and then we said we need about 10

clicks to make a conversion that's 35

and then we multiply that by two because

we want two conversions and that's 70

dollars can I afford to spend 70 dollars

on this particular keyword and what does

my ad spend look like on the rest of my

ads and can this 70 be a little bit less

profitable and then still maintain

profitability over the overall account

and then you might also just say okay so

we need 35 dollars and then maybe we'll

just restrict it to that which is about

say like one order on average I would

probably pad this a little bit because

you're going to have certain days where

your conversion rate's a little over 10

a little under 10 and I don't think I'd

want to cut it off strictly at that 10

conversion rate but I would kind of look

at it like that so in this case my

recommendation would be trying to

control the ad spend through the budget

not necessarily trying to control the ad

spend through the keyword if you have a

question like this I may randomly answer

it in a video if I come across online

but there is a specific place on our

website where you can submit your Amazon

advertising questions it's up at the top

in the menu bar it says ask your experts

it'll be taken to a form you can submit

your own question and I will be doing my

best to create custom videos similar to

this one to help you understand the

inner workings of Amazon advertising and

how you can sort of lay the game smarter