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How Amazon Sellers Combat Rising Ad Costs

Marketplace Pulse published data on June 9 that will not shock many Amazon sellers: The cost of Amazon Advertising is increasing. The average cost-per-click in early June was roughly $1.20, a 30% increase from early 2021.

The average cost of sales — ACoS, the total ad spend divided by total ad sales — has increased in 2021 from 22% early in the year to 30% this month. But the average conversion rate — the percentage of ad clicks converting to sales — has remained the same, decreasing the return on advertising spend from 4.5 to 3.1.

Contributing factors to the increases include companies with large budgets, such as established brands migrating to Amazon for direct-to-consumer sales, and aggregator firms that are buying smaller Amazon businesses.

Smaller advertisers can remain competitive by placing a maximum cost for a specific keyword on Amazon’s “suggested bid” mechanism. But a key overlooked metric to a successful ad campaign is relevancy and the likelihood that the ad will convert into a sale. Amazon’s algorithm is less likely to recommend a product with a poor conversion rate even with a high suggested bid for that keyword.

Thus “winning” on Amazon Advertising requires high-converting product listings. In my experience, two crucial tasks can enhance those listings:

  • Clean up poor performing keywords,
  • Improve crucial components.

Keyword Clean Up

Always ask yourself why a keyword is not converting.

Use the negative keyword tool to remove poor-performing keywords. Do not use automated advertising software solely to save time. Automated software cannot isolate underperforming keywords due to sloppy product listings.

Here’s an example from an actual listing. The keyword “red coffee mug” was producing clicks but no conversions. After 10 clicks, automated software rules sent the term to the negative keywords list. However, the product was a red coffee mug, but the listing did not include that color. Moreover, the images were poor and unclear as to the color.

Resolving the problem required manual effort, not automation.

The lesson is pay-per-click ads are much more than turning on, ignoring, and then turning off with no results.

Crucial Components

The second task for successful Amazon Advertising is to improve crucial components of a product listing to drive conversions.

For example, consider the listing below for Lemon Tonic Water mixer. Key components include the four areas highlighted in red — reviews, images, delivery assurances, competitive prices — and the overall content, such as the title and descriptions.

Screenshot of an Amazon listing for Lemon Tonic Water mixer

Improving crucial components of a product listing, such as this example of Lemon Tonic Water mixer, can enhance conversions and thus drive ad performance.

Reviews. New products are likely to have the highest ACoS because of no sales history and no product reviews. Some sellers avoid adding new products to ad campaigns due to the higher cost. However, advertising brings customers to a new product, which creates sales history and product reviews.

Images. Are your images as good as competitors’ and relevant to the keywords?

Delivery assurances. Are your delivery options as good as your competitors? Do you use Fulfillment By Amazon or Seller Fulfilled Prime to display the Prime badge? This can make a huge difference in conversion rates.

Prices. Are your prices competitive?

Overall content. Amazon’s algorithm will use the content in your listings to display your ads if you are using “automatic” targeting. So it’s key that your content matches customer searches. Using automatic targeting on new campaigns will help identify relevant keywords that consumers are searching for,

Also, review what competitors are doing successfully to rank for your keywords. They may have a high review volume or superior images, content, and prices.

Retailers who are official distributors should reach out to brands with poor content. A brand’s weakness could be costing you money if you are the Buy Box winner and want to advertise.

Lastly, do not underestimate your detailed seller ratings, the reviews on your account. They have a big impact on gaining the Buy Box and on total performance. If your seller ratings are less than competing products, Amazon’s advertising algorithm will not likely give you a prominent placement.

Screenshot of Amazon Seller Central showing detailed seller ratings.

Detailed seller ratings as shown in Amazon Seller Central greatly impact gaining the Buy Box and total performance.

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