Amazon Advertising Basics

September 1, 2022

In order to effectively sell on Amazon, seller’s need to create a comprehensive digital strategy that allows them to stand out amongst the sea of competitors. While an amazing product, eye-catching imagery, and captivating product listing content are all essential to driving sales and revenue, in today’s digital environment, those elements are not enough to hang your sales strategy on. Incorporating Amazon advertising into your digital strategy is as crucial as it gets to your product in front of the right consumer audience at the right time, which can enhance product viewership and lead to higher sales conversions.

Overview of Ad Spend on Amazon

Amazon offers a multitude of sponsored ad types that provide brand and product visibility by displaying a seller’s product based on a consumer’s search results. It allows for potentially higher market capture and helps brands to compete on keywords that might be difficult to rank for organically.

Setting Your Ad Spend Budget

When creating ad campaigns on Amazon, sellers will need to establish a budget, either on a campaign level or daily spend. A campaign-level budget allows the seller to set an overall total advertising cost (Ex. $10,000), while a daily spend budget allows for the seller to set a daily limit on advertising (Ex. $100/day). Ad campaigns can be created using manual ad bidding where the seller sets their own bids (for those experienced in media buying) or with automated ads, which allows sellers to use automatic bidding and ad campaign optimization.

Amazon ad bidding utilize the following cost structures:

Cost-per-click (CPC): The average cost you pay each time someone clicks your ad. This number is calculated by dividing the amount of money you spent on an ad divided by the number of clicks it received. Sponsored Products and Sponsored Brands are examples of cost-per-click ads, so you only pay when your ad receives clicks.
Cost-per-thousand-impressions (CPM; “cost per mille”): The average cost you pay to deliver 1,000 impressions of your ads. Whether or not a consumer actually sees the ad (impression), a seller is still charged a fee for the ad space.
Cost-per-thousand-viewable-impressions (vCPM): The average cost you pay to deliver 1,000 viewable impressions of your ads. A consumer needs to actually see the ad (impression) on the web page for a seller to be charged a fee for the ad space.

Monitoring Your Advertising Spend

For a seller to properly manage their ad spend, a seller must first establish their budget (campaign-level or daily spend). If they want a campaign to run for a month, they will need to set a maximum daily spend budget to not run through a large majority of their budget in the first few days or weeks. Understanding the default bid amount – the cost of the ad placement – will allow a seller to work backwards to estimate their average daily or monthly spend when establishing their budget (total campaign spend and daily spend, no matter which budget strategy is chosen).

Throughout the campaign, staying on top of keywords, campaign performance metrics and trends, and product selection will be crucial for running an effective campaign that minimizes Advertising Cost of Sales (ACOS) and maximizing Return on Ad Spend (ROAS). More on these metrics in the next section, but making sure that relevant keywords with a healthy conversion rate are being utilized will ensure that the proper audience is receiving the ads.

Analyzing data will allow for insights that will drive campaign adjustments. For example, a product listing is receiving a high click-through rate on an ad, but the conversion rate is low. This means that the ad is relevant to consumers but something on the Product Detail page is deterring them from purchasing. This allows the seller to maintain their current ad campaign, make the necessary edits to their Product Detail page, and then remeasure their metrics based on the changes. Comparing pre- and post-edits will allow the seller to know if their changes were effective or if more changes are required.

How to Analyze Amazon Ad Campaign Metrics

There are quite a few valuable metrics that help to determine if an ad campaign is effectively targeting core audiences and resulting in increased traffic, sales, revenue, and more. Below is a list of key advertising campaign metric terms from Amazon that will help you better understand how to measure the success of your ad campaigns.

Advertising Cost of Sales (ACOS): A metric used to measure performance of Sponsored Products and Sponsored Brands campaigns. ACOS represents the ratio of ad spend compared to promoted product sales (Sponsored Products) or overall brand sales (Sponsored Brands). It is calculated as ad spend divided by attributed sales.
Brand Lift: A measurement of the direct impact your ads have on a shopper’s perception and behaviors toward a brand. This metric is calculated in a variety of ways using post-exposure success metrics, such as brand awareness and likelihood to purchase metrics.
Click-Through Rate (CTR): The percentage of ad impressions that are clicked when compared to the total number of ad impressions to show the effectiveness of the campaign. The standard calculation for CTR is (clicks/total impressions) x 100.
Conversions: An action that a customer completes; this phrase can be used to refer to any number of actions, including clicking “Add to Cart,” completing a purchase, etc.
New-to-Brand Metrics: New-to-brand metrics describe customers purchasing your brand/product for the first time on Amazon over the past year. These metrics allow advertisers to estimate the cost of engaging new customers on Amazon and identify the most efficient channels and tactics to achieve their campaign goals.
Impressions: The number of times an ad was rendered on a page or device.
Reach: The total number of users who are shown the same ad on any web page or screen.
Return on Ad Spend (ROAS): A measure of how many dollars you earn for every dollar spent on advertising. The standard calculation for ROAS is (total ad sales) / (total ad spend).
Return on Investment (ROI): A measure of how much net profit is earned for every dollar spent. The standard calculation for ROI is: ((revenue – cost) / (cost)) x 100.

THE ZQUARED ADVANTAGE

ZQUARED helps brand partners capture relevant consumer audience attention through advanced advertising strategies. Our proprietary advertising platforms allow access to key performance indicators (KPIs) that help drive campaign measurement and optimization with the goal of better understanding target markets to increase brand and product awareness and revenue.

To learn how ZQUARED can help you stay ahead in the Amazon game, request a comprehensive assessment of your Amazon channel from our Amazon Investment Partnership Team. You will receive audit results focused on your listings, category, competitors, reseller landscape and more with an individually-tailored strategic plan designed to capitalize on opportunities.