On Amazon, advertising is a key element for anyone selling on the platform. Advertising allows you to raise consumer awareness of new products, increase brand visibility and strengthen the position of your brand and products in search results.
The most common and popular form of advertising on Amazon is PPC advertising. Our blog discusses PPC advertising on Amazon and the metrics associated with it.
PPC Advertising on Amazon
PPC
Pay-per-click, also referred to as PPC advertising, is a form of campaign that allows sellers to place ads for their products, which are only charged when the customer clicks on them. On Amazon, PPC ads appear in Amazon’s search results as well as in competitors’ product listings.
PPC advertising is a great option for showing up to customers who are ready to buy as soon as they see the ad. This way, when measuring the effectiveness of ads, it is possible to identify those ads that generate conversions. Particularly when launching a new product, PPC advertising is an important tool for gaining visibility before organic placement is established.
At YAP, we always take keyword click prices into account when carrying out our market analysis. This way we ensure that everyone has the same idea of the amount of budget to allocate to advertising.
Read also: How do Amazon sellers advertise?
Sponsored Ads
On Amazon, PPC ads are called Sponsored Ads. There are three different subcategories:
- Sponsored Products ads
- Sponsored Brands ads
- Sponsored Display ads
Sponsored Products ads are those that appear in search results and on product pages. They often look almost identical to the actual product listing and are the most popular form of PPC advertising. These ads can be targeted by keywords, either automatically or manually. Manual targeting focuses on careful keyword analysis and deep customer understanding.
Sponsored Brands is a form of advertising where sellers can advertise more than one product at a time and capture consumers’ attention with more visually appealing ads compared to Sponsored Products. Advertisers can choose from up to three advertising formats:
- Product collection, where a single ad features many different products from the same brand
- Store spotlight, which can drive traffic to a brand’s Amazon Store, increasing the visibility of the brand as a whole
- Video, which can be used to promote either a brand or a product.
Clicking on Sponsored Brands ads takes the consumer to either a landing page created by the brand or to the Amazon Storefront page. Please note that Sponsored Brands ads require membership in the Amazon Brand Registry.
Sponsored Display ads allow you to target ads to an audience that has already visited the seller’s product pages. Targeting can take place both on and off Amazon, including Google, Facebook, Netflix and even mobile apps. Display ads also require membership of a brand registry.
Advertising Metrics
ROAS
Return on ad spend (ROAS), is a marketing metric used to track the impact of a particular advertising campaign on revenue. Tracking ROAS can reveal if a digital marketing campaign is working effectively or if it needs to be optimised. In a nutshell, ROAS determines the effectiveness of a marketing campaign, measured in terms of revenue generated per euro spent on advertising.
TACoS
Total advertisement cost of sales measures the cost of advertising relative to total Amazon sales, including both advertising and organic sales revenue. TACoS helps the seller to assess the effectiveness of advertising and sales productivity as a whole, as the goal of advertising at Amazon is to increase sales and brand awareness.
TACoS is calculated as (advertising spend / total sales revenue) x 100. For example, if the monthly advertising spend is €1000 and total sales are €10,000, using this formula the TACoS would be 10%. This means that for every euro spent on advertising, the return on sales is €10.
ACoS
Advertisement cost of sales, or ACoS, is a measure of the money spent on advertising and the return on that money. Whereas TACoS measures total sales, ACoS only takes into account the sales generated by an advertisement. The lower the ACoS of a campaign, the less money a seller spends on advertising per sale generated.
The ACoS is calculated by dividing the money spent on advertising by the sales generated by the ad as follows:
ACoS = 100 x ([ad spend] / [ad generated sales])
When measuring the effectiveness of advertising campaigns, a low ACoS is a good indicator that the ad is effective and profitable. What is defined as low is target and product specific, but in general a low ACoS is less than 25%. The average ACoS is between 25% and 40%, with ACoS above 40% being high. A high ACoS does not automatically mean that a product or company is not profitable. A high ACoS is acceptable, for example, when volume and rapid growth are the objectives.
CTR
Click through rate (CTR) determines how many of the ad viewers end up clicking on the ad. CTR is a value that can be used to measure the effectiveness of an ad. CTR is calculated as follows:
ad clicks / ad impressions = CTR
A high CTR is an indicator that the ad is targeted to the right audience and that consumers perceive it as relevant to their search. The definition of a good CTR is relative, as it depends on the product advertised and the target audience.
Getting started on Amazon is quick and relatively inexpensive, but success requires an understanding of the e-commerce giant’s business logic. Getting to the top of Amazon’s search results requires a careful strategy and continuous optimisation. Our knowledgeable journey leaders will be happy to discuss your business’s potential in the ecommerce jungle with you – feel free to contact us!
