Amazon PPC: The KPIs You Should Check to Build Your Brand Strategically
The ultimate goal of every Amazon seller is to achieve brand growth. It’s an ongoing, long-term goal that comprises numerous short-term goals.
When it comes to measuring KPIs, most sellers track sales, profit, and inventory within Seller Central, and in their ad account, they measure ad efficiency by ACoS only.
But can your brand really make strategic data-driven decisions based on these (limited) metrics?
Before we continue, here’s a quick clarification: a metric is a quantitative measurement of statistics describing events or trends on a page. A Key Performance Indicator (KPI) is a metric that helps you understand how you’re performing against your objectives. That last word – objectives – is critical to a KPI, which is also why KPIs tend to be unique to each business.
In this article, we’ve tried to highlight the most insightful and useful PPC metrics that brands should include in their KPIs to accurately track their growth.
Focus: Expansion and Brand Awareness
This group of campaigns is designed to increase your discoverability among new potential customers. When focusing on increased Brand Awareness, it’s acceptable to see your Advertising Cost of Sale (ACoS) reach up to twice the level of your usual campaigns. Driving new audiences and increasing your brand recognition will pay off in the long run.
Impressions
This is the number of times potential customers have seen your ad. You are not charged for the Impressions, however, it still gives you an idea of how effective your bidding was. The higher this number, the better, though you can’t reach any conclusions based solely on the number of Impressions.
You also need to know the number of Clicks and the Click-Through Rate (CTR).
Clicks
As simple as that – the number of clicks you’ve got on your ad. Each Click has its price – Cost Per Click (CPC). The amount of Clicks gives an idea of how much paid traffic you have.
Click-through Rate (CTR)
By knowing the number of Impressions and Clicks, you can discover your Click-Through Rate (CTR), which is available on your ad account dashboard; it’s calculated as Clicks/Impressions.
This metric provides you with insight regarding the relevance of your ad for the targeted audience. If the number is too low, you’re probably not getting sufficient engagement from the targeted audience, and you should apply changes to your strategy – try changing your current set of keywords. Pay attention to your title, and whether it corresponds with your ad and keywords. A CTR of 0.2% is considered a normal level on Amazon.
Cost per Click (CPC)
Remember, Amazon uses a ‘second price’ style auction. This means that the seller who bids highest on a keyword wins the auction and gets their ad displayed at the top of the search. However, they only pay the amount bid by the seller who came in second place.
For example, if Seller A bids $2 for the keyword “baseball hat” and Seller B bids $2.50 for that same keyword, Seller B wins the auction and ranks first. However, they only have to pay $2.01 (one cent higher) every time their ad gets clicked, as that was the bid from the second-place seller.
Knowing your CPC is extremely important. It provides you with an understanding of the competitive landscape – the higher the CPC, the more aggressive the competition is.
If the CPC is too high for you and it doesn’t provide enough traffic, then you could conduct a thorough keyword analysis to find less expensive keywords. Using this strategy will enable you to pay less for the same – or even a higher – amount of traffic.
Focus: Purchases and Profitability
With this strategy, you work with the most relevant audience and should primarily focus on your budget efficiency. This group of campaigns should be built around proven targets.
Conversion Rate (CVR)
Conversion Rate = Number of Ad Orders/Clicks
The average Conversion Rate on Amazon is 9.55%. Of course, like all metrics, these averages differ widely based on the particular niche. For example, more expensive products ($100+) will typically have lower conversion rates as customers like to shop around and compare products before making their final decision to purchase.
Conversion Rate essentially means the average number of clicks it takes to get 1 order.
Advertising Cost of Sale (ACoS)
Advertising Cost of Sale = Ad Spend/Ad Sales
For example, if your ACoS is 25%, you’re spending $0.25 on ads to make $1.00 in sales.
The average ACoS of a comparatively healthy account varies between 25-40%, but you should rely on your break-even ACoS and use it as a starting point.
Break-even Advertising Cost of Sale (BE ACoS)
Break-Even ACoS is the point where your advertising cost is equal to your profit margin.
Let’s say we have a product with a sale price of $20, and we’re paying Amazon fees of $3 on that product, plus the cost of creating the goods, which is $6.
$20-$3-$6 = $11, which is our Pre-Ad Profit per Sale.
If we spend $11 on acquiring paid traffic to generate sales, then based on our ACoS formula, it would be $11/$20, which equals 55%.
So our Break-Even ACoS is 55%. Lower than 55%, we’ll be profitable, and over 55%, we’ll be unprofitable.
Knowing these metrics, you can calculate your ‘good’ bid. Using our previous example, you have a product that costs $20, your CVR is 10%, and your BE ACoS 55%. Let’s target 40% ACoS (profitable level), which would mean we can afford to spend $8 (40% of $20) to get 1 conversion.
Knowing that our CVR is 10% means that to get 1 conversion, we need 10 clicks. $8/10 clicks = $0.8. That would be our winning CPC, which we should consider when building and managing campaigns that are focused on profitability. Once you know your target CPC, don’t set this bid on a campaign level and expect everything to simply work out, but rather let this number guide you in your bid optimization process.
Focus: Brand Growth
Brand Growth is every dollar you spend on advertising that your product returns. But not only in ad sales – increasing exposure and driving traffic to your Amazon store increases your SEO and organic performance. Using such a holistic approach, PPC and SEO tools combined will double your results in the short term. Thus, it’s crucial to measure the impact your ad has on your overall Brand Growth.
Total Advertising Cost of Sales (TACoS)
Total Advertising Cost of Sales = Ad Spend/Total Sales
TACoS measures advertising spend relative to the total revenue generated, giving advertisers a much more accurate picture of how their ad spend performed.
When tracking TACoS, the goal is to keep it stable or ideally reduce it over time. TACoS decreasing implies that organic sales are becoming an increasingly larger part of total revenue, which increases their weight in relation to ad revenue. This suggests that your advertising is successfully growing your brand, and you are becoming less dependent on generating revenue through ad sales alone.
Make sure to compare your ACoS vs. TACoS over time. You never want ACoS decreasing while TACoS is increasing.
Ad Sales/Total Sales
On average, healthy and mature accounts spend 10% of gross sales to make 20 – 30% in Ad Sales next month. Knowing this ratio on the account and the product level will provide you with a better overall understanding of your PPC efficiency as a brand-growing tool. If your Ad Sales bring more than 30% of all sales and this number doesn’t decrease month to month, then you should pay attention to the quality of your listings and their organic performance. If the situation is the opposite and your Ad Sales are less than 20% of all sales, you’re not using your ad budget efficiently.
Here at Bellavix, we know that growing brands on Amazon requires a thorough analysis of organic and paid performance. If you are struggling with overwhelming amounts of data and finding it difficult to identify your KPIs – reach out, we’ll help you create a strategy designed specifically for your brand’s needs.
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