Advertising has always been a critical operation in Amazon’s operations. A good advertising structure and continuous optimization operations can not only help new products grow rapidly, but also help products in the stable period expand their advantages. However, not all advertising operations can be called optimization. Excessive pursuit of conversion and ACoS may lead to insufficient exposure and miss the best time for promotion; and blindly increasing traffic may dilute the advertising budget or exceed income.
To understand advertising systematically, we must first understand the most common funnel model in e-commerce. For e-commerce platforms such as Amazon, as long as the product has enough exposure, it will inevitably generate clicks, and as long as there are enough buyers to click and browse, orders will inevitably be generated. For the platform, it is necessary to find the best link in each category to improve the overall conversion efficiency; and for sellers, in order to obtain more orders, they need to make their links have better performance.
Unlike traditional media advertising or outdoor advertising, for Amazon, the profit brought by advertising is not only a single click bidding, but also the commission after the advertising order is generated. Therefore, in the advertising system, Amazon will not simply sort based on the advertising bid, but will make real-time adjustments based on the actual performance of the link, thereby fully improving the conversion efficiency of the advertisement. For sellers, if the advertising cost is higher than the net profit for a long time, it will also be more than worth the loss. Therefore, it is necessary to find a balance between traffic and conversion to ensure that the advertisement brings the greatest benefits.
To increase sales, it is necessary to gradually break through the bottleneck from top to bottom, and finally make the entire funnel run smoothly. In the entire conversion process, the two most important values are exposure click rate and click-through conversion rate. Among them:
Exposure click rate = click volume/exposure volume x100%
Click-through conversion rate = order volume/click volume x100%
According to operational experience, when the total exposure is greater than 1000, the advertising exposure click rate is above 3%, and the click-through conversion rate is above 5%, it can be considered that the performance of the advertisement is normal. Taking the above data as an example, at least 20 clicks are required for each order. Suppose there is a product with a unit price of $35 and a profit of $10 without advertising. At this time, as long as the bid for each click is guaranteed to be within $0.5, the advertising can break even. Otherwise, it needs to be adjusted in time.
The ACoS that operations are more concerned about is actually one of the indicators for measuring advertising efficiency. When the advertising budget is fixed, the lower the ACoS, the higher the sales generated by the advertising. The formula is as follows:
ACoS=advertising expenditure/advertising sales x100%
Since the bidding for a single click on an ad is mostly between $0.2 and $3, if the click-through conversion rate is 5%, the minimum advertising cost is about $4. If the unit price of the product is $100, the ACoS is 4%; if the unit price of the product is $20, the ACoS is 20%. It is not difficult to see that ACoS is inversely proportional to the product price. The lower the unit price of the product, the more difficult it is to reduce ACoS. Therefore, in the early stages of advertising optimization, as long as the final profit is positive, advertising can be continuously placed and optimized.