These days I only run “Exact match” advertising campaigns in Amazon. This means that I give NO discretion to Amazon to show my ads to people who search things “similar” to the keywords or phrases I want to be found for. Let me explain…
Let’s assume that you sell a small pink dog bed targeted at Paris-Hilton-type dog owners. If you put “pink dog beds” into your advertising campaign as a keyword phrase that you want your ad to be shown for, but you leave your campaign set to “broad match” (“Broad match” is the default so Amazon gets to show your ad more and charge you for clicks more often), then it is very likely that your ad campaigns will not back out profitably. Here’s why…
If you are set to “Broad” and someone types in “dog beds” you have given Amazon permission to show your ad to that searcher because their search term “broadly” matches “pink dog bed”. Make sense? In my mind, only a small percentage of all dog owners are likely to want a small pink dog bed.
I bid on about 20 keywords only for each of my products and I only allow Amazon to show my ads if the shopper types those words or phrases “exactly”. Sure I miss out on a lot of traffic where people search for small variations on my phrases but I rest easy knowing that the only people who see my ads are looking for exactly what I sell.
The image I have included in this post is sales from my ad campaigns running on my 6 new products that I launched less than 3 months ago (in USA only).
Here’s what it all means…
Total spent on ads = $458.21
Total sales from ads = $3,435
Cost of ads v sales = 13% ($458 divided by $3,435) < This is called ACOS – Advertising Cost Of Sale.
My average profit across these products is normally 55%. So if you take 13% (my ad cost) off my 55% normal margin I am making 42% profit on sales that I make through advertising. So for me it’s super PROFITABLE to run Amazon ads.
Sure, I could make way more sales if I switched my campaigns to “broad” but my ad cost would go way up because a lot more people would be clicking on my ads that are not suited to my product. Make sense?
For me it’s all about PROFIT not gross sales. This $3,435 represents only about 10% of my revenue for that month on these 6 products. The rest is coming from organically found sales.
This also shows why it’s important to have high-margin products. If you’re making 20% gross profit it leaves very little margin to invest into advertising. 20% – 13% cost of ad (which is exceptionally low because I run very tight ad campaigns) leaves you 7% profit. What’s the point? You may as well put your money in the stock market and wait.