How Do Amazon Ads (PPC) Work?
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Part 1 of 11 - This is the first part of a multi-step guide on how to succeed with ads on Amazon. In this first part, I will explain how ads work. This is crucial to understand so you can fully absorb the information and guidance that will be provided in later sections.
If there’s one tool you can use to influence your results on Amazon, it’s advertising. Ads can directly increase sales and profits, and they can also positively impact your SEO. In this chapter, I’ll go over how Amazon ads actually work and how you, as a seller, can use the platform. This will give you the foundational understanding you need when we later dive into how to optimize and succeed with ads.
1. What is Amazon Ads (PPC)?
Amazon ads are often referred to as PPC, which stands for Pay Per Click. The reason for this is that the ad platform works exactly that way. You pay for every click that comes through your ads. How much you pay per click is determined by an automated auction where you bid and state how much you’re willing to pay for each click (more on this later).
The ads appear in various places, such as in search results, on product pages, and even on other platforms that use Amazon’s ads. From the ads, you can then extract a lot of data that you can use to optimize your campaigns. The better you can optimize your ads, the better they perform, which ultimately leads to more sales and profits.
2. Why Should You Care About Ads (PPC)?
Being able to advertise on Amazon is an extremely important tool for you as a seller. It’s one of the few tools that give you control over traffic. Unlike SEO, where the amount of traffic you get is entirely in Amazon’s hands, you can increase or decrease the amount of traffic with ads if you’re willing to pay for it. This allows you to adjust the amount of traffic, and ultimately sales, to fit your strategy. If you’ve read previous posts about how to succeed on Amazon, you know that this is extremely important.
There are two major benefits to using ads:
- Direct Sales and Profit: First and foremost, you can obviously make profits directly from sales. If you pay $1 for an ad and sell products for $10, you’ve likely made money. How much depends on your product margins, of course. The greater the sales you get per dollar spent on ads, the more profit you’ll make from the ads. Therefore, many parts of this series on ads will focus on how to optimize your ads for the best results.
- Improved Amazon SEO: The second major benefit of ads is that they can improve your product’s Amazon SEO. The better your products convert and sell, the better your products will rank on Amazon. With ads, you can easily increase traffic and sales, and you can also optimize for better conversion rates. In other words, ads are a tool that gives you the opportunity to rise in Amazon’s rankings, which in turn will bring you plenty of free traffic and sales.
But there’s a problem with Amazon ads!
It’s not always easy to succeed with ads, unfortunately. If you don’t know what you’re doing, you risk paying dearly for ads with no results. It’s not uncommon for sellers to spend more on ads than they make in sales. A disaster. But not surprising, given the high level of competition and everyone’s desire to make the largest profits possible. But don’t worry, that’s why I’m writing these posts—to help you understand exactly what you need to do to succeed with ads.
As mentioned, this is a series of posts that show you exactly how to succeed on Amazon. In the end, you’ll feel confident with the ad platform, and you’ll have a system that we at SellWave use for our clients with fantastic results. We set up campaigns that give our clients up to ROAS 40. What does ROAS mean? It means that for every dollar they spend on ads, they get $40 in sales. Or, as in the example below, $80 was spent on ads and resulted in $3,200 in sales! If you could spend $40 to get $3,200, how many times would you do it?
Of course, not everyone can achieve such great results since it also depends on the products, prices, brand, and much more. But I’ll do everything I can to help you set up the best ads possible. Let’s start by going over the different types of ads you can set up on Amazon.
3. What Are the Different Types of Amazon Ads?
On Amazon’s platform, you can display ads in many different places, and you control where you want to advertise through ad types. There are three different ad types: Sponsored Products, Sponsored Brands, and Sponsored Display.
Sponsored Products
This is the most common type of ad and the one that most closely resembles the regular organic search results. You often find these ads in search results but also on product pages.
Sponsored Brands
When you want to showcase multiple products simultaneously, Sponsored Brands is the perfect ad type. It allows you to display up to three different products at the same time. These ads usually appear above the search results in a separate box.
Sponsored Display
This ad type stands out a bit and isn’t something you typically need to focus on. These ads appear in other places within Amazon, but also on other platforms. This type of ad is harder to optimize, and the goal is usually to reach a larger audience or to retarget customers who have already visited your product pages.
*You must have an Amazon Brand Registry to use Sponsored Brands and Sponsored Display ads.
Which Ad Types Should You Use?
Even though there are three different ad types, you may not want to use them all. The foundation of your ads should almost always be Sponsored Products ads. These ads most closely resemble the organic results and are also the ones that can often be run most frequently.
I will later go over how I suggest structuring your ads, and I will, of course, also touch on ad types. But if I were to say something more general now, I would suggest prioritizing Sponsored Products and then implementing Sponsored Brands. You can often use data and insights from your Sponsored Products ads to set up your Sponsored Brands ads. Only then should you consider Sponsored Display ads.
4. Amazon's Ad Platform - Campaign Manager
Amazon’s ad platform is separate from Seller Central and is located on its own page. However, you can easily find it from Seller Central. The platform where you set up and manage your ads is called Campaign Manager.
You can find the platform by going to Seller Central, navigating to “Advertising,” and then selecting “Campaign Manager.” Below is an example of what it looks like inside the “Campaign Manager.” Here you can see a graph of the results and a selection of key performance indicators (KPIs), such as Spend and Sales.
5. How Does Bidding Work on Amazon PPC?
Amazon’s ad platform is based on an auction model. This means that all sellers who want to advertise bid on different keywords. The highest bidder wins the bid and gets the ad placement. What you bid on is how much you are willing to pay per click, and you can never see how much others are bidding.
You can specify bids for different keywords. This means that you can bid different amounts for keyword X and Y. This allows you to optimize your campaigns by bidding exactly as much as you want for each individual keyword. But you can also, if you want to keep it simple, bid the same amount on groups of keywords.
How Much Do You Pay Per Click?
When you set a bid on a keyword, you tell Amazon how much you’re willing to pay per click. But you usually don’t pay as much as you bid. Why? The actual amount you pay per click depends on how much the second-highest bidder bids.
If you are the highest bidder, your actual cost will be just above what the second-highest bidder bids. For example, if you bid $1 per click and the second-highest bidder bids $0.5 per click, you win the auction and pay $0.51 per click. So, the amount you actually pay is rarely as high as your bid.
Who Wins the Auction?
I mentioned earlier that the highest bidder wins the auction and gets to display their product. But that’s not the whole story. Amazon also weighs other factors here, such as relevance and conversion.
Example: You’re advertising a bike helmet, and someone else is advertising a dishcloth. You both bid on the keyword “Helmet.” You can win the ad placement even if you bid lower because your product is more relevant. This isn’t something you need to worry about. It won’t affect how you use ads, but it’s still worth knowing.
6. Campaign Manager Structure
It’s important to understand the structure that Amazon has for its ads. The structure can be divided into the following four parts: Portfolios, Campaigns, AdGroups, Keywords.
Portfolios
Portfolios are a very small part of the structure. They are used to keep campaigns organized into groups, nothing more. Campaigns can also be free-standing outside of any portfolio. But with a portfolio, you can improve the structure, making it easier to find the right campaign if the ad account contains a large number of campaigns.
Campaigns
The fundamental part of the ad platform is campaigns. It is within campaigns that you specify budgets and other important settings, which I will go over later. Campaigns of the Sponsored Products and Sponsored Display types do not contain keywords themselves; instead, they contain AdGroups that, in turn, contain keywords. Campaigns of the Sponsored Brands type do not rely on AdGroups but instead contain keywords directly.
AdGroups
Every Sponsored Products and Sponsored Display campaign must contain at least one AdGroup. AdGroups, in turn, contain the keywords and products you want to advertise. A campaign can, therefore, contain several different AdGroups, which in turn can contain entirely different products and keywords.
Keywords
AdGroups contain the keywords, and each keyword has a set bid that you are willing to pay for a click through that keyword. Each keyword also has a set match type (which I will go over later). The same keyword can be included in different AdGroups and in different campaigns. As I already mentioned, Sponsored Brands campaigns contain keywords directly in the campaign, but otherwise, the different campaign types handle keywords similarly.
7. Automatic vs. Manual Campaigns (Targeting Types)
I’ve said so far that all ads contain keywords, but that’s not always true. Campaigns can have two different targeting types: Manual and Automatic, and these affect whether they contain keywords or not.
Manual Targeting
This is the manual version of campaigns. With Manual Targeting, you choose the keywords to advertise on and set bids for each keyword. The majority of campaigns should be of this type because it gives you as a seller the most control. Manual Campaigns can target product pages (product targeting) instead of keywords.
Product Targeting vs. Keyword Targeting
Manual Campaigns contain AdGroups, and these AdGroups can, as mentioned, contain keywords. But they can also contain products instead of keywords. This means that instead of bidding to advertise on different keywords, you bid to advertise on different product pages—for example, on competitors’ or your own product pages. This works exactly the same way as with keywords, so no major distinction is usually made when talking about the different concepts in general. The bidding and everything else work pretty much the same. But this is an important part of the system and something you need to be aware of.
Automatic Targeting
These are ads where Amazon automatically selects keywords for the advertised products. With Automatic Targeting, you never have to think about which keywords customers might search for—Amazon handles that automatically.
Instead of keywords, there are Automatic Targeting Groups. These are four different categories of keywords, and you set bids for each type. Amazon then finds keywords within the categories and applies the bid you set for the category to these keywords. Automatic Targeting includes both Keyword Targeting (advertising on keywords) and Product Targeting (advertising on product pages).
All of this may start to feel a bit complicated, but don’t worry! It doesn’t matter if there’s something you don’t fully understand right now. It will become much easier when we later go through how to actually set up ads. After that, you can always come back to the parts that were difficult and review them again. This can be especially helpful when you’ve started running your ads.
8. Campaign Bidding Strategy
What is a Campaign Bidding Strategy? It is the choice of bidding strategy that is applied to all AdGroups and keywords within a campaign. This is campaign-specific and cannot be changed for individual AdGroups. However, you can, of course, use different Bidding Strategies for different campaigns.
There are three different Campaign Bidding Strategies, and I will later explain which types I recommend for which ads. But first, let’s go through them.
Dynamic Bids (Up and Down)
With this option, you give Amazon the power to raise and lower the bid in real time. Amazon tries to raise the bid when the chance of conversion is high and lower the bid when the chances are lower. The bid can be raised and lowered by up to 100%. This means that if you bid $1 on a keyword, Amazon can raise the bid to $2 and lower it to almost $0.
Dynamic Bids (Down Only)
This option allows Amazon to lower your bid in real time when it believes your ad has a low chance of converting. The bid can be lowered by up to 100%, which means your bid can go down to almost $0, but never higher than the bid you set.
Fixed Bids
This option gives you the most control. With this option, you have full control, and Amazon will neither raise nor lower your bid. You set the bid, and that’s the bid that applies. You get full control, but it also means you really need to find out what the best bid is for you to set for each keyword.
9. What Is Bids by Placement?
Bids by Placement gives you the ability to increase your bid for specific ad placements within Amazon. The reason you might want to do this is that these ad placements sometimes convert better. If they convert better, there is also an incentive to pay more. The placements you can increase bids for are:
- Top of Search (First Page) - Ad placements high up in the search results.
- Product Page - Ad placements on product pages.
You can increase the bid by up to 900%. But if you choose to use Bids by Placement, these bid increases are usually much smaller. Often somewhere between 10-50%. However, you don’t need to worry about this in the beginning. This is something you can start looking into when you already have ads up and running that are producing results. Then you can analyze the data and adjust any bid increases in a data-driven way.
10. What Is Keyword Match Type?
Match Types are something you should recognize if you’ve worked with Google Ads. For each keyword you add on Amazon, you also specify a match type. This match type determines how broadly your ads will match customers’ actual searches.
If you add the keyword “Blue bike helmet” to your ads, what should customers search for your ad to appear? Does the customer need to search for exactly “Blue bike helmet,” or is it enough if the phrase contains something similar? This is determined by the match type, and there are three different match types to choose from.
Exact Match
Exact match is the simplest match type to understand. For your ad with this match type to appear, the customer must search for exactly the keyword you added to your campaign. No other searches will trigger the ad. This gives you good precision, but it’s also hard to predict exactly what your customers will search for.
Phrase Match
Phrase match means that the phrase the customer searches for must contain the keyword you added. If the keyword consists of multiple words, these must be searched for without any words in between them for a match to occur.
If you use the keyword “Cheap helmet,” it will match for a search for:
- “Big cheap helmet”
- “Not cheap helmet”
- “Cheap helmet blue”
But it will not match for the keywords:
- “Cheap big helmet”
- “Cheap blue helmets”
- “Helmet cheap”
Broad Match
This is the broadest match type, and therefore customers can search for a wider variety of the keyword and still match. The downside is that the broader a search can be, the further away from your intended target audience you can get. With Broad match, the keyword will match searches very broadly. It can include misspellings, synonyms, singular/plural, etc.
For example, the keyword “Cheap helmet” will match with:
- “Cheap helmets for kids”
- “Cheap helmet”
- “Cheap bike + helmet”
- “Not cheap and good helmet”
But the keyword will not match with:
- “Cheap pedal”
- “Big helmet”
Which Match Type Should You Use?
I’ll go into this more later. But I can reveal now that I almost never use Phrase match. I use Exact match as often as possible and Broad match primarily to find new keywords that convert well. It’s also important to know that campaigns with Automatic Targeting, which I mentioned earlier, do not have a match type. Since you don’t enter any keywords in these campaigns, it’s not necessary. Amazon does that work for you.
How Do You Get Started with Ads?
Great, we’ve now covered most of how ads work. This will be the foundation for what I’ll cover in the upcoming sections. So, well done if you’ve made it through everything!
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