Bid Management on Amazon – all you need to know

Bid management on Amazon PPC campaigns is a key practice to understand to maximise your profitability. To understand how to manage bids on amazon we first need to understand how bidding actually works on the ads.

Amazon advertising is effectively one big auction where the person with the highest bid gets the top spot and every spot below that is spending less. However, you will only ever spend £/$0.01 more than the next highest bid so if you bid £10 and the next highest is £0.5 you will only pay £0.51

It’s important to note there are a lot of factors that can mean you end up paying more or less than other sellers for the same spot. The key ones being relevancy and how established your product is. So if you have a very relevant product which is well established, you may only pay £0.1 for a click that is costing other sellers £1+

The above example shows a keyword we are bidding on. It is very relevant to a product we are marketing which is easily the market leader. As you can see, we are bidding $5 but we’re only paying $0.98. It’s important to note that the suggested bid range actually goes beyond our $5 bid. In fact, all the way up to $6.47, which shows other sellers are having to bid $6.42 to get these ad placements.

The reason we get such cheap bids on this keyword is because the product we’re selling is very popular and therefore has many more reviews than the competitors. Plus the keyword is extremely relevant, in fact we are ranking in the top four placements for this keyword organically. These factors mean we are getting a huge 84% discount on the bid.

This brings up the obvious question of “How can I get cheap Amazon bids like that?”

1. Relevancy

Relevancy is the number one factor in determining how much you pay compared to your competitors. It is why if you try to bid on competitor keywords it’s really expensive whereas if you bid on your own brand name it’s really cheap. Please have a look at our branded advertising on Amazon blog to learn more about why you should be bidding on your own brand name.

Knowing which keywords are relevant to you is more a matter of common sense and logic than anything else. If you are selling a mens RFID blocking leather wallet keywords like leather wallet, RFID blocking wallet and mens wallet are relevant and therefore cheaper compared to ladies wallet, carbon wallet, metal wallet, etc. A general rule of thumb is if you don’t mention the keyword in your title, listing and bullet points it’s not as relevant.

Now just because your product isn’t 100% relevant when compared to other keywords, doesn’t mean you don’t want to bid on it. It just means you might pay more than some other sellers for the placement. For example, if you are selling a camera lens, you may want to advertise it on the camera that it’s used on. Your product doesn’t match entirely but the target audience is a perfect match. So it’s still worth it, it’s a matter of adjusting bids properly.

2. How established your product is

Amazon want their customers to have the best experience possible. With that goal in mind, they are generally going to push products that are performing better and have thousands of reviews, over brand new launches. Why? Well, because there is a lot of proof that customers enjoy a product with more reviews, sales, lower price and faster delivery. This is a good point to remember in general when working on your business.

All of the above is true for advertising too. Generally speaking products with more reviews, sales, etc, are going to get better placements on advertising for a slightly lower price because it’s a reasonable assumption the customer will be happy.

Unfortunately there aren’t any tricks you can use to help you appear more established. The more you sell, the better your reviews, the higher you appear in the search results, the more established you appear. So basically the more your business grows the more established your brand is and therefore the products.

Managing Bids on Amazon

Now that we understand how the bidding system works on Amazon, we can begin to unpack how to adjust the bids on our campaigns.

The logic of bid management on Amazon is really simple. If something would benefit from more traffic, increase the bids. If it’s costing too much decrease the bids.

There is however a point of diminishing returns with this. Increased bids means an increased ACoS. Decreased bids mean a decreased ACoS. So we can refer to the graph we used on our blog about the your profits and ACoS.

As you can see, we reach a point where increasing the bids/ACoS won’t result in increased sales. It just results in increased cost. The reverse also being true at the low end of the bids/ACoS too. The following bits of advice will ignore this concept and we’ll come back to it afterwards.

1. When do we want to increase Amazon bids?

The first reason would be if we have a keyword that is getting sales at an ACoS level below are target. We know by increasing the bids we can increase traffic and sales, and it’s generally better to get $1000 at 20% than $100 at $10.

The second reason to increase bids is if a keyword isn’t getting any traffic at all. If we see keywords with low clicks (this is relative but generally 4-5 clicks in a week), then increasing the bids can give the ad a better placement. Therefore the ad will begin to get clicks and we can find out if it is actually a good keyword.

2. When do we want to lower bid?

Similar to the increasing of bids, this route is the inverse. If a keyword has an ACoS above our target ACoS, then we want to decrease the bids so we pay less per click and bring that ACoS closer to our target.

The other reason would be if a keyword has too many clicks without a sale. This is account dependent and is based on conversion rates. If a product has a 10% conversion rate then 10 clicks without a sales is a good indication that it probably isn’t a great keyword so we want to lower bids to reduce our spend.

3. How much do we change the bids by?

Now we know if we want to increase or decrease the bid. Next, we need to know by how much.

If a keyword has resulted in sales, it’s very easy because then we can move the bid relative to our target ACoS. The formula for this is New Bid = Current CPC^{*Cost Per Click} x (target ACoS / Current ACoS)

This works for both increasing or decreasing the bids.

An example of this would be:

• Current CPC = $1. Target ACOS = 20%. Current ACOS = 25%. 1x(20/25)= 0.8
• So the new bid is $0.8.
• Our ACOS was 20% away from our target, so we decreased the bid by 20% to match.

This doesn’t work well with extremely low figures though.

• A low figure example: Current CPC = $1. Current ACOS = 5%.
• Target ACOS = 20%
• 1x(20/5)= 4
• So the new bid would be $4.
• The issue with this is we are exposing ourselves to extremely high bids which are likely to be unprofitable.
• That’s why we recommend you don’t increase bids by more than 35% at once.

This formula works for keywords with sales. For the keywords with high or low clicks and no sales, it doesn’t. For these, we increase/decrease bids by 15-20%. Increasing for low clicks and decreasing for high clicks

These rules work when we are in the linear part of the graph but when we reach the top or bottom extremes we need to make different changes.

The key to bid management on Amazon is being able to spot if you’ve reached ‘that’ point.

It is actually very rare to reach either of these extremes so don’t jump to conclusions. Also, it is normally incredibly obvious, because you’ll decrease the bids one week. Then you’ll see the sales decrease by an enormous about (20%+) very quickly. Or you’ll increase bids, ACoS will spike and then barely any additional sales will come through.

Again, these situations aren’t common when you’ve had experience. So it’s best not to assume anything. Nevertheless, as part of success bid management on Amazon, we recommend backing up all your data periodically. Once a week/month, using bulk files and making notes of the changes you make. That way, if you see this happen, you can reload your old data, and work back through your activity log to find out what caused the issue.

This is literally the only solution to the issue because, as you can see from the graph, pushing further either way doesn’t solve the problem.

Therefore, if you’re at the top end, you’ll have to accept no more sales will come through and let it run. But if it’s at the low end, you will have to decide if that ACoS is acceptable for you or not. This obviously varies. But in general, you’re not going to run into these issues unless you are pushing well below your profit margin. So it’s normally worth running them.

For any further detail around bid management on Amazon, please get in touch with our team.

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