# Amazon PPC - Basic

2019-09-18
If one stays for a long time in AD position, it means click-through rate(CTR) can be relatively high
Through testing, the longest staying time is on top two positions, that is, the probability of clicking is the highest.

1. Correlation
2. Product classification
3. Historical CTR and CVR

How does Amazon define correlation?
If a customer post an AD that is more clickable and has a higher purchase rate than competitors, then Amazon will consider the ad as one of the high-quality ads, which brings customers good experience.
For example:
If your product is sunglasses for wen, to get more exposure, you choose sunglasses as the keyword, then it will appear in search term advertising of sunglasses for women or DK sunglasses, which does not have correlation. This will lower the performance score of the AD.

How to judge the effect of advertising? The lower the ACos is, the better it performs?
1. Advertising is made to boost sales and profits. For ACos, we have to find a balance rather than the lowest one.
For the second point,we can better understand through the following example.
Example:
The price of A product is 20\$, the net profit is 5\$ (deduct commission, purchase cost, shipping cost, etc). The advertising fee for one month is 500\$, and the advertisement order is 50. (There is no any operation during the period).
Before advertising, the natural sales volume of A product is 75 per month. While through advertising, the natural sales volume of A product can reach 140 per month.

1. The cost of an advertising order is \$10 (\$500/50)
2. ACos takes 50% (\$10/\$20)
3. Advertising profit of a order is -\$5 (\$5-\$10)
It seems that this advertisement performed poor! We will lost \$5 for each selled product .
Furthermore,
Natural sales increased by 65 (140-75) after advertising, and sales increased by 87% (65/75).
In other words, these 65 orders are indirect order that generated by advertising.
Therefore, 115 orders (50 direct orders + 65 indirect orders) can be classified as PPC sales .
The new result should be as follow:
The advertising cost of a order is 4.34\$ (500\$/115); ACos is 21.7% (4.34\$/20\$); Advertising profit of a order is 0.64\$ (5\$-4.34\$); The total advertising profit is 0.64*115 = 73.6\$.

Why do we do that?
In addition to viewing advertising reports, it still has two indirect effects that cannot be ignored!
1. The increases in natural traffic;
2. The increases in related search terms.
The primary factor in ranking is sales.(Absolutely, when sales are the same, reviews, performance system and other factors will be taken into consideration.)
As a result, advertising increases sales, ranking and natural traffic will increase as well. The more traffic generated, the more sales we will reach.
In addition, advertising can increase the correlation of search terms. For example, your listing only has three keywords, ABC. When advertising, the system will generate multiple keywords, DEFG, according to attributes, categories, and keywords of your product. If only D keyword has orders, the system will consider D keyword as relating to your product.
When your advertising ranking drops out the ad position, but customers searching for D keyword will still find your product on the natural ranking results.
Therefore, when judging the effect of advertising, these two factors cannot be ignored. Sales from the indirect effect of advertising should also be counted.

We shoulg give priority to viewing the advertising data report before we do advertising optimization. Advertising data report mainly contains four core variables: exposure, click, order and ACOS, and the advertising optimization is based on the analysis of these four data and the targeted action after analysis.

When an advertising campaign is on, the first variable that needed to focus on is exposure. If the exposure of an advertising campaign is not high enough, it often indicates that your bid is low, or details of listing are not accurate, so the system fail to identify. In this case, the priority is to confirm your listing details, and check whether category matching is accurate, keywords are used properly, and keyword coverage is comprehensively carried, etc. If all above done, we can basically recognize that low exposure is caused by low bid. At this time, appropriately increasing the keyword bidding so as to obtain higher exposure can be essential.

In the case of sufficient exposure, we need to pay attention to the click. In general, the click-to-exposure ratio should be around 0.5% (CTR). If the CTR is too low, there can be two reasons:
1. The main map is not good;
2. The advertising is displayed at the back of a certain page. At this time, the solution is to optimize the main image of listing, or adjust the bidding (raise or reduce price) to change the advertising position.
When the adverting has a certain clicks, many sellers tend to view the ACOS value for the first time; but they may feel anxious because the ACOS value is often high at the beginning of advertising, some sellers’ ACOS can even be as high as 100%. From the perspective of percentage, such ACOS values is absolutely loss. Therefore, faced with this situation, many seller hastily close (suspend) the advertising, and have no idea to handle.

In fact, in the initial stage of advertising, the more important parameter than the ACOS value is the conversion rate, which is from click to order (commonly known as CR). According to the normal operation, the conversion rate should be around 15%. If the conversion rate is lower than 15%, either your own Listing is not optimized properly, or your price is too high, or your review is too little or too bad. Try to make horizontal comparisons with your competitors, find the gap, and close the gap. On the basis of the about 15% conversion rate (CR), we should turn our attention to ACOS. If ACOS is close to or less than the gross profit margin, the advertising at this time is cost-effective, and worthy of long-term continuous launch; but if ACOS is higher than the gross profit margin, how should we deal with it? At this time, we really enter the core of advertising optimization.

As we all know, the ACOS value is the percentage of advertising spending over a period of time and the advertising sales during that period of time. In this formula, the variables affecting ACOS include advertising bidding, product price, clicks, and orders. In these four variables, the clicks and orders appear later, which is a result that we have to face and accept. While the advertising bidding and product price are the variables that we can operate, we can enjoy bigger room for improvement in advertising optimization.

When the ACOS value is very high, if our advertising bid is too high, then we should try to reduce the bid appropriately. The reduction is generally based on the previous week's CPC price (the actual average deduction of advertising). The reduction bid should be slightly higher than the previous week's CPC price. After reduction, observe the exposure, click and conversion of the advertisement. Such adjustments generally have little effect on the exposure and click, but can reduce the cost of the advertisement expense. At the same time, horizontally compare with competitors, if the price can be properly raised(which is inevitable in the spiral building process), then ACOS will be reduced.

Of course, in addition to reducing bidding price and raising product price, we also need to analyze the specific keywords in the data report, negating the words with high exposure, high click, and low conversion (no conversion). The advertising cost can be reduced by means of time-segment bidding, which is also a necessary step in the advertising optimization process.