Congratulations! You worked hard to procure great products, you set up your Amazon store, and your product pages went live. But the sales didn’t exactly start rolling in like you expected. Now you’re starting to wonder: how do you actually make money on Amazon as a new seller?
To generate sales and run a profitable Amazon business, you need to increase shoppers' awareness of your products and build momentum for your business. Advertising with Amazon Sponsored Products is the way to do this while generating a good return on your investment.
In this article, we’ll walk you through how to make money on Amazon by leveraging three advertising best practices. (If you’re completely new to Amazon PPC, we recommend you first watch this helpful video from Amazon Seller University so you understand the basics before we dive in).
1. Create a campaign that earns more than it spends.
Too many new sellers take a “set it and forget it” approach to their Amazon ad campaigns. They choose the marketplace’s default ad settings, set a budget based on how much they feel comfortable spending, and hope for the best.
This is not the way to make money on Amazon. Think of your advertising campaign like a pet: it will always need your time and attention, but it requires extra energy in the beginning to make sure you have a good relationship in the long term.
To generate profits with Amazon advertising, you need to set data-driven goals and then make regular campaign adjustments based on that data.
1. Figure out what “profitable” means to you.
To create a campaign that makes money, you have to know how much you can spend on advertising before you’re in the red. Calculate the total costs associated with each sale (fulfillment, Amazon seller fees, cost of goods sold, etc.) to identify how much money you make off of each sale.
From there, you need to calculate your break-even advertising cost of sale (ACoS). ACoS is a metric Amazon offers in their reports that indicates a return on investment. Your break-even ACoS is a benchmark to help you determine whether your ads are generating profits or not.
Read our comprehensive guide to ACoS on Amazon to learn how to find your break-even ACoS—and how you can use this important performance metric to build more profitable campaigns.
2. Calculate a campaign budget based on your sales goals.
Your campaign’s daily budget sets a cap on how much money you’ll spend on a given day bidding on your ad’s target keyword. When that cap is hit, Amazon will pause your ads until the next day. For example, if you have a daily budget of $10, and each click on your ad costs $1, you can generate 10 clicks before your ads stop showing for that day. If your budget is too small, you miss out on valuable traffic. If it’s too big, you risk overspending on unprofitable clicks.
That’s why you need to set an initial daily budget based on your sales goals and conversion rate—ideally, the average conversion rate of your ads. However, when you’re brand-new to selling and advertising on Amazon, your account won’t have good conversion data available. If that is your situation, use the generally accepted average Amazon ad conversion rate of 9%-10%.
Once you have this data, use this formula to set your daily campaign budget:
[sales goal] x [conversion rate x 100] x [average CPC] = daily budget
Don’t worry—it’s not as complicated as it looks. Here’s how that formula breaks down: if you want to sell 10 products a day, and your conversion rate is 10%, you’d need 100 clicks to hit your sales goal. Now, look at Amazon’s suggested bid range to find the average winning bid for your keyword.
If the average CPC is $0.72, you should set an initial daily budget of $72. Here’s how it looks plugged into our formula:
10 x [0 .10 x 100] x $0.72 = $72
Remember, this is your initial budget. Suggested bids and conversion rates will change over time, so keep an eye on your conversion rate and average CPC, and adjust your daily budget as needed so it doesn’t limit your performance.
Third, review your data frequently, and make adjustments accordingly. You have to check your campaign performance regularly if you want to really make money on Amazon. Reviewing your Amazon reports, culling low-performing keywords, and raising or lowering bids should be a weekly activity. Costs and competition fluctuate, as does keyword performance, so you need to adjust campaigns accordingly.
For a more in-depth look at how to adjust your campaigns, read our guide to the 3 Major Amazon PPC Management Challenges (and How to Solve Them).
2. Use strategic keywords to get your product in front of your target audience.
To generate sales and keep ROI high, you need to target your ads to the people most likely to buy your products. Keywords are the tools you’ll use to do this.
Hopefully, you did some keyword research before setting up your product page, so you have a rough idea of the main keywords related to your product. While these phrases are a good starting point, you want to move beyond high-level product keywords when it comes to ads.
General phrases such as “coffee maker” or “running shoes” indicate the shopper is at the beginning of their product search. They know they need to replace their coffee maker, or they’re trying to get into running, but they have no specifics in mind.
These keywords often have high competition with big brands, but they don’t often yield good sales results.
The sweet spot is further down the buying funnel, when customers get specific like “12 cup coffee maker with grinder” or “ergonomic men’s running shoes size wide.” These phrases are known as “long-tail keywords” and usually have low competition and high purchase intent.
The good news is, you don’t need to use guesswork to figure out the most relevant long-tail keywords for your buyers. You can use Amazon’s automatic campaign targeting to find profitable keywords. With automatic campaign targeting, you don’t choose any keywords—Amazon decides where to show your ads based on your product page. It’s not a good long-term advertising strategy, but it’s important for identifying those valuable phrases.
Run your automatic campaign for a couple of weeks in order to gather enough data. Then, download and review your search-terms report. This report will show you every search query that generated at least one click on your ad. You’ll be able to see exactly what searches shoppers used to find your product—and how often those searches turned into sales.
Take the search queries that converted at a good ACoS, and add them as new keywords to a campaign with manual targeting. (See the video above for guidance on how to do this.) Now, set bids on these keywords that are high enough to win but low enough to be profitable.
Learn more about how to use your search terms in our report A 3-Step Amazon Advertising Strategy for Small Businesses.
This might seem like a lot of work, but it’s necessary to get your ads in front of the right buyers while keeping your campaigns profitable.
3. Secure top ad positions to drive more qualified traffic.
Page one of the Amazon search engine results page (SERP) drives the majority of sales. Unfortunately, it can take a lot of time and effort to reach page one organically. Ads, on the other hand, allow you to place your products at the top of the SERP without the need to wait. You do this with the strategic use of ad placements.
Your Sponsored Product ad will always show up in one of three places:
- The top of search results
- As a “related item” on the bottom of another product’s page
- “Other search results”—which means either placement further down the the first SERP or on the second (third, fourth, etc.) SERP
Generally, the ideal placement is the top of search results, due to its high volume of traffic. While the exact algorithm Amazon uses to determine ad position is unknown, they claim to use relevancy and bids to determine top placement. The keywords you choose will impact your product’s relevancy to a given search, but bids are the main thing you can control. The higher the bid, the better your chance of winning a top placement.
With that said, you also don’t want to pay a high CPC for a placement that doesn’t perform as well. To keep your campaigns profitable, use Amazon’s adjust bids by placement feature. This tool allows you to essentially target your desired placement by dynamically raising your bids.
To use this bidding feature, go into your campaign, and then set a percentage multiplier for top-of-search placement. This multiplier allows you to target top placements without raising your base bid (which applies to all placements).
When your ad is eligible for this placement, your bid is automatically increased by the percentage specified, so you have a better chance of winning the placement.
Monitor your campaign data to make sure that winning the top-of-search spot doesn’t cost so much that it makes your ads unprofitable. Check on ad performance in your Placement Report to judge whether the top placement is actually making you money. If it’s unprofitable, lower your multiplier, or try targeting a long-tail keyword with less competition.
To make money on Amazon, you must create sustainable sales growth
If you’re wondering how to make money on Amazon in the short term, advertising is an essential place to start. Paid promotions help you build a thriving, sustainable business by creating a positive feedback loop of sales.
By increasing your product visibility, ads are likely to generate more sales for you. When that happens, your sales rank increases, which boosts your product’s organic search ranking. Sponsored Product ads also often lead to more product reviews, a major factor in increasing Amazon conversions.
Advertising is key to both jump-starting and sustaining a profitable business on the Amazon marketplace. So if you’re worried that you don’t have the time or expertise needed to manage your campaigns well, why not let us help? PPCWIZ manages your ad campaigns with the power and accuracy of artificial intelligence. Our tool automatically optimizes campaigns to increase sales, and it’s the most affordable Amazon PPC management software available to new sellers. Start your free trial today.