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proven formulas to lower ACOS

PPC Hack 2020 – Proven Formula To Lower Your Advertising Cost

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The fourth pillar of Amazon, PPC have been a hot topic across the globe. Many are aware of the immense need for PPC in Amazon, while some still rely on their organic sales. 

Let me ask you this: Have you come across any successful Amazon Seller who has never run a PPC campaign? 

I am sure it’s a big NO. 

Your business needs investment in every stage. If you’re a starter, you need PPC more than anything to boost up sales and earn brand exposure. 

And if you have a well-established brand on Amazon, you still need PPC to keep your brand alive and get the maximum share of the revenue. 

In short, PPC keeps you in the competition and help you reach the right people. 

Creating a PPC campaign that can bring the desired role is what a successful campaign is all about. The rest is all crap!

Before we go into the formulas, it is important to understand the basics of creating an ad campaign. 

PPC Keywords & Match Types

From the basic definition, a keyword is the search term used by the customer for searching for a product. In order to find the high-density keywords, you would need a keyword tool. In the beginning, you can take help of any free keyword tool for Amazon keyword research that will give you the complete insights about long-tail keywords and your competitor’s source of traffic. 

Remember your goal; In PPC, you only want to show your product to the ones who are actually looking for it. 

In Amazon PPC, you need to place the keywords for bidding. And for every keyword, you are required to choose the match type from the following 3 options.

  1. Exact Match: –

If you select the exact match, your Ad will only appear to the customer if he uses the exact keyword. Even an additional ‘S’ will not show your Ad.

Let’s say: you are bidding on the keyword ‘Room Spray’, your ad will only show on the exact search which is Room Spray. It will not show your ad if the customer searches for ‘Room Sprays’ or ‘cheap Room Spray’.

  1. Phrase Match: – 

In this case, your Ad will appear as long as the customer’ search term contains that particular phrase. (Without being broken by words)

For example: 

If you are bidding on the search term ‘Leather Jackets’ and have selected phrase match, then it will show Ads to those who type ‘Red Leather Jackets’, ‘Comfortable Leather Jackets’ etc.

  1. Broad Match: – 

In this case, the order doesn’t matter. As long as the customer’ search term contains that particular words of your keyword, it will show up your Ad. Basically, broad match uses the wide range of possibilities that could possibly relate to your product. However, it doesn’t show your Ad to the irrelevant searches. 

Let’ say: you are bidding on the keyword ‘Best DSLR Camera’. Your Ad will show to the viewer if they search ‘Photography DSLR’ or ‘Best camera for Photography’. 

  1. Negative Keywords

In simple terms, these are the exceptions you can enter. Like, if you don’t want your Ad to appear on certain searches, you can add them by selecting Negative Keywords. 

This helps you in saving Ad money by not showing your Ad to the irrelevant audience. Because every useless click will cost you in PPC (that’s how it works)

  1. Negative Exact

AS the name suggests, it is a way of suggesting the Amazon Algorithm to not show Ads to certain keywords. (Exact)

In order to start a PPC campaign, you need a bit of Math. 

Formula #1: – Creating a perfect CPC Bid to Hit Your Targeted CPA

The basic definition of Cost per Acquisition (CPA) is defined as the aggregate cost to achieve one paying customer on a channel or campaign. In Mathematics, it is defined as the cost per Conversions. 

C:\Users\Com Plus\Desktop\ppc-equations-cpa.png

What is the cost? 

The cost here is the number of clicks your Ads get multiplied by the cost per click (CPC)

Cost = Clicks x CPC

What are Conversions?

 Conversions are the number of clicks you get multiplied by your Conversion Rate (CR)

Conversions = Clicks x Conversion Rate

This was the basic and general stuff. Let’s move to the next equation.

(Calm down, I am not teaching you data science) The next step is to substitute the formula of cost and conversion on their respective places. 

C:\Users\Com Plus\Desktop\ppc-equations-cost-per-action.png

Now, try to remember the basic cancellation rule of mathematics. 

C:\Users\Com Plus\Desktop\ppc-equation-cpa-2.png

Now, here is the most crucial part. I need your 100% attention because even I gets confused about it. 

What was our goal in the #1 formula? Creating the perfect Bid Right?

Let’s convert the above equation for CPC. 

C:\Users\Com Plus\Desktop\cost-per-click-ppc-equation (1).png

Let’s say, 3% of our traffic converted and make a purchase. That 2% is our conversion rate

And we have set a target CPA of $40,

Calculating CPC = $40 x 0.02 = $0.8 CPC

Formula #2: – Setting your CPC Bid to target your ROAS

Return on ad spent (ROAS) can be calculated from a simple formula:

C:\Users\Com Plus\Desktop\ppc-formula-for-roas.png

We need to expand the equation the same way we did in the formula #1. The cost will be split into Clicks x CPC

AS for revenue, it would be the number of sales (Conversions) multiplied by the average order value (A0V). 

C:\Users\Com Plus\Desktop\adwords-formulas-return-on-ad-spend.png
C:\Users\Com Plus\Desktop\roas-formula-for-ppc.png

After this, we have to go with further expansion. If you remember the previous formula of conversion, it would be easy for you. Substitute the value of conversion in the above formula.

Now, comes the cancellation part. Like the previous one, you can cancel clicks from the above formula. 

C:\Users\Com Plus\Desktop\simplified-roas-formula.png

In order to calculate the ideal CPC for our targeted ROAS, we will have to make a small adjustment to the formula by exchanging positions of ROAS and CPC. 

C:\Users\Com Plus\Desktop\adwords-formulas-target-roas.png

Let’s say, you have a target ROAS of 5, the average selling price of the product is $200, and conversion rate at 2%. In this case, CPC would be $0.08.

Formula #3: – Maximizing Profit by Setting an Ideal CPC

Now, this might have attracted your interest a bit better than the rest formulas. Obviously, we all tend to look for the hack that could maximize our profit. 

Let’s start with the simple formula of Profit

C:\Users\Com Plus\Desktop\profit-formula-for-adwords-ppc.png

As usual, let’s substitute the values of revenue and spend in the above equation. Revenue is the multiplied value of your clicks, conversion rate, and your average order value. While the spend is the product of your Clicks and CPC. 

C:\Users\Com Plus\Desktop\calculate-ppc-profits-formula.png

We’re moving towards a bit complex calculus part that would require your complete attention. In order to calculate the maximum value, we need to take help of the calculus. The below equation illustrates the derivative of profit against the number of clicks. 

In order to calculate the maximum value, the rule of math suggests to put the equation equal to 0. 

C:\Users\Com Plus\Desktop\ppc-calculus-2.png

Next is easy. You need to use simple algebra to find the value of Max CPC Bid. 

C:\Users\Com Plus\Desktop\cpc-to-maximize-profit-formula.png

We’re almost done. Considering the CR to be 2% and Average Sale to be $150, the max CPC bid would be $3. The reduction of CPC would mean more profit but fewer sales, while an increase in CPC would define more sales and less profit. 

Say Thanks to Mathematics.
More than Facebook Ads and Google AdWords, Amazon PPC can bring marvelous results for you in a matter of days if run well. And if you have been relying on your organic traffic, it’s time to invest your money in Amazon PPC. Get the help of a PPC Expert or run your campaigns according to the guidelines.

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