The ultimate guide of bidding strategies on Amazon

Mastering Amazon’s bid system is one of the ways that can help you maintain your ad spends and ACOS on Amazon. By combining the right techniques under the right circumstances, you can dominate your competition, attracting their customers to your products in a flash.

Whether you are a newbie seller, or an experienced seller/ agency, by the end of this post, you will understand:

(a)    What is Amazon bidding and how does it work

(b)    What are the different bidding strategies available on Amazon

(c)     How to calculate bid from target ACOS (including bid modifiers)

(d)    Effective bidding techniques for different type of keywords

(e)    How does atom11 help you with the right bidding strategy

Before we get started, bidding strategies are all about improving ACOS. You can read about all strategies to improve ACOS here: 4 Strategies to Improve ACOS on Amazon.

If you are specifically looking to use Dayparting strategies to improve ACOS, you can watch this video for a complete step by step strategy: Youtube video about step by step dayparting strategy OR read blog post here.

What is Amazon Bidding and how does it work?

Amazon has millions of advertisers who want to show their ads to their customers, in a bid to make them buy their products. At such a scale, it is impossible to have different pricing for different sellers. So, Amazon devised an advertising system based on auctions. Brand and sellers bid on keywords. Once the keyword that the advertiser is bidding on matches with the search term that the customer searches for, the bidding algorithm comes into play. The system pits all advertisers against each other in a real time bidding algorithm. The higher the bid, the higher are your chances to show your ad to your potential customer.

Let’s take an example to understand bidding auctions:

Let’s assume that are 3 advertisers: A, B and C. All A, B and C sell sneakers on Amazon.

Ofcourse, all three advertisers would want to show their products when a customer searches for the word “sneakers”. So, they run ads for that keyword and bid for it. Depending on how high they bid, Amazon will decide whose ad should show up on their platform. Below is a simplified version of Amazon’s bidding strategy:

From the above table it looks like that the highest bidder gets to show their ad to the advertiser. Well, it is not entirely true.

How does Amazon calculate winning bid?

Amazon’s algorithm calculates winning bid with 2 parameters: Bid and e-CTR (expected click through rate). e-CTR is a measure of relevance of the keyword with the product advertised. It tells Amazon how high the chances are that a customer will actually click on this ad.

Winning bid = Bid value x eCTR

e-CTR is important for Amazon for 2 reasons: (a) e-CTR tells Amazon how relevant the ad is to the customer. Amazon does not want to show you a diaper ad when you are searching for shoes. So, it does a couple of checks at its end to ensure you are not shown irrelevant ads when you search for something. But what about 3 advertisers who are selling the same product. Just like Advertisers A, B and C. In such cases, Amazon will calculate e-CTR using multiple strategies like using historical CTR of the product, or historical CTR of the ad.

(b) e-CTR is also important to Amazon as it determines if Amazon will get paid or not. Amazon ad doesn’t charge advertisers for impressions. It gets paid only if the customer clicks on the ad. Hence, it is in Amazon’s best interest, if it shows relevant ads to its customers.

Further read for advanced sellers:

From (a) and (b) above, you will know exactly why new campaigns take time to get high CTR. Or why do we suggest that you should not add more than 10-15 keywords in a campaign. Once Amazon has identified its top 10 KWs in a campaign that will fetch it revenue, it will stop trying to identify more such keywords.

That’s why while harvesting keywords, you should add keywords to new campaigns if you are doing it manually. With atom11, you can do that:

What are different types of Amazon Bidding:

First let’s understand different types of bidding strategies on Amazon:

1.       Campaign level bidding strategies

a.       Fixed bidding strategy

b.       Dynamic bidding strategy – down only

c.       Dynamic bidding strategy – up and down

2.       Placement level bidding strategies

a.       Top of search

b.       Rest of search

c.       Product page

d.       Other than Amazon

3.       Rule based bidding

As of 2023, all bidding strategies are only applicable for Sponsored Product campaigns. In this section, we will discuss all bidding strategies in detail. We will also discuss the use case for each bidding strategy. Let’s get started.

1. Campaign level bidding strategies:

When you create sponsored products campaigns, there are 3 bidding strategies to choose from basis your campaign objective:

1. Fixed bidding strategy:

Its as simple as it gets. Amazon will use the exact bid you have set, for all opportunities. Amazon will not adjust your bid basis “likelihood of conversion”. Amazon claims that this strategy leads to lower conversions than other bidding strategies.

When to use fixed bidding strategy: It is difficult to ascertain if conversions are higher for any specific bidding strategy, even for Amazon. But fixed bidding strategy is great to use for 2 specific use cases:

(i) Ranking campaigns: where your main objective is not conversion or ACOS, but visibility on top of search. With fixed bid, you can bid high and still be in control of the CPC.

(ii) Low performing campaigns: critiques may argue, but if your campaign is not performing well, on any other bidding strategy, and you want to calculate your own bids for your underperforming campaign, fixed bid may do the job

b. Dynamic bidding strategy – down only:

Every time Amazon shows your ad to a customer, it calculates a eCTR and eCVR i.e expected click through rate and expected conversion rate. Amazon uses its expected conversion rate and has devised two dynamic bidding strategies – down only and up and down.

With Dynamic bidding strategy - down only, Amazon will reduce your bids by up to 100%, if a click is less likely to produce a convert a sale. These bids are adjusted in real time as the auction for a search term starts in Amazon’s internal systems.

When to use Dynamic bidding – down only strategy: This bidding strategy is most commonly used for low performing ad campaigns, as customers are more in control of the CPCs. But our recommendation is to use this strategy as a default. It controls conversions while also controlling costs – and we believe both are a must when you are running ads on Amazon.

c. Dynamic bidding strategy – up and down

If you select this option, Amazon will be able to increase your bids by a 100% for clicks that are more likely to convert and also reduce your bids by 10% for clicks that are less likely to convert. Note: Amazon will increase your bids by 100% only if your ad is eligible for Top of search placements. For all other placements, Amazon will increase your bids by up to 50%. For example, Amazon can adjust your bid of INR 1.00 up to INR 2.00 for opportunities on top of the first page of search results, and up to INR 1.50 for opportunities on all other placements

Although Amazon suggests this bidding strategy be your default, we recommend that you use is specifically for your high performing campaigns. This could help you get higher conversions for the same campaigns as Amazon will keep alternating your bids.

Placement Level Bidding Strategy:

Placements are locations on the Amazon website/ app where your ad might appear. Amazon gives you the ability to bid differently for different placements. Not only that, it also gives you the data to take informed decisions about the same.

But it is to be remembered that all these placement level bidding strategies are at a campaign level, not at a keyword level.

There are 4 placements:

1. Top of search:

Top of search are sponsored product placements on page 1, right on top of the search results. These are typically high CTR (click through rate) placements, but conversions depend on how relevant your product is to the search term. Since these placements have high CTR, they do end up spending large amount of money in a short time. We strictly recommend that you keep checking the performance of this placement and taking swift action, as it can really change how your campaign is performing.

On atom11, we even provide recommendations for placement level performance.

b. Rest of search:

This placement refers to SP ads in the middle of search or bottom of search results. It also refers to placement on second page of search. Recently Amazon gave customers the option to add budget multiplier to Rest of search also. Rest of search placements are great as they are not as expensive as Top of search and conversions normally lie between top of search and product page placements. It is a great product placement for high involvement sub categories. Specifically, home improvement, electronics, health and personal care – type categories where customers research before buying.

c. Product Pages:

Product pages refers to Sponsored Products placements on the product details page, and all non-search placements such as the add-to-cart page. Product placements get highest number of impressions, but least clicks, as these placements are not typically high visibility. While conversion rates are lowest, the placement itself is the cheapest of all 3 placement types discussed thus far.

d. Other than Amazon:

Recently, Amazon partnered with the likes of pinterest to show SP ads outside of Amazon. Currently we do not have enough data to talk about its conversions and impressions, but our hunch is that impressions would be high and clicks/ conversions low on these placements. Today, there is no way to opt out or control bids for this placement.

You can use ad adjustment % on any of the above placements (except other than amazon). For ex. you could select top of search placement and apply a 30% bid adjustment on the same. In such cases, if your bid was 2$, then it could only be raised to 2.6$ to get the top of search placement.

If you want to see placement level performance, then you can go to the placement level page on atom11 and look at all placement data in one go.

3.    Rule based bidding:

This bidding option gives you control to adjust your bids according to the ROAS. Amazon will keep changing bids in real time to control your ACOS. But it does clarify that there is no guarantee of campaign performance.

Only sponsored product campaigns are eligible for rule based bidding. Other eligibility criterion are:

• Campaigns can use any type of targeting: automatic, keyword, or product targeting.

• Additionally, your campaign must meet the minimum daily budget requirement. Which could be different for different geos.

Figuring a good bidding strategy:

In the following two tables, we will explain 2 concepts. In table 1, we will explain how Amazon modifies your bid according to different bidding strategies and modifiers. We have made an assumption on TOS, product page and ROS multipliers (mentioned in the table below)

In table 2, we will help you reverse engineer a bid from target CPC calculation for every keyword. Here we have calculated bid from a target ACOS:

Step 1: We calculate target ACOS. Target ACOS can be calculated by eliminating all Amazon fee and commissions and finding a profitable spend/ sale % from advertising.

Step 2: From target ACOS, we calculate target CPC. Target CPC = Ad Sales/ Ad Clicks * Target ACOS

Step 3: From Target CPC, we adjust for bid adjustments. For dynamic bid up and down, adjust for 100% or 2X additional bid

Step 4: After bid adjustments, you include the impact of placement modifiers. For ex. for a 50% placement modifier, account for 1+0.5 or 1.5X on the calculated bid

How atom11 can help you modify bids:

1. Increasing/ Decreasing bids basis multiple parameters:

On atom11, you can automate your bids the way you want to. You can use parameters like clicks, ACOS, Conversion, Spends etc. and compare it with either hard values or pre-calculated values like target ACOS etc.

For ex. if spend is greater than a certain value and ACOS is less than target ACOS, then reduce bid.

This is specifically helpful in bringing down amount of manual work done in comparing performance vs. your target parameters and making individual bid changes every week.

2. Increasing/ Decreasing bid modifiers:

Similar to bid adjustments, you can automate your bid modifiers by comparing them to target ACOS. For ex. if campaign ACOS is > target ACOS, then change bid modifier to down only or fixed bids. You can automate this feature also on a weekly basis.

3. Changing placement modifiers basis target ACOS:

You can make changes to placement modifiers basis target ACOS. For ex. if top of search is not performing well, then you can reduce modifier by 10% until it reaches 0%. Or if a placement is performing well, you can increase modifier by 5% until it reaches 50%. But make sure you are making these changes on a weekly basis and not daily as there will not be enough data sufficiency to support the ACOS calculation.

Upcoming:

Bidding strategies depend on multiple things – conventionally, we talk about advertising budget, your advertising goals, your advertising strategy, risk appetite. Retail aware advertising means that your bidding strategy may also depend on your SKU distribution, seasonality, your inventory, your pricing, your competitor’s bidding strategy and so on

For example, we are building custom rules so you can change campaign budgets for low inventory products and change them back once the product is back in stock.

How often should you run a rule?

You must adjust your bids only if you see statistically significant results on your ACOS, conversions, AOV etc.. This is a challenge to find, and hence we have included these parameters within the atom11 custom rules feature.

Summary

We hope that the above guide to Amazon’s bidding strategies was helpful to you and gave you more detailed information on how they work. While it is not impossible to use these strategies and work out the right bid you’re your keywords, it is certainly very difficult to do manually. It doesn’t have to be. With tools like atom11, you can eliminate wasted spends and optimize performing and non performing bids the way you want to.

To learn more about how to optimize bids on Amazon, you can set up time with us here.