Hi Jin,

You cannot estimate your conversion rate. Your conversion rate is based on many factors so it would be difficult to estimate.

You need to measure and make adjustments as your product sells.

first time, ever, I know exactly: How it works?
All books, ppc specialists, online courses, high expensive seminars DIDN’T ever been able to explain it like here explained.
I am just preparing my self with help by NEIL ASHER AOE to start AMAZON.
With your PPC I am so confident now !

Jasmin

Hey Bob,

Great questions. If you look at all of your sales overall, naturally the cost for PPC will go down. However, you want to try to keep your individual costs per unit at the 25% mark.

So here’s how to think of it in terms of the math.

You have one widget with a price of $30. The cost of goods sold is 10%, so $2. Amazon’s fees come out to be a total of 30% of the price, so $9. If you make your total ads 25%, that’s $7.50.

Ads are done by click. So each click has a cost. Ideally, you want the number of clicks that a single product has to be no more than 10. That means a 10% conversion rate (one out of every ten clicks results in a sale). So if you divide the $7.50 by 10 clicks, that’s $0.75 per click, or 2.5% of the product’s price.

Also, am slightly confused on the 25% versus 2.5%. If I am estimating the total cost of PPC for a 1,000 unit order, for a $30 product…..I would calculate the total PPC cost as : 1,000 x $30=$30,000 x 25%=$7,500. Believe this is correct—yes? But not all sales will be tied to PPC so in my example, the $7,500 would be overstated. In a product I launched in late October, looks like 50% or so of sales are organic–not tied/influenced by any of the ad campaigns run.

Thanks,

Bob

Ajay,

Great observation and great questions.

That is correct. A few of us here at Jungle Scout actually use this model. I typically go for products in the $25+ price range. While my volume is lower, it allows me to better utilize PPC. Plus, my COGs is much lower because I don’t need to carry as much inventory (when considering a Inventory Turnover rate of 3x).

These days, I also use a few other strategies, including outside social media marketing and Kickstarter. But these tend to be advanced strategies which I hope to build upon in later articles.

I hope that’s helpful!

The typical suggested strategy for launching a product on Amazon is to use paid advertising including Amazon PPC heavily during the initial launch phase to gain ranking in the natural SERPs and then to slowly pull back and reduce paid advertising as your natural SERP rankings deliver an increasingly large percentage of total sales. Under this model, it seems to me that you would have an ACoS that would reduce over time to a fraction of 25%. For example, at some mature phase, you might be doing only 30% of your total order through Amazon PPC (and 70% through the natural SERPs), giving you an ACoS of say, 7.5% (i.e. 30% of orders at 25% ACos and 70% at 0% ACoS).

What’s confusing me is that it seems like you have a different model entirely, which is an ultra-high product margin (i.e. ultira-low product cost), but an ever-persistent high ACoS, as there as there is no assumption about natural traffic from the Amazon SERPs. It is basically a 100% paid advertising-based model (i.e. all or virtually all sales from advertising) that can be sustained for a long time because of high product margins.

Any comments on this issue you can offer? Did I correctly characterize your model? Which model is superior? WHy not shoot for natural rankings? And if you do, won’t ACoS end up a lot lower a few months after launch?

Thanks,
Ajay

Interesting, informative and great read.

Have a question regarding ACoS, you refer to it as ‘actual cost of sales’. I assumed it stood for ‘advertising cost of sales’.

Not sure if there are two different meanings? I would be much obliged if you could you explain exactly what both mean, not exactly sure myself yet.

Thanks in advance,
Frank.