Top Amazon sellers know the benefits that come from Amazon advertising. In addition to the strong ROI and sales opportunities it creates, investing in paid ads boosts organic traffic through the flywheel effectBut Amazon Pay Per Click advertising is more complex and nuanced than most sellers expect. This is especially true when it comes to the bidding system that determines which ads get shown. Understanding Amazon keyword bidding can be the difference between failing and thriving on Amazon.

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What is Amazon Keyword Bidding?

Pay Per Click advertising is an ad type that only costs the advertiser (seller) money clicked. To determine which PPC ads get shown, Amazon leverages a bidding algorithm.

Amazon’s algorithm decides which Sponsored Products it shows shoppers based on keyword bids. Keywords are the search terms that you want your product to show up for. If you are selling red baseball hats, then “red baseball hat” and “baseball hat” would likely both be keywords worth bidding on. To make sure you rank for these keywords, you have to outbid competitors who are targeting them as well.

There are a few aspects of Amazon’s auction that are worth keeping in mind. Participating in the auction makes your product visible to buyers, but you only pay for clicks. Therefore, it’s entirely possible to expose people to the image of your product without incurring much of a cost. However, on Amazon, a click indicates a strong intent to buy which is why the ad platform is built around pay per click.

How Does Bidding on Amazon Work?

Bidding on Amazon Advertising is a second price auction. This means that the seller who bids highest on a keyword wins the auction and gets their ad displayed at the top of the search. However, you only pay what the seller who came in second place bids.

For example, if Seller A bids $2 for the keyword “baseball hat” and Seller B bids $2.50 for that same keyword, Seller B would win the auction and rank first. However, they would only have to pay $2 every time their ad gets clicked, as that was the bid from the second place seller.

This logic trickles down to all available sponsored products spaces. Your advertisement will only show up if you win a spot in this auction. This makes selecting the right bid extremely important. You can set your ad group default bid, but this can hurt you. It’s doubtful that the bid you chose will be successful for every single keyword in the auction. Instead, set your default bid at the keyword level for the true value you can afford to pay per click. You can figure out your true value by taking into consideration your margins, conversion rates, and fees.

However, once you set your bids at the keyword level, you can’t just leave the bids as is and expect to win the auction.

Why Doesn’t Set-It-And-Forget-It Work For Keyword Bidding?

You have to continuously look at your performance data and react to changes to ensure you’re consistently winning keyword auctions. For example, if fewer people buy your product after clicking on an ad, your conversion rate for a product goes down. If you don’t adjust your bid to reflect the now lower likelihood of a sale, you could end up spending more on ads then you make selling the products. Your conversion rate and data never stop changing, so your bids shouldn’t either.

It is also challenging to manually calculate a profitable and efficient bid for your keywords. Knowing the perfect bid is only possible by analyzing massive amounts of seller data that Amazon doesn’t make public, and automatically optimizing through some form of bidding technology.

How Often Should Bids Be Adjusted?

Ideally, whenever there is a statistically significant data change you should check your math for your keyword bids. The problem for sellers is that the data is continuously changing, and determining when it’s a significant change is a really hard problem for a person to solve. Adjusting bids to correspond with data changes is a near impossible task to manually handle even if you’re running a single campaign with few keywords, let alone scaling a business and running multiple campaigns. This is why machine learning and automation is needed to run successful advertising campaigns on Amazon.

Looking to Better React To The Constantly Changing Data Around Amazon Keyword Bidding?

Introducing Flywheel Dynamic Bid Optimization. You can now automate your bids at a higher frequency than ever before. Start reacting to data at the pace needed to maximize profit on Amazon.