“Snapshot”
Challenge: Product ACOS increased form 40% to 66%
3 Month Results: Reduced ACOS from 66% to 40%?
6 Month Results: ACOS reduced to 35%?, decreased monthly PPC spend by X%, increased monthly PPC Sales by X%
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Main Challenge
Advertising campaigns for a top-selling “hero” product saw an increase in ACOS (Advertising Cost of Sales LINK) from 40% to 66% over the course of 3 months. These campaigns had consistently been in the 35%-40% range for the previous 5 years.
Client Goal: Decrease ACOS for product campaigns to near-historic levels (+/- 5%) without a drop in advertising revenue from those campaigns.
Background
The client allowed their ACOS to climb for months before coming to us because their sole focus for so long was on maintaining the top position in their category. Eventually, the advertising for this product started to eat into profits so much that they could no longer ignore it.
The advertised product on Amazon had been a #1 Best Seller in its category for almost 4 consecutive years. The majority of the client’s PPC bids were set significantly higher than their average CPCs. They did this strategically to leave room for their bids to increase as necessary to maintain an ad position on Page 1 of the search results. They had been able to maintain a desirable ACOS for years with this strategy without any issues.
Our client had a portfolio where the ACOS was quickly rising, surpassing their highest mark in the past 5 years by over 25%. This portfolio consisted of a variety of Sponsored Products, Sponsored Brands, and Sponsored Display campaigns that were all advertising for the same product SKU, which was the top-selling product for this business. The campaigns had posted consistent results over the previous 5 years, and no recent changes had been made aside from standard bid changes being managed by a PPC bid automation software.
Every campaign within this portfolio was experiencing a nearly identical trend. We had to fight past the assumption it was the new landscape on Amazon, due to recent increases in ad spend as a result of post-covid sales spikes. The reasons we had to rule out “increased competition” as the only cause are as follows:
1) The product being advertised was a best-seller in its category for 5 straight years and had endured countless competitors joining the landscape during this time.
2) We had the benefit of having a large amount of historical advertising data at our disposal. After analyzing this data, we determined the increase in ACOS was FAR too drastic over a short time period to be caused by an increase in competition alone.
3) The client told us that they had noticed 0 new competitors selling this product in the past 3 months. This would mean that the increase was related to existing competitors becoming more aggressive in their advertising strategies. The category rankings for the top 5 products had remained steady during the previous 12 months, so this could effectively be ruled out as well.
4) If the increase was due to nothing more than “the cost of doing business,” it would be nearly impossible to reduce the ACOS to historic levels without also significantly reducing sales/revenue. When dealing with a challenge that critically affects the health and success of a business, it’s paramount to approach it with the philosophy that it’s something that can be diagnosed and fixed.
Our Goal
Decrease portfolio ACOS to near-historic levels(+/-5%) without losing portfolio revenue.
Our goal is always going to be the same as the client’s goal. However, we also always provide our honest expectations with our partners in regard to their goals.
Our Expectations for Client Account
Our expectations were that we would be able to lower the portfolio ACOS from 66% to 45%: 5% higher than the historic average. In order for us to reduce ACOS by another 10% to the low end of the client’s goal, we believed it would have a negative effect on the monthly revenue generated by the portfolio. We advised the client that in order to reduce the ACOS by such a large amount, we expected the revenue to reduce by about 10%. Our goal was to get to this point in less than 8 months.
Portfolio Background
The client allowed their ACOS to climb for months before coming to us because their sole focus for so long was on maintaining the top position in their category. Eventually, the advertising for this product started to eat into profits so much that they could no longer ignore it.
The advertised product on Amazon had been a #1 Best Seller in its category for almost 4 consecutive years. The majority of the client’s PPC bids were set significantly higher than their average CPCs. They did this strategically to leave room for their bids to increase as necessary to maintain an ad position on Page 1 of the search results. They had been able to maintain a desirable ACOS for years with this strategy without any issues.
Final Results: Reduced monthly portfolio spend by $17,700 AND increased monthly revenue by $7,085 over 6 months. Reduced ACOS from 66% to 35% over 6 months.
Solutions and Implementation
Advertising Implementations: 1-3 months
The first step was looking at the historical data for this account as far back as we could go. After acquiring an understanding of the lifespan of these campaigns, we looked for any recent trends and statistics that seemed out of place.
The main statistic that jumped out after taking over their account was that the average CPC in the portfolio had risen from $1.66 to $4.26 – a 257% increase! – over the previous 12 months.
Since the ACOS was no longer in a healthy spot, the first action we took was to reduce every keyword bid to match the corresponding CPC. This was simply a tactic to prevent the CPC from rising any further while we worked on getting the account healthy and profitable again.
The next step involved additional bulk bid changes in every campaign. We reduced all bids to create an “effective ACOS” closer to the historical average. From there, we implemented our standard bid change strategy on a regular maintenance basis. There were exceptions for high volume and high-ranking keywords that were critical to organic rankings, but this was the general strategy.
After implementing these tactics and continuing to optimize over a 3-month period, we reduced the CPC by 27% and reduced the ACOS by 41%.
Advertising Implementations: 4-6 months
Once we hit the main ACOS target for the client, we were able to focus on increasing monthly revenue back to historic levels while maintaining ACOS. We did this through several additional account implementations.
The first next step was adjusting the bid multipliers for all Sponsored Products campaigns, as this is the only campaign type that has this option. This is something we typically would have touched on in initial campaign adjustments, but this should be done only when KW-level bids are at a desirable point (which wasn’t the case here).
The ACOS for “Top of search” placement was lower than “Product pages” and “Rest of search” placements for each campaign in this portfolio. We ended up applying bid adjustments in the range of 10%-100% to each campaign based on historical data. Depending on the portion of clicks generated by “Top of search” placement for each campaign, we also reduced the bids for all keywords in each campaign by a fraction of the percentage applied to the “Top of search” bid adjustment. This helped to keep the top of search bids steady while decreasing the associated ACOS with all other bid placements.
After applying bid adjustments and subsequent bid changes to each campaign, we continued standard campaign maintenance. We made weekly bid adjustments to all campaigns, pushing spend toward lower ACOS keywords and pulling spend from high ACOS keywords. After 3 more months of portfolio management, we were able to lower the ACOS by another 5%. We also increased the monthly revenue generated by the portfolio by $7,085 and decreased monthly spend by $17,700.
Final Thoughts
The problem that this client came to us with is something most people who deal with e-commerce advertising eventually run into. Their advertising had unexpectedly started producing a lower ROI, to the point it was losing them a large amount of money.
With a few simple campaign changes, it took only 3 months to diagnose and fix 12 months of negative advertising regression. Though the implementations were simple, they were all changes that the automation software they were using was unable to detect and/or manage.
Chasing down the root cause of an issue like this can be daunting for even the most experienced advertiser. Understanding how to recognize concerning trends in advertising data and diagnosing the root issue is the key to solving almost any problem that arises.