Before You Start
- Familiarity with Amazon’s PPC system. If you’re a beginner, be sure to check out our Amazon PPC Beginner’s Guide.
- Basic understanding of what ACoS (Advertising Cost of Sale) means.
- Some experience or knowledge about keyword bidding.
- Learn about our other formula for calculating Optimal Amazon PPC Keyword Bids.
- Access to your Amazon sales and advertising data.
Overview
- Understanding “Revenue Per Click”
- The “Revenue Per Click” Formula
- Advantages of Using the Formula
- Summary and Next Steps
- Related Articles
Understanding “Revenue Per Click”
Amazon PPC is all about ensuring you get the best bang for your buck. And at the heart of this is the concept of “revenue per click.”
What it means
“Revenue per click” represents the average revenue you earn for every click on your ad. It’s not about how much you spend but about how much you make from those who click on your ad.
How it impacts your bidding strategy
Knowing your revenue per click allows you to make informed decisions. Instead of guessing your bids, you can calculate them based on tangible data. This way, your bids align more closely with the real value each click provides.
Let’s dive more into this.
The “Revenue Per Click” Formula
Using the “revenue per click” to determine your optimal bid can be game-changing. Here’s how to use it:
Breaking down the formula components
- Optimal bid: This is what you’re trying to find. It’s the most suitable amount to bid on a keyword.
- Revenue per click: The average revenue you make from every click.
- Target ACoS: Your goal in terms of the ratio of ad spend to sales. If your ACoS is too high, you’re overspending. Too low? You might be missing out on potential sales.
Now, the formula:
By multiplying your revenue per click with your target ACoS, you can discover the most efficient bid for your keywords.
Deriving the formula
For all you math-heads out there, here is how this formula was derived.
We know that ACoS can be represented as:
Multiplying the numerator and denominator by (1 / clicks), we can say:
We know that CPC (cost per click) can be represented as spend / clicks and that RPC (revenue per click) can be represented as sales / click, so we can just substitute those in the equation:
In other words, we can then say:
Real-world application
Let’s say your revenue per click is $2 and your target ACoS is 30%. Plugging these into the formula: Optimal bid = $2 * 0.30 = $0.60
Thus, your optimal bid would be $0.60.
Advantages of Using the Formula
The “revenue per click” formula isn’t just fancy math — it’s a tool with real benefits.
Why it matters for Amazon sellers
- Decoupled from using sale price as a variable: When you have multiple products per adgroup in Amazon PPC, using the Revenue Per Click formula is best since it decouples the dependency on using a single product’s price in the optimal bid calculation.
- Using a single product’s price in an optimal bid calculation in an adgroup that contains multiple products is a problem because you can never know which product was attributed to each keyword’s sales.
- On the other hand, this isn’t really a problem with single-product adgroups and you can use the optimal bidding formula that we derive in this article.
- Precision: Get accurate bids that reflect the true value of your keywords.
- Efficiency: Prevent overspending and maximize your ROI.
- Consistency: Keep your bidding strategy consistent and based on real data.
Potential for ROI
By optimizing your bids, you’re more likely to get a better return on your ad spend. This method provides a more calculated approach, reducing wasteful spending and enhancing potential profits.
Summary and Next Steps
Harnessing the power of the “revenue per click” formula can revolutionize your Amazon PPC bidding strategy.
With precise, data-driven bids, you position yourself for higher ROAS and more consistent ad performance.
Here are what your next steps should be:
- Export a bulk operations file and review your current PPC campaigns.
- For each active keyword, determine your revenue per click, and plug it into the formula to get your optimal bids.
- Update the Bid column with the calculated bids for each active keyword and target in your account.
- Upload the bulk operations file!
If you’ve never used the Amazon Bulk Operations file to make changes to your Amazon PPC campaigns yet, then stay tuned because we’ll be releasing a guide on that shortly!
It’s time to take your Amazon PPC game to the next level! Happy bidding!