What Should I Do When I Reach A Point Of Diminishing Returns In Amazon Advertising?

November 16, 2022
By The Badger

Have you hit a point of diminishing returns with your Amazon PPC advertising? When running Amazon ads, you may hit the point where your campaigns convert so well that you can decide to spend less on your Amazon PPC without sacrificing your sales.

In this article, Ad Badger’s Michael Facchin and Brent Zahradnik from AMZ Pathfinder offer valuable insight into how to remedy diminishing returns in Amazon advertising.

Everything This Article Covers

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How Do I Reduce Amazon PPC Budget Effectively?

You’ll know when your PPC campaign has hit a point of diminishing returns when you’re increasing ad spend and ACOS without growing your market share.

Once you notice diminishing returns in your Amazon advertising, your first reaction will probably be reducing your Amazon PPC spending. You want to plug the hole and stop your ad spend leakage. But you have to do it right instead of arbitrarily slashing budgets, which could harm your campaigns.

You should apply your ad spend tactically when reducing your ad budgets. Think like a pole vaulter. You don’t jump 40 feet in the air to clear a 20 feet obstacle. You want to jump just high enough to clear the bar. It also applies to Amazon advertising.

You want to spend less without earning less.

Can I Reduce Spending on Amazon Advertising Without Losing Sales?

Let’s say you’re spending $2k per month on this keyword, and you’re in the number one rank on paid and sponsored.

Can you reduce your ad spend by 20% without losing sales and organic rank? Simple answer, yes.

The thought process behind wanting to reduce ad spend for a well-performing keyword is that you’ve already gotten a foothold on that rank. Why not channel that ad spend to another keyword?

But, something you’d want to keep in mind is the performance of your top keyword over time before reducing the ad spend. If your keyword has been consistently doing well over time, you may reduce the ad spend without losing sales and your position.

If your keyword has only performed well for a couple of weeks, then we advise against implementing this approach.

Is “Cannibalization” Solvable In Amazon Advertising?

Cannibalization in Amazon PPC typically occurs when you have conflicting campaigns that compete against each other.

In Amazon PPC, this may show up as your paid search competing against your organic rank. For example, let’s say you’re ranking high organically and are generating sales. Then, you start running ads. You’ll now be paying to get some of these sales.

Is it worth it?

Well, this cannibalization is difficult to quantify, making it difficult to solve. It’s more visual than data-driven.

You can see your ads and the sales streaming in from the ads when you run a search. But you can’t know how you’d perform without running ads. Hopefully, we can get more metrics that we can use to quantify and solve cannibalization in Amazon advertising.

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How Do I Decrease Bids While Staying On Top in Amazon Advertising?

How would you help a client that wants to decrease their bids after dominating the top rank organically and in ads?

According to Brent, you first need to gather data from the Search Query Performance Dashboard to benchmark it.

What percentage of products appear on the first page of Amazon search results for a particular keyword? How many of those are showing up in organic searches? How many are showing up in the paid search? These stats would determine how you adjust your client’s bids.

It’d be rough initially, so you’d want to ensure your client is prepared for a bumpy ride. But, a client could potentially gain a profitability edge by lowering PPC spend if they already have a foothold on top product and keyword rankings.

Their spending would have to be higher, though, because there’s little room for PPC spend reduction if they’re spending $100 a month on a keyword compared to $3,000 per month.

Reducing the monthly bids from $3,000 to $2,500 would result in $500 savings every month. Multiply that by the number of keywords you’re bidding on, and the savings stack up fast!

How Do I Adjust Amazon Campaigns That Hit Diminishing Point of Returns?

A few months ago, an Ad Badger client was spending about $50k USD a month on Amazon PPC ads, and he wanted to spend less, like $40k to $45k per month.

They were already at number 1 in organic and sponsored rank. Their concern was whether they could reduce their monthly budget without negatively impacting organic sales. What would happen if they were in sponsored rank no. 2? Would they remain in organic rank number 1?

Michael’s first reaction was to push back against this move and advise the client to stay in sponsored rank one. But, the client wanted to lower the ACOS by five points to slide into the second position in both organic and sponsored rank. If they slipped into position three, then they’d raise the ACOS slightly to adjust.

We tracked the keyword’s organic rank weekly. It was an interesting experiment!

According to Michael, if he were to do it again today or advise you how to do the same, he’d look at brand analytics to see the conversion share per keyword because, theoretically, you can be in organic rank no. 2 and still make the most sales. Your brand analytics will verify this.

Look at the Brand Analytics data screenshot for the top search terms. You’ll notice that the keyword in the third position by click share has a bigger market share than the second. They don’t align as you’d expect them to.

Back to Michael’s client, they successfully reduced their ACOS without affecting their sales.

Disclaimer: We do not recommend everyone take this approach. If you have to do it, tread lightly.

Stay Ahead Of The Curve With Your Amazon PPC Advertising

Recognizing when your Amazon advertising campaigns have hit a point of diminishing returns and fixing them could make a massive difference in your ad spend and conversion rates.

Hopefully, you’ll find the strategies outlined in this blog post helpful in helping you remedy low-return campaigns and take your Amazon advertising campaigns back to profitability.