It is not easy for sellers to run a business on Amazon, and advertising is a vital part of driving sales growth. However, many operators do not have a deep understanding of the system logic behind Amazon advertising, which prevents them from fully utilizing the potential of advertising.

Today, Zhaodanmao Cross-border will introduce the two major system logics of Amazon Advertising to help you better understand and utilize Amazon Advertising, thereby improving your business sales performance.

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Two major logics of Amazon advertising system (master)

✔ Two major logics of Amazon’s advertising system: ranking logic and fee deduction logic

✔ The results of all advertising operations depend on the operating logic of the Amazon advertising system.

✔ Only by fully understanding the logic behind it can you accurately optimize advertising and solve complex problems.

① Advertising system-ranking logic

Two ad ranking formulas:

1. Ad ranking score = ad bid * ad quality score

a. The higher the bid, the higher the ad ranking score.

b. The higher the ad quality score, the higher the ad ranking score.

2. Ad quality score = conversion rate + click-through rate + ad historical performance + relevance + category node

a. Ad quality score and listing quality score are two separate concepts.

b. However, the ad quality score will affect the overall listing quality score.

3. The formula is combined into:

a. Ad ranking score = ad bid * (conversion rate + click-through rate + ad historical performance + relevance + category node)

b. Classification of factors by nature:

i. Real-time variables: Ad bid

ii. Historical cumulative variables: conversion rate, click-through rate, advertising historical performance

iii. Invariants: relevance, category nodes

According to the two formulas, the optimization solution is reversed:

1. Variables that basically do not make a difference:

a. Advertising history: For new products, no one has any advertising history.

b. Relevance and category nodes: As long as the listing is written in a standard way, there is basically no difference

2. The main variables that widen the gap:

a. Click-through rate: Click-through rate depends on: main image 70%, title 25%, others (price/coupon, etc.) 5%.

b. Conversion rate: The conversion rate depends on: the second/third main picture; the level of refinement of the listing

3. Therefore, to improve ad ranking, you can work backwards to determine the specific implementation details and optimize them one by one.

If you need to join the Zhaodanmao seller communication group to discuss advertising operations, you can contact customer service V: FLA66668888

② Advertising system-deduction logic

Knowledge points:

● sp advertising:

○ The actual deduction is not based on the bid.

○ For example, if you bid $2, the actual deduction will not be $2

● sd ads and sb ads:

○ The actual deduction is based on the bid

SP advertising actual bid calculation method:

● Formula:

○ Actual click fee = next ad ranking score (competitor) / product quality score (own) + 0.01 USD

○ Product quality score: It is determined by the quality of your listing.

○ Ad ranking score: Your next ad ranking score is determined by

○ The next person’s ad ranking score: When his ad quality score is constant, it mainly depends on his bid.

● So: Your next position will affect your bid

● Example:

○ Suppose you bid $10 and are in first place, but the actual deduction is less than $10.

○ Your current next person wants to surpass you in ranking, and he offers $20 (but fails?).

○ Then your deduction may be infinitely close to $10, so your actual deduction depends on the bid of your next person.

○ The higher his bid, the higher your bid.

○ All you can control is to improve your listing quality score, expand the denominator, and reduce deductions.

③ Case analysis of 3 questions

✔ Suppose there are four links A/B/C/D advertising now

✔ Formula used: Ad ranking score = bid * ad quality score

● Answers to common confusions in advertising operations: (basically covers 99% of the current situation)

● Why can others’ products be on the front page for only $2, but mine can’t?

○ Because the ad has a low Quality Score.

○ Because the link quality is not high.

● Why does the advertisement have traffic at the beginning but no traffic later? What is the reason?

○ Because of the negative reviews, your conversion rate is affected, which in turn affects your advertising quality score.

○ Because your competitor has optimized their listing, their ad quality score has surpassed yours.

● The ad group had no traffic, but it got it again after raising the bid. But when I calculated it, there was no profit. After lowering the bid, there was no traffic again. Why is this?

○ Because you increased your bid, the overall ad ranking score went up, but the cost was too high

○ Because your listing quality and ad quality score have not improved

○ The opponent is always improving.

● On the necessity of accumulating advertisements:

1. Ad quality scores are cumulative

a. Accumulable scores: ad ranking score, ad quality score.

b. Accumulable variables: conversion rate, click-through rate, advertising historical performance

2. Restart or optimize

a. The advertising performance is not good, and many people choose to reopen the advertising, but because there are too many historical pull (lower) score items, it is better to recalculate.

b. If you don’t do link optimization, it will be the same after 7 days.

If you need to join the Zhaodanmao seller communication group to discuss advertising operations, you can contact customer service V: FLA66668888

3. Case evidence:

a. Link A: It has an advantage based on the initial ad quality score. If you start bidding $2, it will always be in the first place, and others will have to spend a larger budget to compete.

b. The accumulated weight will become greater, and the cost for other links to surpass me will also be greater.

● Final words:

The essence of the two scoring formula operations:

1. Core logic:

It is not a score, and it is impossible to calculate a specific score. Instead, it is based on the changing trend of the final ranking, and through the variable factors of the assumed scores of various factors, the factors that lead to the ranking changes are reversed, and targeted optimization is then performed.

In short: "It is based on the assumed scores to do reverse inference of variables."

2. Two formulas:

a. Ad Rank Score and Ad Quality Score

b. Variable factors of ad ranking score: bid and ad quality score.

b. Variable factors of advertising quality score: conversion rate, click-through rate, advertising historical performance, relevance, and category nodes.

3. Example:

a. For the same position, if the bid deduction increases from 1.8 to 1.6, it means that the ad quality score is improving.

Amazon Advertising Common Formulas

● Calculation of advertising cost (cost per conversion):

● Formula:

○ Advertising cost = CPC per click * number of clicks (single conversion)

○ Number of clicks (single conversion) = 1 / conversion rate.

● Example:

○ CPC = 5 USD

○ Conversion rate = 10%

○ Number of clicks (single conversion) = 10

● Calculation:

○ Advertising cost = 5 USD*10 times = 50 USD

● Bid (CPC bidding) limit value formula:

a. Formula:

i. Bid limit = profit / number of clicks

ii. Number of clicks (single conversion) = 1 / conversion rate.

b. Example: Profit of $5, conversion rate of 30%

c. Calculation: Bid limit = 5 / (1 / 0.3) = 1.5 USD

d. That is, the maximum bid that the current profit can support is 1.5 US dollars.

Note: The core determining data are: profit (profit margin), number of clicks (conversion rate)

● “Innovation Flywheel” theory:

● Rapid innovation, rapid promotion, and rapid seizure of the bonus period.

● “High profits → R&D investment → high promotion budget → high profits…”, forming a closed loop of innovation flywheel.

● Build competitive barriers.

● “ACOS tie” thinking skills:

● The break-even point of advertising operation can be understood as: all gross profits are used for advertising, with no loss or gain, that is, “breaking even”.

● ACOS over a period of time: After aggregating the orders over a period of time, the advertising investment amount = gross profit amount, which is the break-even point.

● ACOS of a single order: Single conversion cost = single gross profit amount, which is the break-even point.

● Based on the “ACOS Breakeven” principle, you can formulate a strategic plan for advertising operations, such as:

○ Strategic loss period

○ Profitable period

● Based on the dynamic decomposition goals of ACOs during the planning period, a specific operation optimization plan is formulated:

○ Listing optimization

○ Product optimization

○ Profit margin optimization

○ Ad conversion rate optimization

● Until we are able to break away from advertising dependence and successfully create a hit product.