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Advertising Cost Reduction

The strategy for the advertising cost reduction audit is to identify the areas where you are overspending and shifting ad dollars to high performing campaigns. The result is a dramatic decrease in ACOS as well as overall ad spend. These optimizations will then lead to opportunities to scale growth profitably. The following are areas of focus when performing an advertising audit.

Ad Cost Reduction Area of Focus:

  • Ad Spend Over Target
  • Focus on Relevancy
  • Eliminate Non-Performing Keywords
  • Click-Through Rate (CTR)
  • CPC - Cost Per Click

Ad Spend Over Target

Our target ACOS overall is 25%. Using this number and the number of sales, we can determine what our target ad spend should be. The goal is then to determine which campaigns are generating the most spend over target. A SKU analysis can even determine which SKUs are overspending.

Advertising Cost Reduction 1

Improve Keyword Targeting

Keyword targets need to be adjusted to ensure that ads aren’t being displayed for irrelevant searches. Instead, we want to shift focus to what we call AAA relevant keywords. These are keywords that are highly relevant and important for ranking efforts. Shifting focus here will rein in ACOS that may otherwise be thrown away.

Eliminate Non-Performing Keywords

To cut down on Ad Spending, keywords that are not bringing in impressions, sales, or clicks should be paused. The Click-through rate is an important factor. The target CTR is above 1%. Typically after a keyword has generated 10 clicks enough data has come in to determine the viability of a keyword. Any keyword with over 10 clicks and a CTR of below 1% and no sales should be paused. 

Eliminate Non-Performing Keywords

Review advertised products with high ACOS or no conversions after 10 clicks to ensure that they are closely related to together – generally the flavor or theme used for parentage should be sufficient for ad groups. If closely related, but still experiencing low conversion rates, some ASINs might have catalog problems (poorly written title, lack of benefits or features, low resolution photos, etc.).

Actual Cost Per Click vs Bid

Advertising Cost Reduction 2

After eliminating the irrelevant ads and keywords the next focus is on the CPC. High CPCs are the quickest way to blow through the ad DAILY budget. The correct CPC to use can be calculated by using the expected conversion rate and the target ACOS. The conversion rate is going to be different for AAA relevant keywords (36%) as opposed to the other keywords (10%) - will vary by product category.  The bid can be calculated using the following formula: average price / (1 / expected conversion rate) * target ACOS = $24 / (1 / 10%) * 25% = $0.60. The AAA relevant keywords are given a bid of $2.00. A CPC higher than $2.00 will lead to overspending. We want to make sure we are only paying a premium on the keywords that are sure to convert.

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