Amazon Ads were a part of Simple Modern winning in the drinkware category. Our ad spend was 8% of sales, and ROAS was over 300%. All seemed good, right? We decided to walk away from ads. Here is why:
Amazon Ads Problems – Inflated Performance: • Branded Search: Artificially inflates performance. • Product Page Ads: We paid for customers to click between listings & Amazon took credit. • Incrementality: Top organic placement is the goal. Ads were taking organic sales.
Amazon Ads Problems – Low ROI: Advertising ties up capital for months in low margin inventory. Performance is worse than Amazon ads claims for the reasons mentioned above. Sure, some acquired customers will repeat purchase but we have higher return opportunities.
Our Brand Strategy: Our objective is #1 ranked organic listings. Inventing isn't our strategy. It's improving upon products in market. Pricing, product quality, and colors are considered to create the best offer. If we aren't earning top placement, we make improvements.
We embrace competition. We have to with a mass retail channel strategy. If we can’t beat competition organically on Amazon, how can we win on a Target shelf? Jeff Bezos famously said, "Advertising is the price you pay for having an unremarkable product or service."
Re-test Learnings: Now that I explained why we dropped ad spend to $0… 7 takeaways from re-testing ads after 4 months of $0 spend: 1. Advertising is an investment: We can drive sales at low margins with ads. By our estimation, 70% of ad sales were incremental.
Amazon ads are a lower-return investment. Inventory for full price sales, new product launches, people, and equipment all drive higher returns right now. We will invest more in Amazon ads when we have the capital, and it's the highest return option.
2. Ads Benefit Organic Placement: I was wrong to assume that ads hurt organic placement. Click through and conversion rates are crucial components of Amazon's algorithm. Ads don't help those metrics. However, ads benefit sales velocity, which improves organic placement.
3. Accounting for Incrementality: Amazon inflates ad performance by attracting would-have-been organic orders. To account for this, group ad campaigns by these keyword types: • Branded - Low incrementality • Generic - Medium incrementality • Competitor - High incrementality
We've achieved the ROAS targets below and believe they are incrementally above 3. Branded: ROAS 35 Generic: ROAS 5 Competitor: ROAS 3.5 This table shows the relationship between ROAS and incrementality. If branded ads are only 15% additive, a 20 ROAS is actually a 3.
Strategy for Keyword Types: Branded: Hyper-efficient, very low bids. Merchandise product customers don't normally see. Generic: Focus on relevant keywords where organic placement isn't high. Competitor: Best use of ad spend. Converting these customers is 100% incremental.
4. Competition Matters: We have a top listing on "water bottle." However, there are several listings with similar offers. Double-facing our listings with ads makes us stand out more. We can also highlight a popular SKU that isn't typically a hero image.
5. Focus on Peak Season: It's no secret that ads perform best in peak season. For us, that is "back to school" and holidays. We lower bids and accept less ad spend in down seasons. During peak times, take advantage of higher conversion rates and run at higher spend.
6. Pay the Value of Bids: Use ad reporting and your unit economics to find profit per click. Remove estimated non-incremental profit. This is what clicks are worth to you and how much you should bid. We were overpaying for generic and underpaying on competitor keywords.
7. Amazon is Pushing Ads: Amazon is increasing ad placements because it's very profitable. With organic placements decreasing, it's becoming more important to pay for impressions. @Trung Phan wrote a great article on this: trungphan.substack.com/p/amazons-31b-…
Conclusion: This year, Amazon ads helped us catch up to forecasts in July and August. It's helpful to run light on ads Q1 and Q2 to have the option to speed up run rates. 4% of retail sales is our new budget for ads. Over the years, this budget may increase as capital allows.
Most thoughts on Twitter are “Amazon ads are a must” but ads aren’t imperative if you build listings with a top conversion rate. I know this isn’t everyone’s strategy. I still encourage testing the efficacy of ads. Run campaigns to maximize incrementality.
Thanks for investing your time in my thread. If it helped you, I'd be grateful if you'd: • Retweet the first tweet so others find it too • Follow me: @Bryan Porter I share my experiences as a co-founder of Simple Modern, husband and father.