Bid per click is the amount of money a seller/vendor chooses to bid for an ad at an auction, to gain a good placement on the search page. If your bid is high there is more probability for your ad to gain a placement at the top of the page. And, every time someone clicks on the ad, you’ll pay less or equal to your chosen bid .
There are two things we need to consider:
You need to find the optimal bid per click for your ACoS. This means that you have to optimize your bid to obtain an optimal ACoS and Target ACoS. By doing so, you’re controlling your spend and thanks to this you’ll be able to run your campaign for longer.
The formula is:
The optimal bid per click calculation should be done periodically because the conversion rate changes for both internal factors, such as changing the selling price and the number of reviews, and external factors, such as the actions of the competitors, their selling prices, and the seasonality of the market.
By optimizing your bid, you’re aiming at a good position on the search page. You also obtain control over your spending and increase your earnings.
The optimal bid per click can be decided according to:
The conversion rate:
The price of the product:
Let’s say we want to promote a product with a retail price of 145$.
For this product, Amazon suggests a 0.76$ bid per click, which is the average of all the costs per click of the other sellers promoting that same keyword. But the suggested bid is not necessarily optimal for our product because it does not consider the sales price or the conversion rate of our page. Anyway, let’s assume we choose the one suggested by Amazon and run the campaign.
After a week we see this data:
The conversion rate (CVR) is a metric not shown by Amazon, but it is easily calculated:
While the ACOS formula is:
So far there aren't any problems, but let’s assume that the seller wants to have an ACOS of around 30% so that he will be able to keep the campaign active in the long term. At this point, we’re going to calculate the optimal bid per click based on the desired profitability rather than looking at how much the market is spending at the moment. In doing so, we assume that the page will continue to convert at the same rate so that the conversion rate will remain 1.14%. This is just an assumption because the conversion rate changes over time, but in this case, we make this hypothesis. We also continue to expect 4 orders every 350 clicks. But, to have an ACOS of 30%, 580$ sales will have to be generated by 160$ ad spend. So, considering the 350 clicks generated, the bid per click is 0.45$.