Optimal bid per click

‌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:

• If you increase the bid per click your ad obtains a good placement at the top of the search page, but it’s going to cost you a lot more, and you could risk losing money.
• If you decrease the bid per click your ad has less probability to be at the top of the search page, but you spend less and have the possibility to gain more from it.

Why should we find the optimal bid per click?

‌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.

‌What do you obtain by optimizing your bid?

‌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.

How do you choose your optimal bid per click?

‌The optimal bid per click can be decided according to:

‌The conversion rate:

• If you have a high conversion rate it means that you can decide to spend more on your bid per click, as it indicates that by clicking on the ad many shoppers decided to buy it.
• If you have a low conversion rate you have to spend less on your bid per click.

The price of the product:

• If your product costs a lot you can afford a higher bid per click.
• If your product doesn’t cost that much you should choose a lower bid per click to contain your spending.

Example

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:

• Clicks: 350
• Orders: 4
• Ad Spend: 266$
• Sales: 580$
• Conversion rate: 1.14%
• ACoS: 45%

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$.

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