The algorithm we use to determine bids per click is quite complex. The factors it takes into consideration are:
- Average order value (AOV)
- ACoS target chosen by the user
- Conversion rate of each keyword in each ad format
- Cost per click (CPC)
At a high level, the formula used to determine bids per click for each keyword is:
Bid = Conversion rate (%) * Average sale price * Target ACoS(%)
This is what is called rational bidding in the industry.
As the target ACoS increases/decreases, the bids per click will increase/decrease proportionally.
This formula ensures that in the long run, if the sale price or conversion rate does not change, the keyword will have an ACoS close to your target. Conversion rate and sales price change over time, so Advigator calculates all bids daily based on all available data. The conversion rate is calculated over different time periods (year, quarter, month), for the specific ad format (SP, SD, SBV) and for the search term.
Difference with bid per click suggested by Amazon.
The bid per click suggested by Amazon arises from the values offered by other sellers.
The minimum, median, and maximum bid indicate that 25%, 50%, and 75% of the sellers offered at most that value and received impressions. Therefore, Amazon's advice is aimed at giving you a value with which you are likely to generate impressions. It does not refer to your ACoS goal, sales price, or conversion rate.
For example, another seller might have a higher selling price and therefore afford higher bids. Or he might have a lower-than-average conversion rate and therefore be willing to spend less per click. Or it is not interested in reducing ACoS and is therefore willing to bid higher to appear in first position.
If the bid per click calculated by Advigator is far below the minimum suggested by Amazon, it means that your product's conversion rate is too low to achieve your chosen ACoS goal.