Amazon Marketing Services Advertising for Kindle Ebooks: Are You Winning Ad Bids, but Losing Money?
Some time ago, I published a post on using Amazon Marketing Services (AMS) for advertising your Kindle eBooks on Amazon. In that post, I talked about my on-the-cheap strategy of bidding on ads at as low as $0.02 or $0.03 per click. It’s a slow-go advertising strategy for sure. But the ROI has been good for me over time.
I got a reader question about the post expressing frustration with not winning bids and having to bid higher amounts, even as high as $0.47, to “get anything.” I feel the reader’s pain! It can be very frustrating indeed when higher bids seem to win the ad placement and possibly the sale. “Seem” is the operative word here, as will be obvious in a bit.
But is it really necessary to win bids to make sales? Should you aim to win in the ad bidding wars on AMS, or even other advertising platforms such as Google AdWords? And how do you know if you’re actually winning at the AMS ad game?
The Amazon Marketing Services Advertising Black Box
What’s interesting is that authors have no way of knowing what their competitors are actually bidding for AMS ads. Would Amazon (or any other Internet advertising platform) tell their individual advertisers, “Hey, you know so-and-so just spent $X on their ad.” Of course not! That would be a breach of confidentiality. These authors are just assuming that their competitors are making bids that are higher than theirs and making sales.
Likewise, Amazon is not going to share with you how many impressions competing ads might be getting either. For all you know, you may be getting more impressions overall than your competitors.
What can trigger this frustration with AMS ads is when author advertisers “test” to see if their ads show up, and don’t see them. What I mean by test is that they enter their chosen keywords, categories, etc. in Amazon search and hope to see their ads pop up somewhere on the screen. Then all they see are competitors’ ads. But this is an inaccurate way to assess if they are winning the ad bid game.
Remember that Amazon is showing ads to site visitors based on the visitors’ buying and search behaviors, coupled with super complex algorithms to which we are not privy, and don’t even have a prayer of understanding! When you visit Amazon, Amazon shows you what they think YOU, as the visitor, want to see, not necessarily what your buyers will see. Since this is something you can’t control, you can’t assume that what you see on your screen is what your potential eBook buyers will see.
Winning ad bids merely means that your ads will appear more frequently. It does NOT mean that you will automatically win sales! Whether someone buys anything as a result of seeing an ad is a complex process. They have to be ready, willing and able.
Plus, you have to remember that your AMS ads could generate some Kindle Unlimited (KU) or Kindle Online Lending Library (KOLL) royalties if your eBooks are enrolled in the KDP Select program (which requires exclusivity to selling on Amazon). These revenues are not included in your AMS advertising dashboard results. If your eBooks are enrolled in KDP Select, you might be making “sales” of KU/KOLL reads without knowing it. There is no way to know at this juncture in time.
What Are Realistic Sales Conversion Rates for AMS Pay Per Click (PPC) Advertising?
Sales conversions can be just a small percentage of the clicks your ads receive on AMS or anywhere else on the Internet. Conversion rates—meaning sales made as a percentage of clicks—of 1 to 5 percent (or even much less!) are not uncommon in the Pay Per Click (PPC) online advertising world. And when you look at the percentage of sales to impressions (number of times your ad is actually shown), it’s even more disheartening, often as little as minuscule fractions of 1 percent.
These low returns are not uncommon in marketing and advertising. Even many years ago when direct mail—advertising snail mail in your physical mailbox—was king of the marketing world, achieving response rates of around 2 percent from all pieces mailed was often considered a great result. So the frustration of many authors who are thrust into being marketers can be caused by their naivete of marketing realities.
How Should an AMS Ad Bid Be Determined?
You have to remember that your royalty is a mere percentage of the total sale. So your bid per click should never even come remotely close to the amount of royalty you’ll earn per sale. This is where authors can really make mistakes.
As of this writing, for eBooks published on KDP, the royalties are either 35 or 70 percent of the total sale price (depending on the region sold to and price point), minus delivery costs (fees for file download which are only applicable to the 70 percent royalty level, and assessed at $0.15 per megabyte of your eBook file size).
With the AMS dashboard as it is now, it’s impossible to figure out what sales were at the 35 percent royalty and which ones at 70 percent. Aargh! Plus, you have no control whether a sale will be to a country that has that lower royalty rate. So it’s probably best to figure a maximum ad bid based on the lowest royalty (35%).
Example: Say you’re selling a short $0.99 Kindle eBook title. The royalty rate on that is 35 percent with no delivery costs (since, again, at that royalty level, delivery costs are not assessed). You first need to figure the royalty you’ll earn per eBook.
Formula for Royalty Earned per eBook
(eBook Price X Royalty Rate) - Delivery Costs = Royalty Earned per eBook
In this example, it would be:
($0.99 X 35%) - $0 = $0.35 (rounded) Royalty Earned per eBook
If you advertise this title at a bid of $0.35 per click, you’ll break even on your gross profit margin which means that you’ll make NO MONEY on this sale! In fact, you’ll even be at a loss since your overhead expenses (website fees, office expenses, etc.) have not even been considered. So on this particular title, your AMS ad bid should be way, WAY less than $0.35 per click.
But how low should your ad bid be in order to make money. Well, you need to have a good idea of what your overhead expenses are and what net profit margin you’d like to make. Overhead and profit margin are usually expressed as a percentage of gross revenues. If you don’t know what those percentage are, see your CPA or accounting professional to help you figure those out.
Here is the formula for the maximum ad bid, including overhead expenses and desired profit margins:
Formula for Maximum Ad Bid
Royalty Earned per eBook - (Royalty Earned per eBook X Overhead Expense Percentage) - (Royalty Earned per eBook X Desired Net Profit Margin) = Maximum Ad Bid
Using the example eBook from above ($0.99 eBook price at 35% royalty rate which nets $0.35 royalty per eBook), let’s say that your overhead expenses are 25 percent of your gross revenues, and you’d like to earn a 15 percent net margin on each sale. Let’s plug in the numbers, using the Royalty Earned per eBook calculated earlier.
$0.35 - ($0.35 X 25%) - ($0.35 X 15%) = $0.21 Maximum Ad Bid
So your maximum ad bid for this example title cannot be over $0.21.
Measuring Your AMS Advertising Results
Difficulties in Figuring Royalties
While you could figure ROI based on 70 percent royalty rate—which you’ll likely earn for a many of your eBook sales—it’s probably safer and easier to figure based on the lowest possible royalty rate you could earn, which is 35 percent with $0 delivery costs. Here's why...
Figuring ROI at the 70 percent royalty rate requires calculation of delivery costs. That’s a real trick at this point in time because neither the AMS ad dashboard, nor any other report in KDP, tells you what the delivery costs were. Trust me, this is a very complex calculation that you would have to do for every eBook you advertise. Plus, since the delivery cost is calculated on each eBook unit sold, and AMS doesn’t tell you how many units are sold, it’s a shot in the dark.
So I’d rather underestimate and realize that my ROI is likely a whole lot more! But here’s the complete formula that includes the delivery costs so you have it.
Even at the lowest royalty rate (and most of my eBooks are in the higher 70 percent royalty category), my gross percentage ROI on my AMS ad spend is currently over 175 percent!
Formula for Gross Percentage of ROI on Ad Spend
(((Royalty Rate X Total Sales) - Total Ad Spend - Total Delivery Costs) / Total Ad Spend) X 100 = Gross Percentage of ROI on Ad Spend
If this number is 0, you’re at break even. If this number is less than 0, you’re sustaining a loss. So your goal is to get this as much over 0 as possible. In fact, that amount over zero needs to be enough to cover your overhead expenses and desired net profit margin. Here’s how to figure that, using the Gross Percentage of ROI on Ad Spend calculation from above.
Formula for Net ROI Percentage on Ad Spend*
Gross Percentage of ROI on Ad Spend - Overhead Expense Percentage - Desired Net Profit Margin Percentage = Net ROI Percentage on Ad Spend*
*This net ROI may be before OR after taxes, depending on whether taxes are included in the Overhead Expense Percentage or not. If not included, it’s before taxes; if it is included, it’s after taxes. Don’t forget that income taxes can be a substantial payment. Consult your CPA or tax professional to help determine your tax liability.
Monitoring Individual AMS Ad Campaigns
You could also do these ROI checks for each eBook campaign. For those campaigns where you’re not seeing positive or desired returns, or you’re sustaining losses, you can decide whether to pause or terminate them.
For example, you may have a campaign for which you are paying for clicks that are generating no sales. Those would be campaigns for which you may wish to cut back or terminate your ads.
The Problem of Scaling Up to Win Ad Bids
When it comes to online advertising, a “more is better” strategy—whether that means more ads or higher ad bids—will not necessarily result in more sales. Growth in sales from advertising is typically not linear and there comes a point of diminishing returns, no matter what type of advertising is pursued.
You also have to remember that you might get a number of clicks that don’t end in a sale. This ups your total ad spend and your losses could escalate quickly. Even more reason to resist the temptation to increase your ad bids in the hopes of winning ad placements and sales.
I learned my lesson with this for my former promotional products business. I would up my ad spend on Google AdWords (which is similar to AMS) in an attempt to get better returns. I’d get more clicks, but I also spent more money and didn’t see a dramatic bump in sales or inquiries. So when I started using AMS for my eBooks, I haven’t made the same mistake.
Caution is recommended when scaling up your AMS ad bids. Don’t waste your money by spending dramatically more on ads if your only goal is to win the ad bid game. Slower, more incremental, upward changes allow you to assess your ads’ performance at each ad spend level and make needed adjustments.
And don’t ever, EVER go over your maximum ad bid level!
AMS eBook Advertising Targeting Problems
Another reason your Kindle eBook ad may not appear, or other titles win ad placement bids over yours, is that your targeting may be off target. This actually has nothing to do with your ad bids!
This can include:
For Manually Targeted Sponsored Product Campaigns*
- Irrelevant keywords.
- Not including competing authors or competing titles as keywords.
- Keywords that are too broad or too narrow.
* NOTE: Auto targeted campaigns are set up by Amazon’s algorithms.
For Lockscreen Ad Campaigns
- Irrelevant categories.
So before automatically upping your ad bids to get better ad performance, also look at some of these targeting factors. It could help you avoid having to spend more!
How AMS Ad Campaigns for Kindle eBooks Can Be Educational
Because self published authors may not be business people, their advertising and marketing expectations may be out of whack with reality, too. They may be expecting thousands in revenues and the number of book sales, especially right after the eBook launch. That’s really rare. And their expectations for what they can achieve with programs such as AMS may be similarly skewed.
Since every eBook is different, doing an AMS ad campaign on a small scale can help authors get an idea of the marketing potential for their books since it will afford them some hard data on their eBooks’ performance and appeal in the real world Amazon Kindle Store marketplace.
As with all advertising, online or offline, patience, experimentation, and a bit of investment are required to see what works and doesn’t before you make knee jerk changes to your campaigns. At least several months to a year of running ads and tracking results is the recommended minimum. So being conservative and closely monitoring your ad spending and results is critical.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
Questions & Answers
I've been away from Amazon ads for a time but always went in via KDP. I have just come across Lockscreen ads but have no idea how they work. I went through the motions of setting up an SP ad to see what happened and got a dropdown of interests but no way of entering keywords, auto or manual. Am I doing something wrong?
© 2018 Heidi Thorne