Amazon Marketing Services Advertising for Kindle Ebooks: Are You Winning Ad Bids, but Losing Money?

Updated on July 10, 2018
heidithorne profile image

Heidi Thorne is a self-publishing expert, nonfiction book editor, author of 21+ books and eBooks, and a former trade newspaper editor.

Source

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

Because of the limited AMS ad reporting at this point in time, I do a quick check on my ROI (Return On Investment) to monitor whether I need to scale back, or to determine if I should consider increasing my ad bids to increase my ads' visibility. To do these calculations, it’s easier to download your AMS stats as a .csv file you can import to Excel or another spreadsheet program. It’s just too hard in the AMS ad dashboard.

Sadly, the AMS ad dashboard, as of this writing, doesn’t tell you the number of sales you’ve made, nor how many clicks resulted in a sale. It just tells you how much you’ve made in revenues and your total ad spend for each campaign. You might be able to estimate how many sales that is. But with all the international exchange rates and such, it’s a crap shoot at best.

Plus, since AMS only gives you cumulative stats (as of this writing), you can’t separate the results by year. Totally frustrating! So, at this point, you really only can measure your results on totals per campaign on an all-time basis. Oh well... it’s better than nothing.

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 low ball my estimate here 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 Product Display Campaigns

  • Irrelevant interests.
  • Positioning against the wrong products, meaning that you’ve chosen the wrong similar or complementary products.

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.

Disclaimer: Both the publisher and author have used their best efforts in preparation of this information. No representations or warranties for its contents, either expressed or implied, are offered or allowed and both parties disclaim any implied warranties of merchantability or fitness for your particular purpose. The advice and strategies presented herein may not be suitable for you, your situation or business. Consult with a professional advisor where and when appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other damages, including but not limited to special, incidental, consequential or punitive, arising from or relating to your reliance on this information.

Questions & Answers

    © 2018 Heidi Thorne

    Comments

    Submit a Comment

    • heidithorne profile imageAUTHOR

      Heidi Thorne 

      3 days ago from Chicago Area

      Hi Shannon! True, lots of things to think about when choosing a self publishing platform or advertising program. Thanks so much for reading and best of luck with your publishing efforts!

    • shanmarie profile image

      Shannon Henry 

      3 days ago from Texas

      Lots of useful information here. I haven't published anything else on Amazon yet, but I was looking into their ad program and various other things. There are benefits to selling solely on Amazon, but there are also plenty of disadvantages. You make a good point to consider in this article when you mentioned the potential KU readers as a direct result from an ad. Hmmm...more to ponder. Thanks.

    • heidithorne profile imageAUTHOR

      Heidi Thorne 

      3 days ago from Chicago Area

      Kathleen, I'm so glad that you went to a conference where someone actually told the truth! Also glad that you believed it and put your efforts into perspective. I run into authors who think they're going to be "The One." Please!

      Thanks so much for adding your experience to the conversation! Have a great weekend!

    • Kathleen Cochran profile image

      Kathleen Cochran 

      3 days ago from Atlanta, Georgia

      I recently attended my first writer's conference. An agent said the average book sells 250 copies. That put my efforts into perspective. I've spent way more than I am ever likely to earn trying to promote my books. I've tried virtually every suggestion I've ever heard.

      Lesson learned. Save your money. The odds are against you. Write for the pleasure of writing.

    • heidithorne profile imageAUTHOR

      Heidi Thorne 

      7 days ago from Chicago Area

      Flourish, the dollars that can be lost through improper targeting can be huge! I found that out the hard way and won't be doing that again. Sure, my ad campaign results appear to be smaller. But I'll go for relevant all day long!

      Thanks for highlighting that important point! Have a wonderful week!

    • FlourishAnyway profile image

      FlourishAnyway 

      8 days ago from USA

      Wow, is there ever a lot to consider! And just to think that you could end up losing money even with sales by doing this. I recently clicked on an ad for a non-book related service that was just what I had been looking for (a traveling vet) but the problem was they had the geographic area slightly wrong. I live in a metro area and it serves another nearby metro area that doesn’t include mine. I wonder how much money they wasted with having people like me click on their ad. Keywords count.

    • heidithorne profile imageAUTHOR

      Heidi Thorne 

      11 days ago from Chicago Area

      Linda, I worried if it was a little too detailed! :) But I figured I'd dive in and hope that it prevents someone from spending too much on advertising their eBooks. If you do start selling books or eBooks, keep me posted on your marketing adventures.

      Thanks so much, as always, for stopping by and reading! Have a beautiful day!

    • heidithorne profile imageAUTHOR

      Heidi Thorne 

      11 days ago from Chicago Area

      Mary, that is so right! You have got to start, and sometimes stay, small to keep these PPC ad programs from spiraling out of control and wasting money. Glad you found it helpful. Thanks for stopping by and have a lovely day!

    • aesta1 profile image

      Mary Norton 

      11 days ago from Ontario, Canada

      This is really very valuable advice. The same can apply on the use of Adwords. Start small and learn from this.

    • AliciaC profile image

      Linda Crampton 

      11 days ago from British Columbia, Canada

      This is a very detailed analysis, Heidi. It should be very useful to people trying to sell Kindle eBooks. I will definitely keep it in mind in case I try selling the books!

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, toughnickel.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://toughnickel.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)