Heidi Thorne is a self-publishing advocate and author of nonfiction books, eBooks, and audiobooks. She is a former trade newspaper editor.
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.
How AMS Ad Campaigns Can Be Educational for Self-Published Authors
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 the revenue and the number of book sales, especially right after the book launch. That’s really rare. And their expectations for what they can achieve with programs such as AMS may be similarly skewed.
Since every book 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 books’ performance and appeal in the real-world Amazon 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, then making informed adjustments, is critical.
What Are Realistic Sales Conversion Rates for AMS Pay Per Click 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% 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.
Formulas for Maximum Ad Bid for Kindle eBook Ads
Your maximum Amazon ad bid per click should never even come close to the amount of royalty you'll earn per sale. To calculate your maximum ad bid on Amazon's AMS advertising program, when you self-publish on Kindle Direct Publishing, you need these numbers:
- Net royalty earned per book
- Net profit target.
Net Royalties per Book
Let's talk about royalties first. KDP's book upload interface now shows you the net royalty you'll earn per book. So you no longer have to calculate that by hand or guess. This is such a big improvement!
You'll find the net royalty after any print-on-demand printing costs or eBook delivery costs are deducted on your book's pricing page on KDP. Typically, the print-on-demand costs and eBook delivery costs would be referred to as Cost of Goods Sold (COGS). But since KDP now shows net royalties, you don't have to do a COGS calculation.
Even if your Kindle ebook is eligible to make 70% royalty, or if your higher dollar value print book earns a higher royalty, I'd suggest basing your maximum ad bid on the lowest possible ebook royalty rate of 35%. Sales to some global territories and markets may still have a maximum royalty of 35%, though it appears that the major Kindle markets are now at 70% for eligible books.
Plus, there's the issue of currency exchange rates which might slightly alter the exact royalty you'll get in your home country's currency. Sometimes I've been kind of surprised at what I get for an ebook royalty from a foreign market, and it doesn't seem to match anything that I'm used to on Amazon for the US. So I just think it's safer that way.
Also, you have to consider that if you have your Kindle eBooks enrolled in KDP Select, which requires that your ebook be exclusive to Amazon, your ads may generate some Kindle Unlimited subscription reads, and you'll likely only make pennies on those sales. Better to be conservative in your royalty projections.
Overhead is all the expenses you incur to run your author business. Don't say you don't have any. You do. These are things such as internet service, phone service, software, office supplies, commercial insurance, marketing cost, and postage. The list is almost endless.
Here's an important overhead issue for authors. All your editing, proofreading, formatting, book cover design, and all the other book development costs that you have are expensed as overhead in the year they are purchased, even though it may result in sales or returns in a future year. So your overhead percentage could vary widely from year to year.
Over time, you'll be able to determine an average for your business. You might need the help of a CPA to figure this out.
Overhead is usually expressed as a percentage of revenue.
Overhead / Revenues* = Overhead %
* Note that in this discussion, "revenues" are your net royalties.
Simple example: If your revenue is a hundred dollars and your overhead costs are $25, your overhead percentage is 25%.
Overhead costs can be all over the map, depending on your business. Overhead percentages of up to 35% of revenues are common. But in very small businesses can be as high as 70% to 100% percent or more of revenue. Yes, it can be higher than 100%, meaning that the business is losing money, even if it makes sales.
Net Profit Target
Your net profit target is the money, as a percentage, that you want to make after your overhead costs are deducted from your total royalty revenue. Remember, too, that your net profit will be subject to income taxes. So take that into consideration when setting a net profit target.
Formula for Maximum Ad Bid
Here is the formula for the maximum ad bid, including overhead expenses and desired profit margins:
Net Royalty Earned per eBook - (Net Royalty Earned per eBook X Overhead Expense Percentage) - (Net Royalty Earned per eBook X Desired Net Profit Target) = Maximum Ad Bid
Using an example eBook ($0.99 eBook price at 35% royalty rate, which nets $0.35 royalty per eBook), let’s say that your overhead expenses are 25% of your revenues (net royalties in this case), and you’d like to earn a 15% net margin on each sale. Let’s plug in the numbers:
$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.
Why I Keep My AMS Ad Bids Low
According to current KDP pricing requirements, the list price for a Kindle ebook must be at least 20% below the list price for the physical book sold on Amazon. What is unclear to me is if a Kindle ebook sale is generated from your print book ad, would it even show as a sale from the ad? If it isn't, you'll be paying for clicks that won't show as a sales result from that ad, though it will still show as a sale on your KDP reports. If it is shown as a sale resulting from the ad, it will be a lower dollar value sale because it's an ebook, and your cost of that sale increases.
Amazon does track Kindle Unlimited reads generated by your ads, whether for print or Kindle eBooks, and they are reported in your AMS advertising dashboard. What I have experienced is that if an ad results in Kindle Unlimited page reads, I make only pennies in royalties, sometimes less than my cost per click.
This is why I keep my maximum ad bids for both print and Kindle ebook editions as low as possible.
Measuring Your AMS Advertising Results
Average Cost of Sale (ACoS)
On your AMS advertising dashboard, you'll see a column for ACoS, or average cost of sale. This is calculated by dividing your ad spend by your sales. It is a measure of how effective your ads are. This metric should never go above 100%, meaning that your ad generated sales equal your ad spend.
You want your ACoS number to be as low as possible. Well under 100%, and even as close to 1% as possible. The lower your ACoS, the higher your return. ACoS is a measure of your ad's effectiveness.
I've been advertising on Amazon through AMS since about 2016. In the early days, I was getting massive returns because it wasn't as mature an advertising platform as it is today. It was also less competitive. Even after all this time, I'm getting a lifetimes ACoS of 70.05% as of this post date. That's kind of a high ACoS compared to some of my individual campaigns.
Your AMS dashboard will also show what each individual campaign is doing. So you can look at the overall investment and you can look at each of these campaigns. I make decisions based on the ACoS of each individual campaign. There have been some campaigns that have been good performers.
My Sponsored Products auto target campaign for my book, SWAG: How to Choose and Use Promotional Products for Marketing Your Business, which has been going since 2017, is at 1.48%. That campaign is doing really well. I have another one on my QR code book that's at 2.4%. I have one campaign for my book on blogging that's at 4.45%. So those are also doing really well. Other campaigns are at 10%, 12%, and maybe as high as 38%.
But there was one campaign which completely skewed all of my stats for lifetime and for a year. It was when I was experimenting with Amazon's Lockscreen ads, which are ads that show up on people's Kindles as they log into their devices. That one had an ACoS of 1900%. Talk about a loss! Luckily, because I am watching this AMS dashboard at least once a week, I was able to catch it before it got much worse.
Filtering out the dud campaigns that didn't work, my lifetime ACoS is somewhere in the 30% to 40% range, which isn't bad because that's around a two, three or more times return on investment.
Ad Spend to Sales Comparison
One other thing you want to look for is your ad spend column on AMS, and compare that to the sales column. If after you've given your ad campaign a fair trial period, and you find that your ad spend is not generating any sales, it's time to consider dropping that ad campaign.
That can happen for a variety of reasons. You have to understand that you're going to have some of these campaigns that just don't work. Monitoring is critical and do it at least once a week, then making necessary adjustments.
When Your Maximum Ad Bid May Be Too Much
For those ad campaigns where you’re not seeing positive or desired returns, or you’re sustaining losses—even while staying within your maximum ad bid—you can decide whether to pause or terminate them, or reduce your bids.
For example, while I was experimenting with AMS' suggested ad bids on my Sponsored Product manually targeted ads, I was staying within my maximum ad bid. But they were generating too many clicks that didn't end up in a sale. So I immediately cut back my ad bids to well below my maximum ad bid.
Luckily, because I was monitoring my Amazon ad campaigns regularly, I was able to quickly see which keyword bids were running out of control and could make course corrections.
AMS Advertising Targeting Problems
Another reason your book ad may not appear, or other titles may 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 or Sponsored Brand 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.
For All Campaigns
- Wrong ad product (Sponsored Products, Sponsored Brands, Lockscreen Ads, etc.) that doesn't reach the right audience.
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.
Increasing AMS Advertising Competition
Have you visited Amazon lately? You might be surprised to see ads for things you would never buy on Amazon: vehicles, auto insurance, home insurance, and home loans. What does this mean? Competition for ad space on Amazon is going to be increasing over time!
Realize, too, that bigger advertisers have bigger budgets. So they can outspend smaller advertisers like self published authors. I've noticed that my ad spend that used to produce great results is no longer doing so. Luckily, I'm aware of both the increase in competition and the difficulty with scaling up advertising so that I'm not tempted to overspend and lose money.
The Problem of Scaling Up Advertising 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 operates 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.
I've had multiple authors question whether it would make sense to dramatically boost their ad spend to sell more books either at book launch or after they've been on the market and sales are sagging. I can understand why they ask. A common advertising strategy when introducing a new product, or when trying to boost sales of an older product, is to increase your ad spend to reach more people or increase ad frequency. In theory, and in the past, that made sense. But in today's Amazon marketing reality, not so much. On Amazon, you have no control over who will see your ad and when they will see it. Amazon's complex algorithms show ads based on such factors like buyer's current and past buying behavior, the actual items they buy, when they buy, and other data points we just don't know.
Authors who advertise may also be tempted by Amazon's emails, encouraging them to up their ad bids or budget to get more visibility. I equate this to gambling in Las Vegas, but much less fun. Instead, I choose to keep my Amazon ad campaigns running continuously at my maximum ad bid level or lower.
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.
Don’t ever, EVER go over your maximum ad bid level! Also realize that even your maximum ad bid may be too high at times to generate a positive return. As mentioned earlier, constant monitoring and making adjustments is required to keep your ROI positive.
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
Question: 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?
Answer: Glad to see you want to try out the new Lockscreen ads. I'm experimenting, too.
Just to clarify, are you setting up a Lockscreen ad? Or a Sponsored Products (SP) ad? You mention both in your question. The Lockscreen ads will only allow you to select interests. Sponsored Products allow selection of keywords under Manual targeting.
The only thing I can figure is that for SP ads, you may not be seeing the keywords after selecting Manual targeting because you need to scroll down and select the book you want to promote first. Then a list of suggested keywords shows up that you can select or add your own in the Keywords and Bids box that appears on the screen. Right next to "Suggested" in that box, you'll see "Enter keywords." Click that, and that's where you will enter your own keywords.
Also, and this is very new, and still in Beta mode, there's a Product Targeting option for SP ads. I haven't yet tried it yet. Always something new!
© 2018 Heidi Thorne
Heidi Thorne (author) from Chicago Area on January 21, 2019:
Doris, indeed it is complicated! But it's the world we're now dealing with. Glad you found some value in the article. Good luck with the Kindle book projects!
Doris James MizBejabbers from Beautiful South on January 21, 2019:
I never dreamed it was so complicated. I'm about to assist a client whose book I've been editing to publish with Kindle Direct, and I had no idea that it could be so complicated. That takes the fun out of the whole process. I've never been a bean counter, so I'm finding that I really dislike getting into all this. Hopefully your article will help us to get our feet wet.
Heidi Thorne (author) from Chicago Area on July 13, 2018:
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!
Shannon Henry from Texas on July 13, 2018:
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.
Heidi Thorne (author) from Chicago Area on July 13, 2018:
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 from Atlanta, Georgia on July 13, 2018:
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.
Heidi Thorne (author) from Chicago Area on July 09, 2018:
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 from USA on July 08, 2018:
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.
Heidi Thorne (author) from Chicago Area on July 05, 2018:
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!
Heidi Thorne (author) from Chicago Area on July 05, 2018:
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!
Mary Norton from Ontario, Canada on July 05, 2018:
This is really very valuable advice. The same can apply on the use of Adwords. Start small and learn from this.
Linda Crampton from British Columbia, Canada on July 05, 2018:
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!