A bestseller took to Twitter to explain why his company is cutting its Amazon ad budget to zero after spending more than $10 million on Amazon ads in recent years.
The purpose of the message was not to say that all sellers should abandon all advertising in the market, but rather to explain the reasons why his company was taking a new approach. Bryan Porter of Simple Modern explained in a nutshell:
“Advertising profitability was inflated by ads that did not generate sales. In other words, organic customers were using ads to shop when they were going to buy anyway.”
Porter, who previously worked at penny auction site QuiBids, co-founded Simple Modern in 2015, according to his LinkedIn profile.
His Friday night Twitter feed caught the attention of other Amazon sellers who wanted to know more about Porter’s experience and the reasons for his new approach.
Simple Modern spent 8% of its revenue on advertising, he explained. “It’s common practice for sellers, it bought the best placement, the increase in sales was noticeable and the ACOS was less than 30%. It seemed like it was driving our business forward…but we we were wrong.
(A note on Amazon’s cost of sales: “Amazon ACoS is the amount you spend on Amazon advertising in order to generate $1 in revenue from that spend,” explains Boss.com)
It’s unclear what triggered Porter’s epiphany, but he explained:
“Amazon displays ads on product pages from other relevant listings. We spent a lot of money getting customers to click between our different ads. Organic customers would browse our catalog through ads of similar products and Amazon ads the would assign.
“If our ad is #1 and we have the #5 organic placement, many organic customers are now buying through the ad.
“These sales give the impression that the campaign is too profitable. In reality, they inflate the ACOS and justify more expense. »
A key difference between Porter’s business and many others is that his business is a well-known brand — most sales now come from brand searches, he said. Simple Modern also has the advantage of an email marketing list and social media following.
Modern Simple now focuses its efforts on transactions. “Unlike ad spend, offers improve conversion rate and ad placement,” he said.
Not everyone bought into the idea that a permanent exit from ads could work – Adam Weiller from Amazon marketing agency Sunken Stone said that eventually organic rankings will start to drop.
It’s remarkable how well a conversation about Amazon’s advertising strategy flowed into a conversation on Twitter, which is typically done in private seller groups.
In fact, it could serve as the basis for a business case – once the seller has time to measure the results of the new strategy.
We’ve only scratched the surface here – be sure to check it out the full twitter feed. The lessons on advertising on Amazon might be useful for sellers advertising on other e-commerce platforms, keeping in mind the differences between being a reseller and a brand seller. As they say, your mileage may vary.
It’s also worth pointing out some other points that Porter raised in his thread:
“The downside of advertising is that customers are pushed to ads that haven’t ranked highest based on merit.
“Amazon has built its business by earning customer trust, leaning too far into advertising could start to unravel that.”
Something Amazon and other marketplaces should keep in mind when looking for third-party seller ad revenue to boost their results.