Does seasonality affect the performance of your Amazon Sponsored Products campaigns?
Put simply: yes, it does. Your overall performance is the result of your keyword-level performance and individual keywords, in fact, can perform very differently over the course of a year. In this article, we’ll talk about the seasonal factors that affect your campaign performance and the specific actions you can take to turn seasonal fluctuations into an competitive edge.
What is seasonality?
So that we’re all on the same page, let’s start by defining what seasonality means. Seasonality is simply a regular, predictable pattern in your data. It’s a periodic fluctuation caused by, among other reasons, the weather or the holidays.
Let’s illustrate seasonality using an example. Using Google Trends and searching “swim trunks” shows us there is seasonality at play. Not surprisingly, demand for swim trunks is higher in summer than in winter, and the peak is often in late June. You can infer that with summer in full swing, more shoppers are searching for swim trunks during this period of time. Conversely, demand is lowest in the winter, with the valley in late November.
Socks give us another great example for keyword seasonality. Most of us wear socks everyday, but there is in fact a peak in demand. When? Spoiler alert—in December. In the weeks leading up to Christmas, Google Trends tells us, keyword searches are 2.5x over the long-term average.
If you sell swim trunks or socks, chances are that you’re aware that there is some product seasonality. How would you want to take advantage of these fluctuations for your seasonal bid management? To answer that question, let’s take a look at the math.
Ad impressions, conversions, and seasonality
As Amazon sellers, our conversion funnel has three main steps:
1. Ad Impression
Customers search for products and whenever your ad is shown in the search results, you are generating an ad impression.
When a customer clicks on your ad she or he will be taken to your product detail page.
When the customer adds your product to the shopping cart and completes the purchase, you are generating a conversion. Therefore, ad impressions are the first key performance indicator (KPI) in Amazon PPC marketing.
The question we have to focus on, then, is: Do fluctuating ad impressions have an impact on PPC performance and on our ACoS?
To answer that question, we need to do the math. We’ll start at the bottom of the funnel.
ACoS = cost / attributed sales
Cost is the amount of money you’re investing into your ads, and attributed sales are the sales you generated with those ads. By that we mean the sale that occurred after someone clicked on one of your ads and then bought one of your products as a result.
The next step is to dig deaper into the factors influencing cost and attributed sales:
Cost = average CPC * number of clicks
The average cost per click is the average price you have to pay, when someone clicks on one of your ads after searching for a specific keyword and “number of clicks” is the total number of times users clicked on one of your ads over a specific time period. In the campaign manager of the Amazon Seller Central, you can change the analyzed time frame by clicking on the “date range” drop down menu at the upper right side.
Attributed sales = conversions * average basket
Conversions are the number of orders you generated, and the average basket is the amount of money your customers are spending on each order.
Understanding this, we can rewrite our ACoS formula:
ACoS = (average CPC * number of clicks)/(conversions * average basket)
Conversions equal the number of clicks times the conversion rate—the probability that your customers placed an order after seeing one of your ads.
As a side note, while “conversions” sounds pretty straight forward, this is actually not the case. In the reporting data, you can find six different conversion figures as Amazon differentiates three attribution windows and same-SKU vs. total sales. You can read more about this topic in our article about the ideal ACoS..
Heading up to the top of the funnel, we can now rewrite our formula again, backing into the calculation for the number of impressions at the top. The number of clicks equals the number of ad impressions multiplied by your click-through-rate (often abbreviated: CTR).
So, the average:
ACoS = (average CPC * impressions * CTR) / (impressions * CTR * CR * average basket).
Now, remember your math fundamentals. Because impressions are both in the numerator and denominator, you cancel them out. Same thing with CTR. Yes, theoretically we could have saved this calculation step and cancel out “clicks” directly, but the goal was to show, that search volume (ad impressions) does not have an impact on your ACoS.
Your keyword-specific ACoS formula now becomes:
KW ACoS = (average CPC)/(CR * average basket)
So what does this formula tell us? What, as sellers, can we do to optimize our seasonal PPC marketing?
With this formula, we can calculate a keyword-specific ACoS. As your overall ACoS is really the weighted average of all keywords, you now understand how crucial keyword selection is. Although there can be correlation between similar keywords, you’ll generally find an advantage by adding more relevant keywords to your manual targeting campaign.
You’ll be wise to actively manage your average basket – your product prices – because it has such an impact on your ACoS. If you offer sales, discounts, and coupons, your average basket declines, and your ACoS increases. If you’re selling your products at a lower price, your ads could become less profitable. Therefore, it is very important to coordinate your campaigns and promotions. Are they in line or are they contradicting each other?
Managing your bids also influences your conversion funnel. Remember in our formula, there are just four variables: ACoS, average CPC, conversion rate, and average basket. Conversion rate and average basket can be calculated with your campaign performance reports. You can find them in the seller central by clicking on “Reports” > “Advertising Reports”. Set the report type to “Keywords” and then generate the report by clicking on “Create report”. Maximum ACoS is a parameter you should set strategically based on your sales and profitability goals. Therefore, there is only one variable in our equation: the average CPC. So we can use our formula to calculate our willingness to pay for a click and calculate keyword-specific bids purely performance-based.
Bid = maximum ACoS * CR * average basket
Analyze conversion rate seasonality
Your conversion rate seasonality is not the same as sales seasonality! Conversion rate really is the key variable in the formula above. If you can anticipate an increase in your conversion rate, you can increase your bids. If done correctly, your profitability will remain unchanged while the increased bid enables you to gain market share. I can not stress this enough: The more precisely you can predict seasonal conversion rates, the more significant your competitive edge.
And this is it: One formula, four specific actions you can take.
Do you have questions, or would you like us to check your current campaign parameters? Please feel free to contact us or comment below. We are always glad to help.