How Does Amazon PPC Bidding Work?

Unlike on Google Adwords, there is no official documentation on how Amazon PPC bid auctions. Fortunately, based on the collective experience here at SellerMetrics we have a very good idea of how the Amazon bidding works.

The Amazon PPC bidding algorithm explains how even bidding way above the suggested bid doesn’t mean you will get clicks or impressions for a certain keyword or search term.

Second Price Auction

Amazon PPC bid algorithm works on something called the 2nd price auction. That means that if you win the bid auction, your winning bid (Cost Per Click) will probably be lower than your actual bid. The winning bid amount will always be just 1 cent higher than the next highest bid.

For example, you Amazon Bid is $1.50 for the keyword “handbag,” the next highest bidder for that keyword is $1.00. The cost you would be paying for the click would be $1.01. This would also be the CPC (Cost per click).

It seems easy… To only bid higher than your competition to win a keyword word auction on Amazon. Yet, that is that not the case. To be the winner of a bid auction, Amazon advertising takes on a few other inputs other than the bid price.

Please Note-

What I am going to write, is mostly based on my assumptions. It is based on the relationship trend I see between CPC and Bid in the last 4 years of selling and managing various Amazon advertising accounts.

Key Inputs

Ad Quality Score

This is probably the biggest black box of them all. This input would be your product’s relative attractiveness (which you are advertising for) to your auction competition. Again we are not too sure what are the exact data points in this input. We deduce it is based on the following:

• Unit Session % of the listing relatively (Conversion Rate)
• Product Listing relevance to the search term (Why listing optimization is important)
• FBM or FBA
• Seller Rating
• Product Reviews
• CTR

There’s probably a lot of other factors that we are not aware of as well. The key information that Amazon is looking for on this input is how likely a buyer will purchase your product, relative to others when bidding on a keyword/match type combination.

Max Bid

This is the bid value that you set in the Amazon advertising console, this would be set on the Keyword level, if not then it would be automatically using the bid on the ad group level. The amount you pay to win the keyword bid (CPC) will not be higher than your max bid, but it can be lower than your max bid.

Ad Rank Score

The ad rank score is the function of the Ad Quality score and the max bid. So even if advertiser A has better ad quality score than advertiser B, advertiser B can potentially win the Amazon PPC bid auction by having a higher max bid than advertiser A.

The equation for Ad Rank score is of follow:

Ad Rank = Max Bid * Ad Quality Score

Our Assumptions

Our assumption is that by gathering all the aforementioned inputs, Amazon will compute an adjusted bid price for each of the advertisers that are bidding on the keyword. Basically, this will be mean that each advertiser will have their own specific price needed to win the keyword bid auction.

Because of our 2nd price auction assumption, we think the adjusted bid price is calculated by using the Ad Rank score of the next competitor and multiple by your OWN Ad Quality Score.

Below is the table of the Amazon PPC auction using the key inputs and our assumption.

A few observations on the above table:

• Even though Advertiser 4 has the highest max bid, its ad rank is 13, but it will not be winning the auction
• Advertiser 2 has the highest quality score but is not winning the auction as well
• Advertiser 1, who won the auction and not paying the most per click in this auction (won with just $2.58)

What Amazon is looking for?

The conclusion that we have drawn with the bid auction is this. The key to winning the bid auction is to make sure the ad quality of your product is much higher relative to your competitors, Amazon obviously wants the buyer to end up with a purchase. Amazon therefore will help improve the visibility of those products that have a high ad quality and will allow them to win a search auction with a lower CPC.