So I posted this to one of my lovely FB groups and thought I’d share it here in case anyone is searching for help on this topic. I don’t speak for Amazon. I’m just another writer who’s been trying to understand how to work Amazon ads and was hoping this could help some of you beginner advertisers out there. This post is regarding use of Amazon’s advertising dashboard.
Choosing the right Cost Per Click is important so you don’t blow your budget without making any sales. With authors, it’s nearly impossible to make money on books priced under $2.99 which are not in the KDP Select program, in my experience…and from what I’ve encountered in the multiple author groups I’m in. Below, I’ll help you understand why.
It’s critical that you take what I’m about to show you and try to calculate this for yourself, but also that you understand how many variables there are. Impressions, clicks, customer interests, these things change every day. I just want to help clarify how you can maintain some control over your goals with your advertising. You can use this method on other platforms, adjusting the costs etc accordingly.
AMENDMENT: The easy version of the break-even is as DB points out in the blog post comments… if your individual book royalty is $1.89, ($2.99 book at 70%) and your book makes 1 sale for every 10 clicks (just an easy math reference number), your break even would be any bid under $0.189… which of course is $0.18 because we can’t do tenths of cents. But we’re going to talk about maximizing budget limits and ensuring we accrue at least that amount in royalties (with $10 as our easy reference amount for this nutty math) so we can do this again in the future.
I’ve been working on this CPC thing and have made a chart that helps us figure out how to pick the Cost Per Click and also what we should be charging for our books to make this insanity worth it. There are 2 charts on the same page of the link below (AMS Ads Breakdown.xlsx).
1 is for CPC and how many clicks it takes to get to $10 (As a simple, general number).
2 is for looking at how many sales it takes to make $10 so you can look into cost of your book and how the change in CPC affects your chance of income.
I was really worried about spending too much. I think a lot of us are. I wanted to make this more scientific rather than some crazy numbers floating in the ether. And of course if someone sees an error in my table please please correct me and comment below! I haven’t had math since college and relied a lot on Excel formulas. Anyway… We need a way to know if our click numbers are getting too high for the amount we earn in royalties from sales… that’s what this is for.
Say we have a book that costs $2.99 on Select’s 70%. (Remember, with 70% they take out a delivery fee that’s dependent on book length.) So for me, 70% of 2.99 is $2.09 minus about $0.23 for the book’s delivery fee. (I rounded this up in the chart to $0.25 because I think it varies depending on country?) – but I honestly don’t know if they take the delivery charge first or after they calculate our royalty. I took it after in the table because I’m a dummy and forgot it until after and am too lazy to redo the thing. My brain already hurts. I generally make about $1.89 so that’s what I’m using.
To make $10 in profit so I can have $10 ad spend:
Okay so we’re working with an ending royalty of $1.89. I need to do this: $10 profit / $1.89 per book = 5.29 sales. Five sales won’t make me quite 10 bucks, so I round up to 6. Six sales will make me ten bucks at this price for this book.
Here’s where it gets tricky. You’ll need to know your ratio of clicks to sales for this to work. You can figure this from your dashboard.
Say you get 1 sale for every 10 ad clicks. If you want to make $10 you need 6 sales (from above).
So… 6 sales x 10 clicks is 60 total clicks needed to make that $10.
60 clicks = $10 in royalties at your price, for that one book, for that ratio of clicks to sales.
Got it? Take a breath!
In order for us to at least break even, those 60 clicks have to cost us $10 or less, right? $10 sales = $10 cost of advertising.
$10 ad cost / 60 clicks = .16666 So we have to round down to $0.16 Cost Per Click.
For Summary Here’s My Stats:
Book Cost to Customer: $2.99
My Royalties at 70% minus Delivery fees = $1.89
To get $10 in profit I need 6 Sales
(Pretending I’m this lucky) I make 1 sale for every 10 ad clicks.
To make 6 sales I need 60 ad clicks
Goal is at least $10 Sales so we can have $10 for ad spend.
$10 spend / 60 clicks means each click must cost $0.16 or less.
So I must set my CPC for that.
Now this doesn’t account for the delay in royalty payment. I know it’s a pain. So this specific example really only works if you have a set budget for each month that remains at $10. That said, I hope this math can help you figure out how to calculate your desired royalties and CPC relative to your ad spend budget threshold.
Clarification and explanation notes from my post comment below:
***If people are wanting to LIMIT their ad spend to a certain amount of money…they’ll want to know how to calculate their ad spend beneath their threshold. (That’s mostly why I created this and why it isn’t a straight up $0.18 cent bid.) So let’s reverse engineer our thinking.
In order to have the money to do this again in future months:
You can’t spend more than $10, right? Because we blew the rest of our cash on Starbucks and books. But we also want to make our money back (so we have to hit $10 minimum in royalties). Five books doesn’t make us $10, but 6 does. (click rate is still 1 sale to 10 clicks) So if we want to maximize our available ad spend budget and our royalties in this situation, we need to make at least $10 and spend under $10 at whatever maximum bid we can to make this happen so Amazon will show our ads as much as possible but we also don’t top our budget.
If you want to hit a goal amount of money (like $10) you’ll need to sell 6 books, because we can’t sell 5.29. 5 books sales = $9.45, 6 book sales = $11.34. If your click ratio is 1 sale per 10 clicks and your bid price is $0.16 (still needing 60 clicks to make 6 whole sales) you’ll spend $9.60 (which is under $10 budge limit). If you bid $0.17 at 60 clicks, you spend $10.20. If you bid $0.18 at 60 clicks, you spend $10.80. Which is still under your royalty amount, but OVER your budget spend.
Sale to Click Ratio Flux:
Also, the margin for click ratio changes at $0.18 is non-existent. If your click ratio changes to 1 sale for 11 clicks, at $0.16 bids, (66 clicks to $10 sales) you’ll still be under your *accrued royalties* at $10.56 ad spend. (but over budget) If you bid $0.17 you’d be at $11.22 ad spend. (Again under royalties but over budget) But at $.18 bids, ad spend would top your accrued royalties at $12.54. If the click ratio increases to 1 sale to 12 clicks, $0.16 isn’t even low enough.
I agree, we often spend too much on ad bids. I think going lower is financially safer, and most of my bids have kept me at a break even under $.20. But I do think if you have the money to learn, (that means burning some of it) running the higher bids will get you enough clicks to know which ads and search terms convert to sales. I didn’t have money to spend $0.35 on each ad bid when I started. Now I’m struggling to have enough decent clicks on my ads to know what’s working and what’s not. I think, if people can, starting high can be a quick lesson in which clicks convert to sales and which don’t. Then you can narrow it down and expand the great terms with new ads. Otherwise it’s a very slow process with tons of waiting and weak data.
Now, I set portfolio limits for each month (to stay under budget) and am trying the higher bidding to see if I can find substantially successful search terms, not ones with only a few clicks. Those aren’t strong enough for second and third gen ads.
This is definitely a tedious process.
Of course this is a super rigid way to look at this situation. There are so many variables in impressions, click-to-sale ratios, and delivery fees, seasons, market trends, that its hard to know for sure. But I hope this brings some clarity to those of you who are struggling too. Remember that with sales (even if you aren’t making money yet) there are more people with your book, more readers to review it, and Amazon indexes your book with the customers’ other purchases so you have the inherent likelihood of more visibility.
Don’t be discouraged. In the words of David Gaughran, “We all start from zero.” Seriously, look him up. And please holler if I screwed anything up! Or if you have questions! Best wishes and I hope you are well and safe where you are!