Amazon PPC Equation – Certain the Uncertain

Amazon PPC Equation – Certain the Uncertain

“A marker and a whiteboard always trigger my Beast Mode”

Formulating a forecast is always dependent on multiple variables, some we can ascertain and are known since the beginning. But there will be variables that remain uncertain and can lead to variances from the actual outcome in the future.

If we lay out a basic equation of the Net Profit of an Amazon business, it would be

Net Profit = Revenue – Landing Cost – FBA Fees – Storage – Misc Expense – Advertisement Expense

Here, most of the variables are certain like Sale price, FBA fees, etc. However, the Advertisement or PPC expense will remain uncertain, as there are too many variables within this variable.

Can we Certain this Uncertain variable?

To begin with, let’s just separate the uncertain and certain variables,

Advertisement (PPC) Expense = Revenue – Landing Cost – FBA Fees – Storage – Misc Expense – Net Profit

But we have another equation for Advertisement or PPC expense

Advertisement (PPC) Expense = Total Clicks x Cost per Click (CPC)

The source of these clicks are different search terms (ST), hence if we break down Total Clicks,

PPC Expense = (Clicks ST1 + Clicks ST2 + Clicks ST3 + …so on) x CPC

Here to ascertain all the ST will be nearly impossible, however, it’s a fact that almost 60%- 70% of the clicks come from the Top10 Search terms.

PPC Expense = [(ClicksST1 + ClicksST2 + ClicksST3 + ClicksST4 + ClicksST5 + ClicksST6 + ClicksST7 + ClicksST8 + ClicksST9 + ClicksST10) / 70% ] x CPC

Still, we don’t know how many Clicks each Search Term will get. To figure it out, let’s break into the basis of Clicks from each Search Term.

ClicksST = Search Volume x Click Share (Niche)

This means any Search Term will generate clicks based on Search volume (SV) and Click Share (CS). These are the variables that can be ascertained through the Product Opportunity Explorer’s Search Term data.

But the above formula results in the total clicks on a particular ST. However, we need to determine the value of Clicks we can get on our product or ASIN.

If we are targeting the ST on Top of Search, we can expect a CS equivalent to the #3 Click Share on that particular ST. This CS can be determined from the Brand Analytics ST data. Hence,

ClicksST = (SV x CS (Niche) x # 3CS) x 10% TOS Share

TOS Share: It is evident that the Product page placement generates multiple clicks on a single search and usually only 10% of the share is covered by the TOS placement.

So if we place the ClickST basis in our PPC Expense equation,

PPC Expense = {[(SV ST1 x CS (Niche) ST1 x # 3CS ST1) + (SV ST2 x CS (Niche) ST2 x # 3CS ST2) + (SV ST3 x CS (Niche) ST3 x # 3CS ST3) + (SV ST4 x CS (Niche) ST4 x #3 CS ST4) + (SV ST5 x CS (Niche) ST5 x # 3CS ST5) + (SV ST6 x CS (Niche) ST6 x # 3CS ST6) + (SV ST7 x CS (Niche) ST7 x # 3CS ST7) + (SV ST8 x CS (Niche) ST8 x # 3CS ST8) + (SV ST9 x CS (Niche) ST9 x # 3CS ST9) + (SV ST10 x CS (Niche) ST10 x # 3CS ST10)] x 10% TOS Share / 70% } x CPC

Till now, we are left with one uncertain element which is CPC. To determine the value of CPC we will use the average of Max-Min bid to make the variable certain.

AvCPC = (Max Bid + Min Bid) / 2

The bids will vary from Search term to Search term, therefore we will add the CPC value of each ST in the equation.

PPC Expense = {[(SV ST1 x CS (Niche) ST1 x # 3CS ST1 x AvCPC ST1) + (SV ST2 x CS (Niche) ST2 x # 3CS ST2 x AvCPC ST2) + (SV ST3 x CS (Niche) ST3 x # 3CS ST3 x AvCPC ST3) + (SV ST4 x CS (Niche) ST4 x # 3CS ST4 x AvCPC ST4) + (SV ST5 x CS (Niche) ST5 x # 3CS ST5 x AvCPC ST5) + (SV ST6 x CS (Niche) ST6 x #3 CS ST6 x AvCPC ST6) + (SV ST7 x CS (Niche) ST7 x # 3CS ST7 x AvCPC ST7) + (SV ST8 x CS (Niche) ST8 x # 3CS ST8 x AvCPC ST8) + (SV ST9 x CS (Niche) ST9 x # 3CS ST9 x AvCPC ST9) + (SV ST10 x CS (Niche) ST10 x # 3CS ST10 x AvCPC ST10)] x 10% TOS Share / 70% }

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