Seller’s Concern
“My balance is always negative because of Ad expense. My ACOS is below 100%, but my bottom- line margin is very thin as products that are relatively less profitable are being sold. I know this is an issue that needs to be solved, but I don’t have time and resource to address this complexity.”
Holika Holika’s biggest concern was on profitability. The Seller had to manage 300 ASINs alone, and the lack of resources made it difficult for the seller to give each product enough time and attention. As a result, the Seller ran most ads automatically while setting the budget with some simple guesswork that may not be very accurate.
Key Question – What is a Profitable Advertisement?
Amazon offers various methods to reach new customers, including Auto Campaign, Broad Match, Phrase Match, Exact Match, Product Targeting, and Category Targeting. However, sellers must choose the right combination and allocate the appropriate budget based on their specific situation. Setting too much budget on unprofitable ads will damage the overall profits, and the opposite will happen for vice versa. Therefore, the most critical consideration sellers should make to ensure ad profitability is determining how much budget to allocate for each product and campaign.
LG Optapex Solution
1) Profitability-Based Budget Mix Allocation per Product
Selling on Amazon isn't just about selling a large volume of products. Each product has different costs, promotional statuses, and Amazon fees, leading to varying profitability. Due to these variables, some products may generate high profits while others may incur losses. To optimize overall account profitability, it is essential to maximize sales of highly profitable products and minimize sales of less profitable ones.
LG Optapex is designed to address this issue. It analyzes the past and current profitability of each product to predict future profitability. Based on these predictive data, LG Optapex suggests the optimal advertising strategy to achieve maximum profitability at minimal cost. It then automatically applies this strategy to actual ads.
In the case of Holika Holika, only 50% of the total ad budget was allocated to top 20% profitable products. LG Optapex identified opportunities for optimization, and it allocated more budget to products that are more profitable. This entire process was automated, so the seller did not need to adjust the campaign manager after the initial LG Optapex setup.
As a result of LG Optapex’s automated optimization, the budget allocation for the top 20% most profitable products increased to 80%, leading to a 43% improvement in total profits for the optimized products.
2) Ad Optimization Through Diminishing Return Analysis
Simply increasing the budget for Amazon ads does not always yield better results. This is because the rule of diminishing return also applies to Amazon ads. When ad budget reaches the point of diminishing return, pouring in additional budget will return less sales, thereby damaging the efficiency. LG Optapex is able to precisely calculate the point of diminishing return for every ad campaign and find the optimal budget allocation that maximizes profitability.
In fact, the Seller ran a test by increasing the budget of the best-selling product by 100% compared to the amount calculated by LG Optapex. The hypothesis was that since the product had been selling well recently, increasing the ad budget would also boost sales. However, after two weeks of increased budget, total sales only rose by a mere 3%, while profitability worsened by -12.7%. This case demonstrated that there was no need to further increase the ad budget for this product, and it would have been a better choice to invest that budget in other products.
3) Real-Time Trend Detection
While product-specific optimization and diminishing return analysis are crucial elements, the greatest strength of LG Optapex lies in its ability to handle all these processes in real-time and on a large scale without missing market trends. Each product encounters different opportunities at various times and responding to these opportunities quickly is essential for sustained growth. However, analyzing trends daily becomes practically impossible when there are hundreds of ASINs to take look into.
LG Optapex leverages the seller's Organic CVR (Conversion Rate) to predict and analyze future trends on an hourly basis, and it conducts optimization based on these insights. When Organic CVR increases, the solution investigates other metrics such as pageview, ad impression, ad clicks and ad CVR to determine if this trend is temporary or is actually implying an increase in CVR. When it determines that the product is more favored in the market, LG Optapex increases the budget of the ad campaigns related to the product. Through this process, LG Optapex makes sure all products are staying up to latest trend and help realize their full potential.
Results
After applying Optapex’s optimization, the Holika Holika saw a 43% increase in total profit, a 23% increase in total sales, and a 25% reduction in advertising costs for products that are optimized.
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