Short vs Long Term Profit
Depending on your situation, you may want to focus on short or long term profit.
The concept here is similar to the starting of any business. A "Bootstrapped" business is a business that is funded entirely by the founder, and is intended to be profitable from day one. A "Venture Capital" business is a business that is funded by investors, and is intended to be profitable in the future, but will run at a loss in the short term.
This is a good analogy for how Amazon Advertising campaigns can be run.
A "Bootstrapped" campaign is one that is profitable from day one, but total sales are lower, and the organic ranking of the product will rise more slowly.
A "Venture Capital" campaign is one that is run at a loss in the short term, but total sales are higher, and the organic ranking of the product will rise more quickly.
Bootstrapped Campaigns
This is a more conservative strategy, and is recommended for beginners.
The goal of a Bootstrapped campaign is to increase the organic ranking of a product slowly, while remaining profitable.
This will result in a lower profit in the long run, but requires a lower initial investment.
Additionally it does not require the seller to perform more advanced analysis of their campaigns, such as tracking profit velocity.
It may not be possible to have a campaign be completely profitable from day one, but if you are running a "Bootstrapped" campaign, you should be aiming to be profitable as soon as possible.
There will always be a "discovery" period for a new product where you are identifying the best keywords and products to target, and you may not be profitable during this period. However, once you have identified the best targets, you should be able to run a profitable campaign.
If you are still not profitable at that point, pull back on your bids and pursue one of the other available marketing strategies.
General guidelines for a Bootstrapped campaign:
- ACoS should not exceed profit margin
- lower bids
- very specific (long tail) keywords
- few (or no) short tail keywords
- few (or no) broad match keywords
- few (or no) auto campaigns
- few (or no) product category targeting campaigns
As a general guideline, bootstrap campaigns are more successful for products that are not highly competitive. Unique products, or products that are not well known, are more likely to be able to run a successful bootstrap campaign.
If you are running a bootstrap campaign it is strongly recommended to be running a Catch All Campaign at all times. Even if you have turned off all other campaigns.
VC Campaigns
This is a more advanced strategy, and is not recommended for beginners.
The goal of a VC campaign is to increase the organic ranking of a product as quickly as possible. This is done by running campaigns at a loss, and using the increased sales velocity to increase the organic ranking of the product.
This will result in a higher profit in the long run (if successful), but requires a higher initial investment.
You must be willing to sustain losses for a period of time, and you must have enough capital to do so.
Additionally you must take the time to periodically perform profit velocity analysis to ensure it is on track with your expectations.
Operating a campaign at a loss for a period of time is not a guarantee that you will have higher profits in the long run. It is possible that you will never be able to increase the organic ranking of your product enough to make up for the losses you incurred.
There are no guarantees here. Be aware of the risks and plan accordingly.
If a product is in a highly competitive category, a VC campaign may be the only way to increase the organic ranking of the product to a competitive level.
Takeaway
If you are a beginner, or if you are not willing to sustain losses for a period of time, you should focus on Bootstrapped campaigns.
Regardless of your situation, you should conciously choose a strategy and stick to it.