What is Revenue Per Click (RPC) Bidding?

The RPC bidding method is King in Amazon PPC

Here's why...

DEFINITION

"RPC" stands for "Revenue Per Click" (i.e., Sales divided by Clicks) and the bidding methodology is quite simple:

𝑻𝒂𝒓𝒈𝒆𝒕 𝑪𝑷𝑪 = 𝑹𝑷𝑪 × 𝑻𝒂𝒓𝒈𝒆𝒕 𝑨𝑪𝑶𝑺%

With this strategy we align our "Ad Cost" with our "Ad Sales" on a click-by-click basis, which ensures we hit our Target ACOS.

PROFITABILITY

I don't care how good your "ranking" is or that you have "100% Top-of-Search Impression Share."

If you spend more than you make, you're going bankrupt.

The objective of RPC is to maximize 𝙨𝙖𝙡𝙚𝙨 𝙫𝙤𝙡𝙪𝙢𝙚 within our pre-determined ACOS restraints. I'm also convinced that Total Product Sales & Total Keyword Conversions play a much larger role in Amazon's algorithm than just Top of Search placements.

RANKING

You can still bid aggressively and rank with RPC. You only need to set a 𝗵𝗶𝗴𝗵𝗲𝗿 𝗧𝗮𝗿𝗴𝗲𝘁 𝗔𝗖𝗢𝗦 for ranking keywords.

I disagree with those who try to rank by sending bids to Mars with absolutely no calculation.

Even with a ranking strategy, we should have SOME kind of Target ACOS. You can have 100% Target ACOS, sure, but there should be some level of efficiency.

Think of it this way… would you rather have:

1. Ten (10) orders @ 200% ACOS

2. Twenty (20) orders @ 100% ACOS?

Even with a “high ACOS ranking strategy,” there are still ways to rank efficiently.

Do not confuse “ranking” with “recklessness.”

Using RPC in a ranking strategy with a defined ACOS target will stretch your budget further, net more sales, and rank more efficiently compared to just closing your eyes and hitting "apply" on a $10 bid (even my dog can do that).

"But decreasing bids makes ACOS go up!"

I hear this all the time, and I used to think it was true -- until I learned from my mistakes.

There are two primary reasons why reducing bids will increase ACOS:

𝗬𝗼𝘂 𝗹𝗼𝘀𝘁 𝗧𝗼𝗽 𝗼𝗳 𝗦𝗲𝗮𝗿𝗰𝗵. If you only decrease your bids WITHOUT increasing campaign bidding adjustments for Top of Search, you will destroy your ads by forcing them to worse performing placements (e.g., Product Pages).

Combining Placement Bidding Adjustments with Keyword RPC Bidding solves this problem (later this week I'll make a whole post about Placement Bidding, so be sure to follow ).

𝗬𝗼𝘂 𝗹𝗼𝘀𝘁 𝗰𝗼𝗻𝘃𝗲𝗿𝘁𝗶𝗻𝗴 𝘀𝗲𝗮𝗿𝗰𝗵 𝘁𝗲𝗿𝗺𝘀. This is likely to happen with broad/phrase/auto targeting. Maybe 90% of your sales were coming from a higher CPC search term while 90% of your spend was going to another lower CPC search term. When you reduced your bid, you effectively removed yourself from the better search term that was driving all the sales.

Proper keyword harvesting & negative keyword management solves this. RPC still king.

RPC Bidding Solves the "Low Data" Problem

How do you calculate the bid for a new keyword?

This is where RPC thrives (and other methods fail).

Traditional methods say to start with Amazon's "Suggested Bid," or perhaps if you found the keyword in your search term reports, use the CPC of the converting search term.

A couple problems arise here:

𝗔𝗺𝗮𝘇𝗼𝗻'𝘀 "𝗦𝘂𝗴𝗴𝗲𝘀𝘁𝗲𝗱 𝗕𝗶𝗱" is based on auction market price, and rarely aligns with your business goals or individual product performance. I've seen some suggested bids that are WAY above what we can afford and would kill us if we went with them.

𝗖𝗼𝗻𝘃𝗲𝗿𝘁𝗶𝗻𝗴 𝗦𝗲𝗮𝗿𝗰𝗵 𝗧𝗲𝗿𝗺 𝗖𝗣𝗖 isn't good enough (at least not for me). Too many factors could set the CPC either too low or too high.

For example, I've had terms that randomly convert with $0.02 CPC (who knows how that happened, but I don't want my bid to be that low when our average is $1).

Sometimes a term converts with a $3 CPC but only has 1 click and 1 sale, so the ACOS seems good. However, if you actively bid with a CPC that's 3x above your average, you'll likely overshoot your Target ACOS by end of week.

One final example:

What if the search term has 5 orders but the ACOS is too high?

Some people negate those converting search terms (missed sales opportunity) while others harvest the keyword with the same CPC (leading to higher ACOS and inefficient spend).

So what do we do here?

It's simple:

If there's enough data on a search term (i.e., at least 1 order and a good amount of clicks), we use RPC to harvest the keyword with an efficient bid.

If there's 𝘯𝘰𝘵 enough data (e.g., brand new keyword with no history), we can use "Anticipated RPC."

Anticipated RPC is calculating how many sales your product generates per click by looking at Average Order Value and Conversion Rate. It goes like this:

𝐀𝐧𝐭𝐢𝐜𝐢𝐩𝐚𝐭𝐞𝐝 𝐑𝐏𝐂 = 𝐀𝐎𝐕 × 𝐂𝐕𝐑%

For example, if you have a product that sells for $10 and has a Conversion Rate of 10%, then $10 * 10% = $𝟭 𝗥𝗲𝘃𝗲𝗻𝘂𝗲 𝗣𝗲𝗿 𝗖𝗹𝗶𝗰𝗸.

This can be our starting bid for any new keywords which have no historical data. If the keyword performs similar to our average, it will hit the Target ACOS on the day it gets its first order.

But what if that keyword doesn't convert?

Bid Optimizations for Non-Converting Keywords

You might be asking, "Stephen, how can this strategy work when the keyword has 𝒏𝒐 𝒓𝒆𝒗𝒆𝒏𝒖𝒆??"

We have a simple, yet creative solution for that

We once again use the 𝗔𝗻𝘁𝗶𝗰𝗶𝗽𝗮𝘁𝗲𝗱 𝗥𝗣𝗖, but this time we add an additional variable to the equation: current keyword clicks.

It's beautifully simple how it works -- with 𝗲𝗮𝗰𝗵 𝗮𝗱𝗱𝗶𝘁𝗶𝗼𝗻𝗮𝗹 𝗻𝗼𝗻-𝗰𝗼𝗻𝘃𝗲𝗿𝘁𝗶𝗻𝗴 𝗰𝗹𝗶𝗰𝗸, we reduce the Anticipated RPC. This allows us to "step down" our bids incrementally without archiving/negating the keyword outright.

Why is that better?

Because it still gives the keyword the OPPORTUNITY to convert without the fear of overspending.

This method is superior to instant negation because oftentimes the "high spend, non-converting" keywords are relevant, only the spend is too high because the CPC is too high.

So here's what the logic looks like:

𝐓𝐚𝐫𝐠𝐞𝐭 𝐂𝐏𝐂 = 𝐀𝐎𝐕 / (𝐊𝐞𝐲𝐰𝐨𝐫𝐝 𝐂𝐥𝐢𝐜𝐤𝐬 + (𝟏/𝐂𝐕𝐑)) × 𝐓𝐚𝐫𝐠𝐞𝐭 𝐀𝐂𝐎𝐒

Now that's a lot of PEMDAS, so let's break it down.

The major change here is that instead of multiplying by conversion rate, we divide by the inverse of CVR (i.e., 1/CVR). We do this to find our "average clicks-to-conversion," which I abbreviate as "aCTC." This is how many clicks it takes on average to get a sale.

We then add the current amount of non-converting clicks.

As the total number of non-converting clicks increases, our 𝗔𝗻𝘁𝗶𝗰𝗶𝗽𝗮𝘁𝗲𝗱 𝗥𝗣𝗖 𝗴𝗼𝗲𝘀 𝗱𝗼𝘄𝗻, and so our bids are reduced in a step-down manner. The bids continue to be reduced until either one of the following happens:

The keyword converts at the right CPC and hits the Target ACOS

The bid drops so low that the keyword loses visibility and is effectively paused

In this way, we can slowly phase out an underperforming keyword while still giving it the chance to win a sale. I find this method to be far superior to the traditional "decrease by X%" method (where the "X" is an arbitrary value).

I hope you're beginning to see the power of RPC.

It's the most logically sound, mathematically-based method I have found for managing investment levels, ranking, and profitability.