A top seller took to Twitter to explain why his company is dropping its Amazon advertising budget to zero after spending over $10 million on Amazon ads in recent years.
The point of the post was not to say all sellers should abandon all marketplace advertising, but rather, to explain the reasons why his company was taking a new approach. Bryan Porter of Simple Modern explained in a nutshell:
“Advertising profitability was inflated by ads not driving sales. In other words, organic customers were using ads to shop when they were going to purchase anyway.”
Porter, who previously worked at penny-auction site QuiBids, cofounded Simple Modern in 2015, according to his LinkedIn profile.
His Friday evening Twitter thread caught the attention of other Amazon sellers who wanted to know more about Porter’s experience and reasons for his new approach.
Simple Modern was spending 8% of revenue on advertising, he explained. “This is a standard practice for sellers, it bought top placement, the lift in sales was noticeable and ACOS was below 30%. It seemed like this was driving our business forward… but we were wrong.”
(Note about Amazon Cost of Sales: “Amazon ACoS is how much you spend on Amazon advertising in order to generate $1 in revenue from that spend,” explains Pattern.com)
It’s not clear what sparked Porter’s epiphany, but he explained:
“Amazon shows ads on product pages from other relevant listings. We spent a lot for customers to click between our different listings. Organic customers would browse our catalog via similar product advertisements and Amazon ads would attribute it.
“If our ad is #1 and we have the #5 organic placement, many organic customers are now buying through the ad.
“These sales make the campaign look overly profitable. In reality, they are inflating ACOS and justifying more spend.”
A key difference between Porter’s business and many others is that his company is a well known brand – most sales are now from branded searches, he said. Simple Modern also has the advantage of an email marketing list and a social media following.
Modern Simple is now throwing its efforts into deals. “Unlike ad spend, deals improve listing conversion rate and placement,” he said.
Not everyone was buying into the idea that a permanent exit from ads could work – Adam Weiler of Amazon marketing agency Sunken Stone said eventually organic rank would begin to slip.
It’s remarkable how well a conversation about Amazon ad strategy played out in a Twitter conversation, something usually done in private seller groups.
In fact, it could be the basis for a case study – once the seller has time to measure the results from the new strategy.
We only scratched the surface here – be sure to check out the full Twitter thread. The lessons about advertising on Amazon could be helpful to sellers advertising on other ecommerce platforms, keeping in mind the differences between being a reseller vs a branded seller. As they say, your mileage may vary.
It’s also worth pointing to some other points Porter made in his thread:
“The negative of advertising is that customers are pushed toward listings that haven’t earned a top placement based on merit.
“Amazon built their business by earning customer trust, leaning too far into advertising could start to unwind that.”
Something Amazon and other marketplaces should keep in mind as they chase third-party seller ad revenue to boost their bottom lines.