Calculating optimal bids are all rage around the internet especially around the Amazon ecommerce business and the most frequent formula given is
Bid = sales/click* target acos.
While this may provide a good indication of what your bid might be, this is a classic case of putting the cart before the horse.
Optimizing your ads through rules-based systems may seem like a smart strategy, but it could actually be hindering your business.
What you want to do is to optimize the bid to generate good sales. But with formulas like this you are optimizing your sales & clicks based on your bids.
Adding misery to that equation is that lower bids will get you substandard sales and most likely higher ACOS (lower ROAS).
This causes what I call a “spiral of death”. Your sales go down since your bid is low. Your bid goes further down if you use the formula above since sales is low.
So don’t be a kid, ditch the algo bid! (I am no Shakespeare when it comes to rhymes)aihello
The true way out is to frequently go against intuition and raise the bids when acos is high and test and see what;s the perfect bid.
There are (currently) two ways to do it:
Keep raising bids according to your gut feeling. You will be lucky or you will be wrong.
Forecast the bid based on aggregate data and then keep optimizing your bid towards the goal.
In short, relying solely on rules-based systems for optimizing your ads can actually harm your business, so it’s important to test different strategies and be open to thinking outside of the box.