How to use Amazon and Advertising to Build a D2C Startup

This article was originally published on TechCrunch.

Entrepreneurship in consumer packaged goods (CPG) is being democratized. Every step of the value channel has been compressed and made more affordable (and thereby accessible).

At VMG Ignite, we have worked with dozens of direct-to-consumer startups trying to both find product-market fit and achieve scale through Amazon and online advertising.

This article focuses on customer acquisition, particularly Amazon and online advertising, for the direct-to-consumer (D2C) CPG venture. Selling on Amazon, specifically third-party (3P), has become an increasingly important component of the D2C playbook. About 46% of product searches start on Amazon, which makes it a compelling source of sales even for early-stage ventures.

How to Find Product-Market Fit

People say that ideas are a dime a dozen. They arenʼt valuable. But finding product-market fit? Now, thatʼs hard. The gap between an unexecuted idea and proven product-market fit can seem vast. Yet itʼs a critical first step because, ultimately, marketing amplifies your product and value proposition.

If they arenʼt compelling, marketing will fail. If theyʼre compelling, even mediocre marketing can often be successful. So start with a great product that people love.

How do you create a great product, you ask? A/B test your product configuration like you A/B test your landing page, copy, and design. Your product is a variable, not a constant. Build, ship, get feedback. Build, ship, get feedback. Turn detractors into your customer panel for testing.

Early-stage D2C companies typically get their first customers through three channels:

1. Begging your friends and family to buy and promote your product.
2. List it on Amazon as a 3P seller. Figure out the platform and start selling!
3. Advertise on Facebook. Start with a daily budget of 10x your price point to get started and start tinkering with creative, audiences, and settings to minimize cost per order.

The companies that succeed are often the ones that iterate the fastest. In his book Creative Confidence, IDEO founder David Kelley and his co-author (and brother) Tom relay a story of a pottery class that was split into two groups.

The first group was told they would each be graded on the single best piece of pottery they each produced. The second group was told they would each be graded based on the sheer volume of pottery they produced.

Naturally, the first group labored to craft the perfect piece while the second group churned through pottery with reckless abandon. Perhaps not so intuitive, at the end of the class, all the best pottery came from the second group! Iteration was a more effective driver of quality than intentionality.

Donʼt know how to manage Amazon or Facebook? Here are some best practices.

How to Get Started with Amazon

Currently, Amazon offers two ways to sell on the platform. Each has its own advantages and youʼll need to choose one or both before moving forward.

1P (1st Party or “Vendor”)

This is a traditional wholesale vendor model with co-ops, freight fees and other agreements that will need to be signed before selling. Amazon is the “customer,” like brick-and-mortar retail. This model is more of a hands-off approach to selling on Amazon and is usually better for lower margin or heavy items.

There used to be other added benefits such as A+ content, deal placements, Amazon Retail Analytics (ARA) and advertising benefits with 1P but almost all of these have been given to 3P in the last year (Brand Analytics, Best Deals, etc.). There are exceptions, but we typically recommend that our clients sell as a 3P or hybrid seller to maximize the opportunity on Amazon.

3P (3rd Party or “Seller”)

This is Amazonʼs 3rd party marketplace, which was traditionally made up of smaller sellers who couldnʼt access vendor accounts. But the landscape is changing.

More brands are turning to 3P because of one important factor: control. As a 3P account, you will have full control over inventory, pricing, promotions, and content.

The biggest benefit of all is that you still get to use Amazonʼs best-in-class fulfillment network for all of your items. This allows your products to have the prime badge and two-day shipping throughout the country.

All of these factors will help you launch products on the platform faster and with less risk. The fee structure for 3P is also more transparent as there are only three main fees: a $40 monthly flat fee to be a professional seller, referral fees on the sales price (6-15%) and FBA (fulfillment by Amazon) fees should you choose to participate in this program.

Hybrid

With this model, you can have your cake and eat it too. There are currently no rules about running a 1P and 3P account at the same time, leading many brands to run the analysis on which way is more profitable item by item. This will obviously take more work as you will be managing two accounts, but the rewards usually outweigh the risk and time required.

Each seller on Amazon is unique and will need to run the analysis for each option before making a decision on how they would like to sell on the platform. For most, 3P or hybrid will be the winner.

Maximizing Sales on Amazon

The main drivers of product rank on Amazon are sales velocity, page interaction, A+ content and backend terms. Optimizing the content of your listing is the best way to kick start your growth on Amazon. Here are some best practices.

Titles

Titles provide the highest relevancy for keywords in a particular listing, making sure your top terms are here is the best way to appear in search. If you shop on Amazon youʼve probably noticed long rambling titles that are keyword stuffed.

Thatʼs because they work, though the practice ultimately leads to poor customer experience as they can be quite confusing. Itʼs best to find a middle ground, like the example below. It includes key details but is easy to read. Your title is limited from 50-200 characters and must adhere to style guides depending on your category.

Image stack

Images play a key role in converting Amazon customers especially as more and more are switching to mobile. On mobile, it can be hard to see bullets, descriptions and even A+ content as it all lives well below the fold.

This means you only have your title and first few images to highlight your key features and benefits. This requires the use of infographics (see example below) to drive these points home and land the sale. Each listing should have at least six pictures. Amazon also allows you to upload multiple videos to the image stack.

Since time-on-page is a driver of search ranking, make sure you have at least one video on every page. We recommend 2-3 videos on each page. If you do not have individualized videos for each of your products, a general brand video can be used as well.

Bullet points

Bullet points are key for conversions on Amazon and should focus on features and benefits, as seen below. They need to be keyword rich and formatted to the following: “BENEFIT—how your feature drives that benefit.” They are limited to 250 characters in most categories. Make sure to check Amazonʼs style guide for the exact limit.

Bonus tip: Download your competitorʼs reviews with the helium 10 extension, then sort by 1-star reviews and look for key issues they are having with the product. Use this information to call out how your product fixes these issues.

Descriptions

Descriptions are the last piece of content on a listing and based on our testing most buyers will never make it that far down the listing. Nevertheless, itʼs a great place to expand upon your bullets and add in keywords that you couldnʼt fit.

It is currently limited to 2,000 characters; roughly 1,000 is the sweet spot. This is a great place to further document the specifications of your product and compatible devices. You should also use HTML formatting for readability (ex: line break, paragraph, and bold text).

Backend details

Backend details are where Amazon gives you a chance to better educate its algorithm on your product. Many sellers and vendors leave these attributes blank or partially completed. This is a mistake.

Itʼs key to feed Amazon as much data as possible so they better understand your product and show it to customers with the highest relevancy. These attributes will also appear in different places on the listings (example: product comparisons below).

Some of these attributes can be accessed by editing the product in the browser but others will need to be uploaded from flat files to Amazon. Specifications for your category can be found in Browse Tree Guides (BTG). Using these will give you an advantage over most of your competition.

Browse nodes

Browse nodes are how a product is categorized on Amazon. These browse nodes refer to a category, which allows you to add distinct refinements to your product page for enhanced search visibility. For example, if your product is shampoo, then added refinements would be hair type, organic, hair concern, gender, and so on. A refinement chart, like the one below, is on the left-hand side of each search page. If it isnʼt filled out correctly, your product will disappear as people click.

These refinements are often overlooked and can be confusing when setting up your products. There may be more than one category that your product fits into or multiple paths to the lowest node (see image below).

For example, these are two paths to get to the same bottom node of Protein Bars.

Health & Household > Sports Nutrition > Nutrition Bars > Protein Bars

Grocery & Gourmet Food > Snack Foods > Bars > Nutrition Bars > Protein Bars

Many may not see this as an issue but the way you are categorized can greatly affect search results even when the final node is the same. When performing a search on Amazon you can select a specific category. The options you can select from are only top-level nodes either Health & Household or Grocery & Gourmet from the example above.

If you perform the same search in each category the results will vary and sometimes your items will not even show up. It is best to see how your competitors have categorized their products, doing so will allow you to appear next to them in search.

A+ content

A+ Content is the best way to highlight your brand story and expand your products through images on Amazon. This section is not indexed for search but will still provide a boost in ranking as long as you have the content.

Amazon provides multiple modules to help build out this content as well as a premium option that comes at a much higher cost. Focus on highlighting your key features and benefits, again with more images than text. Make sure to check that it renders properly on mobile as there is currently no way to have different options for device types.

Ads

Ads play a crucial part in the launch and overall success on Amazon. There are three main ad types that you will have access to:

1. Sponsored Brands. Sponsored brand ads should be purchased when brand awareness is your main goal. These ads typically have lower conversion rates than Sponsored products ads (described below), but they drive customers to your product page which allows Amazon to remarket to your customers if they didnʼt make a purchase. These ads should always be bought at the same time as Sponsored Products ads to increase your real estate on a search page.

These ads live at the top of all searches on Amazon and are driven by targeting keyword queries. They can drive traffic to a landing page or Amazon Storefront. They are a great way to increase awareness of your brand on Amazon. These are limited to brand-registered sellers only, so make sure you register your trademark as soon as you start selling on Amazon.

2. Sponsored Products. Sponsored product ads also live on each search page, in addition to product pages. These ads should follow an always-on approach as they are your best opportunity to drive sales while appearing at the top of search.

These can be targeted by search query, product or category and drive traffic straight to the product detail page. These are bottom-of-funnel ads and are a great way to drive conversions on new or existing products. Conversions through these ads will also increase organic relevancy for the keyword search once a purchase is made. This can be used as a part of a launch strategy to build up your organic rankings quicker.

All search results start with at least two sponsored ads as seen below. This is prime real estate to ensure your products are seen while still building relevance in Amazonʼs algorithm.

This is an example of how Sponsored product ads appear on a search result. They will always take up the first few positions as seen below and include a Sponsored tag. These provide new brands to position themselves with established sellers and see sales from day one.

3. Product Display Ads. (Limited to Amazon advertising console users only.) PDAs live on each product page below the buy box and a few other spaces on the product page. These ads can be used in a variety of ways since they allow up to a 50 character headline and a logo.

Three great ways to use them are for defense, frequently bought together, and competitor targeting.

1. Defense. You can buy placements on your own product pages to keep competitors off your listings. These are great to keep customers focused on buying your product since there are several ads featured on each product page.

2. Frequently bought together (FBT). This is a great opportunity most sellers donʼt take advantage of. On every product page, there is an unpaid placement of items that are FBT. With the click of a button, all of these items will be added to your cart and it takes very few actual sales to claim these positions. FBT can be used to target your own products to increase basket size or complementary products to drive incremental sales from future placements on product pages. (See sample image below.)

3. Competitor targeting. You can also target competitor ASINs (Amazon Standard Identification Number) to be the last ad a person sees before adding a competitorʼs product to their cart. Make sure to use your 50 character headline to call out why your product is the better choice.

Bonus Tip: Add coupons to the products you feature in these ads to grab attention and increase click-through.

Amazon has become a key part of main brands D2C strategy and will only continue to grow as more brands look into the opportunity. The ultimate goal with selling on Amazon is obviously sales.

Amazon rewards the best sellers with higher search rankings and special badges to continue driving increased sales. This is why it is always important to drive outside traffic to your Amazon pages to increase sales which then increases your search ranking. Relatedly, with the right Facebook ad strategy, you can help boost the launch of your products in the Amazon world.

Read next: How to Unlock Higher Organic Rankings with Amazon Ads

Getting Started with Facebook ads

1. Interest and demographic targeting is an effective method for getting your first customers. Alternatives include lookalike audiences and CRM targeting, but you canʼt use those methods until you have your initial batch of customers.

2. Once you have 100 sales, try uploading your customer list as a custom audience and build a lookalike audience from it. For more than 80% of the companies we work with, lookalike targeting outperforms interest targeting.

3. As your list of customers grows, build lookalikes off your best customers instead of all your customers. Usually, “best” is defined as highest AOV or highest repeat purchase rate.

4. Optimize all your campaigns for conversions. Make sure youʼve implemented the Facebook conversion pixel properly in order to record transactions and optimize appropriately. Your conversion platform will typically provide documentation on placing the Facebook pixel, like this article from Shopify.

5. Test at least three (very) different headlines, descriptions, and images. The first goal of the creative is to stop the user from scrolling. Grab their attention! Then evoke their curiosity and/or connection.

6. Create a sense of urgency, including the use of discounting. Itʼs important to give people a reason to buy now, instead of waiting.

7. Exclude your existing customers using custom audiences. Itʼs important that your campaigns target new customers. Youʼll be able to spend more to acquire a new customer and all their future purchases, rather than acquiring a single order.

8. Donʼt be discouraged by initial results. Itʼs usually possible to cut your CAC (customer acquisition cost), by at least 50% from your first weekʼs results. Also remember there is latency. This means that people will see the ad and not buy until 3, 5, 10, 15 days later. You should keep looking back at past results to see the CAC reduce over time.

9. Customize your reporting columns so that you can see 1/7/28 day click-through and view-through conversions. The “right” numbers to look at typically depend on the rest of your marketing mix, but itʼs valuable to see them all. If Facebook is literally your only channel, you should consider counting view-through conversions beyond the one-day threshold. We recommend using the default one-day view and 28-day click windows until you are spending at least $50K/month.

If Amazon is a core part of your strategy, allocate some Facebook budget to send traffic to Amazon instead of your own site. Doing so will help improve your organic rankings on Amazon.

However, most companies send Facebook traffic to their own site to convert the traffic to sales. We recommend using custom landing pages for paid traffic in order to tailor the content for the audience and push hard for the sale (more so than a homepage typically does). Make sure you have a primary call-to-action (ex: “Buy Now”) prominently displayed above the fold. Keep the checkout process as simple as possible to minimize friction.

We recommend continuing to refine the product and optimize Facebook ads until you can spend $1 to get $1 in revenue. It would be even better if you can spend $1 to make $1 in profit. These results, coupled with positive customer feedback, typically reflect product-market fit.

Growing Sales After You Have Product-Market Fit

Once you have product-market fit there are some channels that work particularly well for D2C ecommerce:

1. Facebook. Déjà vu. Facebook isnʼt just good at helping you test your product and find your early customers; itʼs also a great channel to scale. Many ecommerce companies are able to spend over $1M/mo profitably. If you are seeing great results here, find the ceiling!

2. Google Product Listing Ads. PLAs occupy the best real estate in search results for product searches. Unlike traditional “search,” the key to success is optimizing your catalog, not keywords. The cost of entry is light at about $5K/month to properly test.

3. Snapchat. If you are targeting people younger than 30 years old, we highly recommend testing Snapchat. Itʼs an emerging, underutilized channel that many ecommerce companies are successfully using. We most commonly see spend between $100K/mo and $700K/mo with a positive return on the first order. The cost of entry is low at roughly $5K/mo to test.

4. Podcast Advertising. One of the best kept secrets in customer acquisition is how successful podcast advertising was for companies like Dollar Shave Club, Quip, Harryʼs, Casper, Glossier, Lola, Ritual and others. Host endorsement is very powerful for innovative products, particularly the broad public is aware of a company and its products.

The recommended cost of entry is a bit more expensive at roughly $100K over three months, though you can test it for significantly less in a pinch. Weʼll be publishing another ExtraCrunch guest post about how to leverage podcast ads as a D2C growth channel soon, but in the meantime, we highly recommend speaking with podcast expert Krystina Rubino.

What Tools and Technology to Use for Your D2C Business

There are many resources out there that can help you craft the right “tech stack” for your D2C business. Tools matter for growth so here are a few quick notes:

• Shopify and Big Commerce both get great marks for their ease of use and scalability. Most companies we talk to (and work with) use Shopify. We recommend reading comparisons online and getting demos for both. Woo Commerce, in our anecdotal, distinctly non-scientific opinion, has been waning in prominence and preference.
• Klaviyo is best-in-class for D2C email marketing campaigns, particularly automated messaging. Their user tracking is outstanding and when used to trigger flows, can be used to create highly individualized campaigns based on a sequence of interactions. Klaviyo also integrates with Facebook so you can dynamically build custom audiences based on how users interact with emails you have sent them in the past.
• Google Analytics remains an essential tool for understanding user behavior on your website.
• Amazon Attribution is a pixel-based tracking solution to attribute Amazon sales back to non-Amazon advertising efforts online.
• Amazon Associates. This is Amazonʼs internal affiliate program, which offers up to 8% back on all items sold through their links. You can create unlimited tracking IDs for each campaign to receive unique click and conversion rates. You can use these links when pointing to your Amazon listings from your website.

The number one driver of high growth is a killer product, so measure twice and cut once. Talk to your customers, iterate your product(s), optimize your conversion platforms (website + Amazon), and tinker with advertising until you find a way to put in $1 and get at least $1 back. Once you reach this point, then itʼs all about scaling existing channels (likely Amazon or Facebook) and testing new ones—product listing ads, Snapchat, TikTok, and podcasts to name a few—until they scale too.

Disclosure: The author is a shareholder of Shopify, a publicly-traded company. VMG Ignite is also an affiliate of Klaviyo. VMG Ignite is run by Right Side Up, an unaffiliated and independent digital marketing firm. Please visit www.vmgignite.com for additional details and disclosures.

If you're trying to scale your D2C CPG business and would like to chat about the ways Right Side Up's team of growth marketing experts can help, please send an email to hello@rightsideup.co and we'll get back to you stat.