Everything marketers need to know about hiring an agency to grow their business on Amazon

Amazon CEO Jeff Bezos demonstrates the Kindle Paperwhite during Amazon's Kindle Fire event in Santa Monica, California September 6, 2012. REUTERS/Gus Ruelas

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A cottage industry of agencies want to be advertisers’ go-to Amazon expert.

Amazon is the third-biggest digital advertising company behind Google and Facebook. Amazon made $13.5 billion from advertising in the first three quarters of 2020, up from roughly $9.3 billion in the year-ago period.

As Amazon’s ad business has grown, dozens of agencies — many founded by former Amazon employees — have popped up to help advertisers buy ads and sell products on the website. Amazon itself recommends many of these agencies through an online directory.

E-commerce analytics firm Profitero estimated that there are now closer to 130 or 150 North American Amazon agencies now, up from 100 in 2019.

“The Amazon ad agency landscape is large, fragmented and quickly growing — there are very few barriers to entry preventing anyone from starting their own shop,” said Bryan Wiener, CEO of Profitero.

Read more: Inside Amazon’s advertising business, which is $13 billion and growing

TV and digital advertising is typically handled by an advertiser’s media team, but Amazon ad spend is handled by specialists who also manage retail operations. That gives Amazon-focused agencies a leg up over the large holding companies that have e-commerce advertising arms but do not handle retail areas like forecasting, replenishment and setting up product pages, said Travis Johnson, global CEO of Amazon agency Podean.

“It’s too much nitty-gritty for the big agencies to employ expertise in that space, and agencies tend to focus on the advertising side of things,” he said. “The person who owns the budget needs a lot more than advertising to be successful on Amazon.”

Amazon’s structure can also be difficult for marketers to understand without an agency to handle communication with the company. Johnson said that it’s typical for marketers to deal with separate teams within Amazon for onboarding advertisers, search advertising, display advertising, and refunds and chargebacks.

The pandemic has also sped up the pace that brands are hiring Amazon agencies as e-commerce sales and inventory management challenges have grown.

Lauren Picasso, CEO and founder of sports drink brand Cure Hydration, recently hired its first agency. Two-year-old Cure Hydration sells on Amazon, Shopify, Thrive Market, and in retail stores like Walmart and Whole Foods. 40% of Cure Hydration’s sales come from e-commerce.

Picasso said that the coronavirus has cut the amount of inventory that Cure Hydration can send to Amazon from three months’ worth to one. Amazon has also taken longer to check-in products, leading to Cure Hydration’s products being out of stock during the pandemic.

Read more: Ulta Beauty is pushing into advertising as it chases a piece of the $17 billion e-commerce ad business

“We needed to bring on an agency with Amazon expertise — we wanted someone to help us figure out the right cadence of shipping inventory, we wanted some help building out a dedicated brand store, and wanted someone with expertise in Amazon marketing,” she said.

Picasso hired Seattle-based commerce agency The Stable to handle advertising, design work for a branded store, and operational work.

“It’s all primarily ex-Amazon employees, which I think is what differentiated them to me,” she said. “Their team is deeply familiar with Amazon, having worked there before.”

Insider spoke to a mix of agencies, brands, and tech firms to break down what brands need to know when hiring an Amazon agency.

jeff bezos amazon

What do Amazon agencies do?

Amazon agencies have carved out a niche by focusing on e-commerce. Most of the agencies do not help manage other digital channels, but some are expanding to marketplaces like Walmart and Instacart that are pushing into advertising.

These agencies fall into two types: Those that help brands sell their products and those that help brands run ads on the platform. Agencies also often work with adtech vendors like Teikametrics, Pacvue, and Kenshoo that sell ad optimization technology.

Agencies like Blue Wheel Media solely offers advertising services to differentiate itself and avoid services that might overlap with in-house teams.

“Our motto has always been that the biggest brands on Amazon are the best advertisers,” CEO Trevor George said.

Other firms like Amify help brands sell items on Amazon with services like strategy, operations, and advertising.

“We believe that Amazon should be an extension of your website and a direct-to-consumer channel. By cutting out the middleman, you make more money,” said Ethan McAfee, founder and CEO of Amify.

What don’t Amazon agencies do?

Many brands still handle part of their e-commerce in-house.

Brands typically handle creative for their products themselves so they can use the same product photos and videos of products outside of Amazon. Agencies then take the assets and create Amazon-specific content on product pages and brand stores.

Stock allocation and merchandising are two other areas that brands often handle in-house. Both functions help brands keep control over distribution, especially if brands sell to retailers outside of Amazon.

Amazon warehouse

When should you hire an Amazon agency?

Deciding when to hire an Amazon agency depends on the scope of the work.

Advertising-only firms like Blue Wheel Media work with brands that make more than $1 million in yearly revenue, meaning that its clients need to already have an e-commerce operation and are looking to ramp up spending.

Other firms like Amify help companies build an e-commerce strategy from scratch and turn Amazon into a direct-to-consumer channel.

John Ghiorso, founder and CEO of Orca Pacific, said that the recent boom in agencies comes from Amazon getting bigger and harder to navigate. To meet the demand, agencies are also rushing to develop technology to handle tasks like media buying and optimization.

“It’s gotten far more complicated and the competition has gotten more fierce on the platform,” he said. “Five years ago, you could do it on your own as a mid market or small brand. The game has gotten much more sophisticated.”

What should you ask when hiring an Amazon agency?

Brands should ask firms specific questions about how their account will be handled, said the agencies.

“You have to be able to come up with a specific custom approach to the advertising strategy,” said Kashif Zafar, EVP of sales and marketing at Orca Pacific.

Some examples of questions are:

  • Which areas does your agency have demonstrable experience in?
  • What tools do you use to get an edge on Amazon?
  • How will you gauge success on Amazon?
  • Which products should I advertise?
  • What is the org structure of your agency and what are your employees’ work backgrounds?
  • How much control do advertisers have when an agency runs my account?
  • What are your other customers doing?
  • What is a good advertising cost of sale? (ACoS measures the ratio of ad spend to revenue.)
  • Can you give me references to talk with your other clients about your expertise?

Amazon video ads

How much does an agency cost?

Most agencies charge based on a percentage of a brand’s sales or advertising revenue. Blue Wheel Media and Orca Pacific said their fees start at a few thousand dollars per month and increase based on the size of the client.

Blue Wheel Media also offers brands month-to-month contracts for advertisers looking for quick help with advertising.

Ethan McAfee, founder and CEO of Amify, said the firm charges a monthly fee of $10,000 to $50,000 to its clients, most of whom have between $5 million to $50 million in annual sales on Amazon. 

How much money should you spend on advertising?

Some experts said that the rule of thumb is that brands should spend 5% to 20% of their sales on advertising — similar to the percentage that retailers have long recommended brands pay retailers in exchange for distributing products in stores.

Orca Pacific’s Ghiorso said that that rule is outdated and that with Amazon ads, brands should spend based on performance.

“If you’re doing $100,000 a year on Amazon and you spend $10,000, that’s not going to give you much [but] if you’re doing $100 million in sales and spending 10%, that’s a decent number,” he said. “There’s still a legacy mindset that’s the inverse of how brands should be looking at it.”

Amity’s McAfee recommends that brands spend 20% on advertising when launching a new product to rank higher in search results and get discovered, then drop to 10% once it’s profitable.

Cure Hydration spends about 20% of its revenue on ads, but Picasso said that it’s more important to generate reviews for products when launching a brand. She recommends that brands have at least 10 four-star reviews before starting advertising.

What kinds of ads should you buy?

Amazon has dozens of ad formats that often are mistaken for each other. Experts recommend brands start with sponsored product ads, which appear as promoted items in search results.

“If you’re in a category like makeup and people are searching for generic terms like ‘eyeshadow,’ paid search is your best initial advertising return because people already have intent, and you need to convince people that your product is the right one,” said Podean’s Johnson.

Orca Pacific’s Ghiorso recommends that brands next add display ads to help build brand awareness and loyalty. Display ads run through Amazon’s programmatic ad platform.

“Display is upper funnel, and there’s also a technical skill to running the campaigns where the upfront cost to running campaigns will not be able to justify doing it internally,” he said.

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