When brands first come to Amazon, establishing dominance over their category is often seen as the holy grail – but, once these lofty heights are reached, what comes next?
Crucial though topline income is, it’s entirely possible for Amazon businesses to see skyrocketing sales and strong revenue growth sitting alongside poor profit margins.
After all, as well as being the world’s biggest marketplace, Amazon is also undoubtedly the most competitive – and where there is plentiful competition, it’s your margins that suffer.
So the next logical step after achieving category dominance is to maximise your profitability.
But how?
Here, we share expert insights and actionable strategies from our Amazon specialists that will help you take your marketplace profitability to the next level.
The importance of… Real-Time Reporting
We can’t stress enough how crucial it is to maintain a deep and up-to-date understanding of your Amazon performance and financials when you’re looking to maximise your profits.
Making real-time reporting a regular function will empower you with timely operative insights – the kind of data which enables informed decisions and agile responses to changing market conditions.
What should you be looking at? Well, there are a number of key metrics to focus on:
Real-time Profit
Frequently assessing up-to-date, accurate data on the profitability of your Amazon account is key when it comes to maximising your marketplace margins.
By leveraging the findings of up-to-date financial information, you’ll be able to stay ahead of the pack in this highly competitive world, moving deftly to minimise risks and gain a head-start on opportunities.
But how do you obtain this kind of ultra-specific data?
At Venture Forge, our experts use a tried-and-tested suite of the best profit reporting tools around, meaning we can provide precise and timely Amazon financials to help any brand.
Sales Performance
Tracking your sales volume, revenue and profit margins in real-time will help you identify trending and popular products and pinpoint items which are underperforming, so you can tweak your inventory, pricing and marketing strategies accordingly.
Ads Performance
As with all online advertising, Amazon Ads needs to be proactively managed to stop overspend quickly eating into profit margins.
Regularly monitoring the performance of your ads means you can see which are the most effective at driving your objectives (click through, conversions) – and then you can assign your budget more strategically.
Inventory Management
In these days of increasing FBA overstock fees, accurate management of your inventory is more essential than ever.
Looking at these stats in real-time will allow you to stay on top of product availability, replenishing inventory promptly, keeping storage costs to a minimum and avoiding the various issues that result from either stockouts or oversupply.
Regular audits will also allow you to claim any FBA Reimbursements you may be due – and we’ll cover the importance of these to your profit margins down the page!
Pricing Optimisation
How do you stay competitive on price? With real-time monitoring.
Tracking market trends and competitor prices on a frequent basis allows prompt reactions to price changes that keep those margins as high as possible – and work to attract more customers along the way.
Operational Efficiency
By routinely tracking your order processing times, fulfilment rates and customer metrics, you can ensure your operations are running as smoothly as possible.
Running an efficient operation streamlines processes, reduces expenses and delights more customers – leading to… you guessed it.
Fraud Detection
Often unfairly overlooked as a benefit of real-time reporting, the prompt detection of fraudulent activity is invaluable – not only to your profits, but to your brand’s entire Amazon presence.
Being able to quickly spot and address all kinds of fraud, from suspicious transactions to fake negative reviews, can save you many stressful hours in the long run – not to mention protecting your sales and your brand from the sheer havoc such activity can wreak.
The importance of… Unit Economics Modelling
When it comes to profitability on Amazon, not all products are created equal.
Enter unit economics modelling.
By drilling deep into all the costs associated with selling a particular product/s – from storage through fulfilment to advertising – you gain a true understanding of which of your items do/don’t/can/can’t make you money on Amazon.
How do you use unit economics modelling to assess product profitability?
Go to a really granular level and calculate the contribution margin for each SKU (stock-keeping unit) by deducting the direct costs associated with producing or sourcing the product from the revenue generated.
You can then work out the true potential of your planned product/s, optimising or phasing out those with lower profitability and prioritising your resources and focus on those with higher margins.
And what other decisions can unit economics modelling drive?
Well, pricing decisions, for one.
Unit economics modelling helps you determine the ideal price for your product/s by considering factors such as cost of goods sold (COGS), Amazon’s fees, shipping costs and other expenses.
It can help you decide where costs need to be reduced or optimised, by pinpointing inefficiencies in the supply chain, packaging, fulfilment or other operational processes.
It can help you evaluate your marketing campaigns and customer acquisition strategies – tracking the advertising and/or promotional costs associated with bringing in sales, and allowing you to assess whether the returns justify the outlay.
And it can drive your financial forecasting, providing the accurate figures for projections of future revenues, costs and profits you need to make informed business decisions and set sales targets.
The importance of… the “Internal vs External Resource” debate
Brands often face the dilemma of whether to recruit in-house talent or work with external agencies to manage their Amazon operations.
Though it may at first seem like keeping your Amazon activities in-house could be cheaper, the reality is that raising a successful Amazon account takes a village, not a single salary.
So, unless you have the resources and time to recruit a full Amazon team, it’s often more cost-effective to seek out a credible Amazon Agency with a full-service offering and the capacity to grow alongside you, no matter where your expansion plans lie.
The real key to solving this debate lies in choosing the right Amazon Agency to work with.
By finding an Agency that can truly partner with you and align with your vision, it’s possible to rest easy, reaping the many benefits of outsourcing your Amazon workload while focusing on driving your brand forward.
Discover how we bring magic to your marketplace, leaving you to get on with business. Lovely.
The importance of… optimising your Ad Spend
Advertising is such a crucial component of driving profitability on Amazon – and it’s so tricky to get right.
This is a world where there’s no such thing as set and forget, or not if you want to retain any profits, anyway.
We talked earlier about real-time reporting, and your Amazon Ads are possibly the place where you need to be the most on-the-ball, conducting regular performance analyses and experimenting with different ad formats, targeting strategies and bid optimisations to drive better ROAS.
Optimising your advertising spend is key for lots of reasons, from the increased visibility to the data-driven insights; the new customers to the competitive advantage.
But here, we’re talking profitability – and so the most important benefit of optimising your advertising spend is unquestionably that it greatly improves the cost-effectiveness of your marketing efforts.
Thanks to Amazon’s robust targeting options, it’s possible to spend your advertising budgets on reaching the right audiences based on any number of metrics; search behaviour and purchase history through demographics and interests.
By continually monitoring and optimising your spend, you can avoid wasting budget on ineffective campaigns and irrelevant audiences, seeking out the most promising opportunities that improve your ROI and minimise your outgoings.
We know though that staying on top of this deluge of data and constant change can be overwhelming.
Thankfully, our partnership with Amazon means we get access to the best information around – category-wide advertising spend data that we use to help our brand clients put a rocket up the bottom of their Amazon Advertising.
This intelligence, combined with our state-of-the-art advertising tech platform, makes for a powerful mix, one which drives strong growth while lowering your costs and increasing your profits.
The importance of… choosing the right Selling Model Strategy
Vendor or Seller – here’s a dilemma you should revisit on a fairly regular basis.
There’s no right or wrong, but circumstances do change and so this is a question we urge brands to ask themselves frequently – based on your business right now, which selling model will drive the greatest profitability for your brand?
To decide, look at your unit modelling, your cost structure, volume and longer-term strategy.
Vendor’s hands-off approach might work better for you in terms of your aims and resources, and we do see many brands on Vendor – sometimes because it’s what they’ve always done, sometimes because they see it as easier and Seller as too complex.
On the other hand, the Seller model, with its better pricing, inventory and customer engagement controls, often offers better margins – if a brand’s internal resources can work with it.
The importance of… Packaging and the “Small and Light” Scheme
Another element becoming ever-more important for Amazon brands is packaging, and it’s a relatively easy tweak that can drive greater profitability.
As Amazon looks to recoup space and drive its sustainability initiatives, items contained in unnecessarily large or bulky packaging are becoming less and less cost-effective, being punished with additional fees and tariffs for storage and delivery which eat into margins.
For eligible products, Amazon’s “Small and Light” scheme offers several benefits that can help maximise profitability.
Lower fulfilment fees enable competitive pricing, making products more accessible as well as reducing costs.
Faster fulfilment results in greater customer satisfaction. “Small and Light” items are eligible for Amazon Prime – a lucrative customer segment with high purchase intent.
And products are both highlighted in search and eligible for specific promotional opportunities.
In need of some expert guidance on packaging and fulfilment?
The importance of… Bundling Strategies
Smart bundling is a brilliant way to increase your unit economics and overall profitability, boosting your average order value and maximising your per transaction margins.
When should you look to bundle?
Scenarios where bundling makes sense include:
- Where you have products which are often purchased together, like a camera, case and tripod.
- Where a cost-saving on multiple seasonal or occasional products would be attractive.
- Where customer feedback or sales data suggests that a bundle would be popular.
By identifying products within your portfolio that combine to add unique value to customers and pricing them strategically, you can shift seasonal or overstock, upsell and cross-sell related products and leverage the economies of scale – improving your profit margins all the while.
The importance of… getting cash back from Amazon
Using FBA? Making the most of FBA Reimbursements? If your answer is “no”, then you wouldn’t be alone.
We never understand why so many businesses fail to claim their FBA reimbursements, but they’re definitely missing a profit-maximising trick.
Research by GETIDA suggests that FBA Seller discrepancy rates are between 1-3%, meaning 1-3 products out of 100 hit an issue of some kind, from the financial to the logistical.
This might seem like a small amount, and it is in terms of operational efficiencies on Amazon’s part.
It’s not so small though when you translate it into revenues for Sellers with high sales volumes, where annual sales of £1 million are seeing losses of between £10k and £30k every year.
And of course, it’s a double loss because it’s not just about losing the amount paid to source or create the product – Sellers are also losing the profit margins they would have earned on selling the products.
Which is where FBA Reimbursements come in.
If you file to claim an eligible FBA Reimbursement (and of course, you do need to do the legwork – our team can help), Amazon reimburses it to you at the price you would have sold for, essentially buying the item from you – and preserving your profit.
With only 90 days to claim, this is another reason why real-time reporting is so important – but there’s no doubt that it’s a brilliant margin give-back for a brand if properly managed.
Want to explore how we can help with your FBA Reimbursements and real-time reporting?
The importance of… the next step
For brands that have already achieved dominance in their Amazon categories, it’s both natural and necessary to shift focus to maximising profitability rather than driving further growth at this stage.
Whether your brand is happy with its dominance or ambitious to expand into new markets in the future, ensuring that you have the strongest possible foundation in place when it comes to your profit margins will help ensure your brand’s sustainability on Amazon over the longer term.
By implementing the insights and actionable strategies outlined in this blog, your Amazon business can take the next step to unlocking new levels of profitability on the platform, solidifying your position as leaders while reaping the best of the financial benefits that Amazon has to offer.
