Top Tips for Getting Back to Profitability on Amazon
Selling on Amazon at the moment is tough. Yes, we all saw a nice boost to sales during the pandemic when customer demand shifted online, but that tide has turned, and we’re facing a number of global headwinds.
Increasing inflation and a cost of living crisis have put a dampener on customer demand and top-line growth. All the while, skyrocketing fuel prices and a shortage of manufacturing materials are adding pressure to what has generally always been a tight bottom line for those selling on Amazon.
However in times of stormy seas, we should try not to focus on what we can’t control, rather we should put our time and effort into improving what we can.
So… what can you do to improve your margin on Amazon?
Consider Your Selection
Don’t List Everything
Many brands fall into the trap of simply listing their full range on Amazon. In many cases, these ranges have been created with traditional bricks and mortar channels in mind. However, not only is the shopping approach very different (think of Amazon as a spearfishing shopping mission vs the basket-building approach of the big 4 grocery retailers) but the financials and suitability for delivery are likely very different as well. Put your focus on the products that align with the Amazon shopping experience, and those that you can sell profitably. Consider delisting the rest.
Price vs Value
Don’t get caught up in a race to the bottom with pricing. Amazon shoppers want good value for their purchase over anything else (hence why shoppers spend big on Prime Day & Black Friday – they believe they’re getting a good deal). Think about larger pack sizes so that you can bring down the cost per unit, or trial Amazon exclusives. These exclusives don’t have to break the bank to develop, they could be as simple as changing the packaging design for a ‘gift pack’ or launching a variety pack of flavours for customers trialling the brand for the first time.
Nail the Basics
Best-in-Class Content: Don’t leak sales by running sub-optimal detail pages. It’s free to change your content on Amazon so make sure it is optimised to its full potential. Make sure you have Amazon search optimised written content, a good mix of product and lifestyle imagery, and A+ active on all ASINs. Don’t use advertising investment or promotional activity to paper over the cracks generated by poor SEO.
Target Your Investments Ruthlessly
Once your detail pages and selection have been optimised, focus your ad spend on directing customers to your higher-margin products. If your ads are managed by a separate team/agency, make sure they have visibility on which products these are, and be clear on the ACOS / TACOS targets you need to hit at an overall account level in order to return the profitability you need.
Promotions should be planned and executed in conjunction with your ads strategy. Tying the two together will often give a return greater than the sum of the parts. When deciding on which promotion mechanic to use, protect against long-term price degradation by leveraging non-buy box mechanics (i.e. use vouchers throughout the year, with direct price discounts reserved only for the very biggest events).
Be Realistic with Your Commercials
Don’t be afraid to increase prices in line with costs going up. We’ve seen a number of large consumables brands doing just this over the past 6 months. When doing so, keep in mind the value proposition for customers – make sure your content explains why customers are still getting a good deal, and plan ahead ways to soften the immediate blow e.g. if you’re putting prices up 10%, consider a 5% off voucher for the first 2 weeks until the new pricing has bedded in.
If you are operating on Amazon’s Vendor platform, you’ll know that increasing cost prices is easier said than done. Focus on your annual negotiations and make sure you enter these fully prepared. When proposing cost price increases, gather evidence as to why costs are going up beforehand (e.g. be able to share the % change in the cost of your raw materials, or how shifts in FX rates have affected your supply chain network).
Keep Your Eye on the Bigger Picture:
Don’t just keep chugging away with your existing setup on Amazon because it has worked in the past. Regularly review your partnership with Amazon and consider switching models if it makes sense to do so. Vendors – if your Amazon terms increases may have steadily eaten away at your margin, consider setting up an FBA account. Sellers – if your volumes have grown check whether the supply chain savings of a 1P relationship with Amazon outweigh your FBA costs.
In summary, whilst there is no doubt that selling on Amazon is currently akin to sailing in stormy seas, that simply means that now more than ever, it is the time to trim the mainsail, plug the leaks, and plot a course to sunnier, more profitable waters.