Every Amazon seller wants more sales and more revenue. But that’s only part of the Amazon success equation. Ultimately you also need to be profitable, or at a minimum, to see a pathway to future profitability for your brand.
Start by understanding all the factors that affect your profit margin. As a new Amazon seller, you must accurately calculate your cost of goods sold, price your products optimally and manage all the other factors that affect profitability. Do your research and execute a clear game plan that takes into account the following factors and strategies:
1. Understand Amazon Fees and Costs
The first step to profitability is to understand what it costs you to do business on the Amazon platform. Amazon charges a variety of fees that can impact your profitability. These include referral fees, fulfillment fees, storage fees, advertising fees and the cost of return shipping. Understanding these fees and the full cost structure is crucial to managing profit margins.
Take the time to research each fee, and factor them into your pricing. A good rule of thumb is to aim for a 20% profit margin after all of your Amazon fulfillment expenses and Pay Per Click advertising expenses. Attention to detail is key to ensure YOU make money, not just Amazon.
2. Price Competitively
Pricing is a critical component of profitability. While it can be tempting to price your products higher to increase profit margins, this can also make your products less competitive compared to other offers on the platform.
Customers on Amazon are often looking for the best deal, so price your products competitively to win the Buy Box and increase sales. You can use 3rd party tools such as Jungle Scout, Helium 10, or Keepa to help you research your competitors’ prices and adjust accordingly.
Start with a search on Amazon’s main page for your products as a great first step to see how other brands are positioning their products on the platform. Pay attention to whether they are selling with Prime shipping or in a multi-pack configuration. The cost per unit to customers is the key metric to examine.
3. Monitor and Manage Your Amazon Inventory
Inventory management is crucial to profitability on Amazon. Overstocking can lead to additional storage fees, while understocking can lead to missed sales opportunities. Amazon tools in the Seller Central system allow you to see trending sales over the last 7, 30 and 90 days. This information helps you manage your inventory planning to ensure you stay in stock. Keep an eye on sales velocity, seasonality, and other factors that can affect your inventory needs. Always plan for Amazon to take two weeks to receive your products and make them ready for sale on the platform.
Be sure to watch your account like a hawk in case Amazon loses your inventory.
Amazon is a big operation: lots of product is moving through and it’s inevitable that things are misplaced. We’ve seen entire skids go missing! And if you’re not careful, you will not get your money back.
So keep track of your shipping records, your bills of lading, etc. to make sure that every unit you paid for and that you shipped in to Amazon is in the system or reimbursed. If you’re having trouble getting reimbursed, give us a shout at hello@beaconcommerce.co – we love helping Amazon sellers get their money back!
4. Optimize Your Amazon Product Listings
Optimize your product listings to increase sales and profitability. Use high-quality product images with a focus on the first three images. Add clear and concise product descriptions focused on the BENEFITS of your product. Choose relevant keywords to help your products stand out from the competition. Additionally, be sure to invest in a trademark for your brand and enroll in the Amazon Vine program to get 30 high quality reviews right out of the gate. These customer reviews and feedback are critical for success on Amazon (both Amazon and customers use them to decide if you have a good product for sale).
5. Leverage Amazon Advertising
Amazon advertising is an important way to increase sales and profitability. Use sponsored products, sponsored brands, and sponsored display ads to promote your products to a wider audience with specific focus on longer keyword phrases and branded terms that customers may search. Set a budget for your advertising campaigns and monitor their performance daily to assess budget utilization. Also look at trends over 3, 7 and 30 days to ensure they are profitable.
At the same time, if you have a limited budget, you can’t afford to spend thousands of dollars a month to build impressions and consideration. You need to start by maximizing your reach for your own brand, where people know you from other channels, as well as for important keywords where you have a really good return on ad spend.
6. Consider Amazon Fulfillment Options: FBA vs FBM
As an Amazon seller, you have two primary fulfillment options: Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM). FBA is always recommended wherever possible as Amazon can ship much cheaper and faster than other existing 3rd party services. You need to account for these fees as part of the economic profit model, however, customers will ALWAYS choose fast and free shipping over any other method.
7. Always Provide Excellent Customer Service
Providing excellent customer service is crucial to success on Amazon. Monitor for customer messages that are sent and respond within 24 hours to avoid penalties. Respond to Amazon customer inquiries professionally, and remember that you cannot ask customers to change reviews or offer any kind of incentive. Positive customer reviews and feedback can help improve your product’s visibility and increase sales.
In conclusion, managing profitability as a new Amazon seller requires careful planning, monitoring, and optimization.
There are countless ways to make money on Amazon. The real challenge is to make sure you don’t LOSE money on every sale.
By understanding all the factors, including Amazon fees, your cost of goods sold, pricing inventory management and so on, you will be well on your way to maximizing profitability. Careful review and adjustment is also required as you navigate your way to success. At the end of the day it’s about ensuring you are putting more money in YOUR pocket, not just Amazon’s.
Happy selling!
Need help maximizing profitability for your brand on Amazon? Start with a FREE Amazon opportunity forecast: