Optimizing Amazon

2-min read

Is Amazon unfair to do business with? The FTC thinks Amazon is running an anti-competitive business. And we know Amazon demands the lowest price on items selling on the internet. Can you make money on Amazon and what does it take to succeed given the cost of advertising? (This is a continuation from last week).

Lowest price

Amazon scours internet Shopping search results to ensure your listings on their site are offered at the lowest e-commerce price. If they flag you for having a lower price elsewhere, you are kicked out of “good status” and your items can be deactivated. As a seller on multiple platforms, it can be difficult to ensure you have the lowest price on Amazon because if you wholesale elsewhere, you have no control over the retail price. The work-around is to sell unique pack sizes on Amazon that you don’t sell anywhere else. This can be a multi-pack or smaller/larger unit size. 

Amazon charges fees

With Amazon, you have fees tied to orders. There are two types of fees, referral fees and fulfillment fees. The referral fee is Amazon’s cut. Amazon takes 15% for items that retail over $15, and 8% for items retailing under $15. This is not your biggest fee – consolidated fulfillment fees can be ~30% of your retail price. Remember, Amazon Prime members get free shipping, and that cost is borne by you.

The way you want to set up your P&L is to deduct Amazon’s fees to get to your Gross Revenues. Whether you are FBM (Fulfilled By Merchant) or use Amazon’s FBA (Fulfilled By Amazon), fulfillment costs vary widely based on size and weight. In this example I used 30%, therefore Amazon referral fees of 8% + fulfilment fees of 30% = 38% off the average retail price:

This gross profit is what you have before advertising and other business expenses, but unless someone is typing in your brand and product name exactly as you have it listed, you have to advertise to show up on search.

How much to spend on ads

The trick here is to anticipate what your sales are going to be and set a budget. You’ll hear that typical Advertising Cost of Sales (ACoS) can be 20 – 30% of gross sales (the retail price). It doesn’t have to be that high. Invest in ads that will win you the keyword search – to do this, you need to know what someone is likely to type into the search bar when seeking an item like yours. Many agencies run an AI program to discover this for you, or you can do it yourself.

Conducting a Keyword audit:

• What are your current keywords

• What are your competitor’s keywords (What words and phrases do they use in their product title and description copy?)

• Do an auto-fill keyword exercise:

  • Start to type in a keyword, let Amazon tell you what the auto-fills are. Look at the suggested fills.

Managing ads is a daily activity. The only way to know if you are spending too much on campaigns or if your campaigns are running efficiently is to watch them daily in Seller Central. 

In addition to advertising, you should aim to hit these goals:

• 5 stars

• Prime on all products

• Win the Buy Box on all products (means when your items come up you’re the seller, not someone else)

• 100+ reviews on listings

• All products on Subscribe and Save

Amazon business KPIs

Beyond making a profit, the #1 KPI is increasing repeat customers month after month. Profitability metrics such as ACoS (as mentioned above) and AOV (average order value) are important, but brand success is truly measured by how many people who trialed your products came back to buy again.

There is a lot to running Amazon business, but if you master it you can be very successful. If you need help with profitability and listings, contact McGinn Ecomm, or if you want an agency to help with operational and ad management, contact Amplify Goods. 

All my best,

Jennifer

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Just Food says it’s going to be really hard to improve the track record at the FDA

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