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The top brand managers know that in today’s competitive world of online retail, promoting a national brand across multiple channels is pivotal to any successful marketing strategy. In fact, many brands balance their own Ecommerce store with traditional brick and mortar retail partners and other online marketplaces like Amazon or Shopify.
In 2017, Amazon customers totaled over 300 million, making it one of the most popular online retail marketplaces. Their Prime program provides incredible reach and exposure, making the marketplace a goldmine for many national brands across various industries.
However, a growing multitude of selling and fulfillment fees are narrowing profit margins, making selling on Amazon more and more costly.
Fortunately, the top national brands have found ways to increase their profit margins when selling on this mega-retail channel.
Relative to a national brand’s own Ecommerce website, selling on Amazon can be expensive, especially when using Fulfilment By Amazon (FBA). Amazon’s fees include commissions, pick & pack costs, inbound shipping, labor, and more.
One way to prevent these fees from eating away at profits is to identify which fees can be reduced or avoided altogether. Here are 3 ways brands can reduce fees and other costs to increase their profit margins.
#1 MAKE SURE AMAZON ISN’T CHARGING YOU INCORRECTLY
One of the easiest ways for brands to increase profit margins is to identify inaccurate charges by making sure Amazon is charging correctly for shipping costs. For example, FBA shipping fees vary based on package sizes, but automatic categorization or human error can dramatically impact Amazon charges.
For example, there are cases of one item having two shipping weights simply because an order was filled at different Amazon fulfillment centers. Sometimes, a color variation on identical products results in disparate descriptions because the weight information is input separately, also leading to variable shipping costs.
It’s up to brands to check the size, weight, and description of their Stock Keeping Units (SKUs) regularly so they don’t waste money on inequitable charges. Brands that discover inconsistencies should contact Amazon and ask them to re-weigh items, saving substantially across multiple orders.
#2 ALLOW DYNAMIC LISTINGS TO DRIVE PROFITS
Slow moving products on Amazon dip into profits, making inventory another critical area to examine.
How much inventory is stored with Amazon and how long does it stay there?
A shocking number of national brands don’t know the answers to those questions.
Experienced brand managers know that storage costs are substantial if product turnover is drawn out too long. In fact, Amazon recently changed the way they structure inventory storage fees, making this an even costlier expense in 2018.
They’re now discouraging inactive product inventory by increasing storage fees and changing their long-term storage fee structure from billing every 6 months to every single month. By moving from a semi-annual assessment to a monthly basis, fees have increased by a whopping 6% on average.
The bottom line is that Amazon has fulfillment centers, not warehouses.
Amazon doesn’t want to store your products a second longer than they have to, so they use penalization fees to motivate brands to move inventory quickly. As a result, brands that take up valuable real estate in their packaging centers risk a higher loss on profit margins.
National brand managers need to identify sluggish items that leach into profits and then discontinue them on Amazon.
A far better strategy is to promote a diverse catalog of SKUs on a brand’s company website, and keep only the most effective SKUs on Amazon.
If a brand already has hundreds of listings on Amazon in an effort to maximize reach and exposure, then start by optimizing the best performing items through advertising and quality reviews. Increased visibility on profitable items can offset the extra cost from listings with slower activity.
#3 CULTIVATE THE MOST APPROPRIATE CONTEXT FOR MEASURING SUCCESS
As any national brand worth their salt already understands, profitability and sales tell two different tales. The main concern for most brands is profit, but measuring success based on this number alone is a mistake.
While profitability is undoubtedly important, it may not be the main focus for a company 100% of the time. For example if a brand is working towards other growth objectives, such as developing their brand equity or customer loyalty, then additional variables will need to be considered.
To see the true measure of profitability and success when selling on Amazon, companies also need to consider:
- Brand equity - Some customers prefer certain brands and will seek them out on Amazon, regardless of promotional or competitor prices on the same type of product. If a brand isn’t available, they risk losing those preferred sales to the competition.
- Market share - If brands want to stay competitive and maintain their market share, they need to perform in every arena - including Amazon. Brands should remember that competitors face the same challenges, so dropping out in this major retail space counts as a loss in the overall market.
- Acquisition costs - The way a brand earns a customer’s business differs across every sales channel - from Amazon, to their Ecommerce store, to their brick & mortar partners. This variability makes customer acquisition costs a vital component to consider when looking at profitability. Lower costs to earn new customers may justify smaller profits per item.
- Customer lifetime value - CLTV refers to the frequency of purchase, multiplied by the profit of each purchase (CLTV = Purchase frequency x Purchase Profit). This means that brands need to track CLTV across different purchase channels. While Amazon doesn’t report this data natively in its dashboard, brand managers can cobble together their own system to calculate CLTV using a combination of Amazon reports and their own tracking spreadsheets. By comparing this data across various sales channels, brands will be able to offer consumers the choice of shopping on their preferred channel.
As you can see, overall profits tell only one part of a larger equation. Brands need to remember that profitability comes in numerous forms, which can be harder to measure. If they can adjust their thinking, they’ll be better equipped to handle selling on this retail marketplace.
STAY PROFITABLE BY CONSIDERING CONTEXT WHEN SELLING ON AMAZON
The cost of selling on Amazon often leaves national brands questioning the ROI of directing more resources to this marketplace. What brands need to realize is that, unless they want to risk losing a major portion of Ecommerce sales, neglecting Amazon isn’t a viable option.
A better solution is for brand owners to approach each sales channel uniquely and shift their views on marketing, customer acquisition, sales, and profitability appropriately for each marketplace.
For example, traditional Ecommerce sales leverage email campaigns as part of their marketing strategy. However, that methodology doesn’t translate well to Amazon since brands aren’t allowed to remarket to their consumers.
Once brand owners adjust their thinking, they can develop tailored strategies to maximize profits for each marketplace appropriately.
Part of the strategy for brands to improve profit margins on Amazon is to verify all listing descriptions and check for inaccuracies. Brands should only keep items with fast turnover times in their Amazon catalog and remove sluggish inventory.
Along with maximizing profits, it’s also important for brands to expand their understanding of profitability to get the full value of selling on Amazon. In the overall picture of a brand’s success, immeasurable elements like reach and exposure can far outweigh profits alone.
