“7 Ways to Improve Amazon Profit Margins
While Amazon has become an important sales channel for many brands, increasing sales and fulfillment fees are shrinking profit margins, making Amazon more and more expensive as a sales channel. Fortunately, many brands have found ways to increase profit margins when selling in this massive retail market. Here are 7 ways brands can reduce fees and other costs to improve profit margins.
1. Create a product package
One of the easiest and fastest ways to increase profit margins is to use product bundles.
If you’re new to bundling, you can offer multiple products in one Amazon listing.
The main benefit of bundling is increased profit margins and less competition in the Buy Box.
In most cases, creating a new listing means you’ll be a solo seller for quite some time (until other people notice that your bundle is popular and can use the same products).
If set up correctly, you can become a solo seller of the bundle and it’s still profitable as long as you keep selling it.
In a way, bundles are similar to private label sales – just easier and faster to create. If certain bundles don’t sell, you can always split them up and sell them as a single unit to get your money back (as you’ll be bundling popular products).
2. Use repricing software
This should always be your first strategy when it comes to improving Amazon’s profit margins, as it’s an easy-to-achieve way to achieve your goals.
Prices on Amazon change all the time, and you have to keep up with them. But instead of doing it manually, see why you should use the Amazon repricer.
3. Switch to a credit card for your inventory purchases
Maybe you pay the supplier via PayPal or your bank account. While that’s fine — especially if you’re just starting out and don’t have much income to do — you should reconsider this as you scale.
Replenishing your inventory with a credit card means putting more money back into your wallet with cash back, points or other rewards. Just make sure you pay your balance every month, otherwise, your increased profits may be forfeited.
4. Take advantage of out-of-stock products
Taking some time to find out-of-stock products can pay dividends, and as you might expect, speed is of the essence.
You need to find products that are out of stock but have good sales rankings on Amazon.
If you’re the quickest responder and ship your product to Amazon the next time it’s in stock, you’ll be able to enjoy some solo selling time during which you’ll be able to make a decent profit.
5. Purchase all remaining units from the supplier
Another great way to gain an edge over your competitors and make good profits is to keep an eye on the remaining numbers of popular products your suppliers have.
Some suppliers will display the remaining stock of a product on their website, if you notice a limited number of sellers for that particular product, consider purchasing all that is left over.
You should ask for a discount to take the remaining stock from them, but as long as it’s a popular product, consider buying it anyway.
It may take some time for your suppliers to restock, which means that when the remaining sellers are out of stock, you will be the sole seller and be able to enjoy the many benefits of that status.
6. Sell items that are often out of stock
This is a very high-risk strategy when it comes to improving Amazon’s profit margins, so definitely don’t rely on it as your primary method.
What it takes: Search for frequently out-of-stock products (with good sales rankings), buy from suppliers, and wait for other listings to be out of stock. When this happens, activate your listing, but the price is much higher.
Buyers will suddenly see your listing as the only one available and will buy from you, leaving you with a very high profit margin.
However, doing so has many risks:
There’s no guarantee that buyers will pay the higher price, as some may be content to wait for a lower-priced alternative to emerge. It might take some tinkering to find the fine line between high profit margins and ridiculous prices.
If the gap between product out-of-stocks is too great, your long-term storage fees (if you store them that long) may offset or exceed your profit margins. Using this method on fashion items may leave you with products that are trending in the past, rather than products that are in high demand.
7. Allow Dynamic Listings to Drive Profits
Slow-selling products on Amazon reduce profits, making inventory another critical area to check.
How much inventory does Amazon store and how long will it be there?
A surprising number of national brands do not know the answers to these questions.
Experienced brand managers know that storage costs can be high if product turnaround times are too long. In fact, Amazon recently changed the way they set inventory storage fees, making 2018 even more expensive.
Now, they’re preventing inactive product inventory by raising storage fees and changing the long-term storage fee structure from billing every 6 months to billing monthly. By moving from semi-annual to monthly assessments, fees have increased by an average of 6%.
The bottom line is that Amazon has fulfillment centers, not warehouses.
Amazon doesn’t want to store your products longer than they have to, so they use fines to incentivize brands to move inventory quickly. As a result, brands that take up valuable real estate in their packaging centers face a higher risk of loss of profit margins.
National brand managers need to identify sluggish products that will seep into profits and then stop selling them on Amazon.
A better strategy is to promote a diverse SKU catalog on the brand’s company website and keep only the most effective SKUs on Amazon.
If a brand already has hundreds of products on Amazon to maximize reach and exposure, optimize the top-performing products first with ads and quality reviews. Increased visibility into profitable items can offset the extra cost of slower-moving listings.
Stay Profitable by Considering Context When Selling on Amazon
The cost of selling on Amazon often makes national brands question the ROI of directing more resources to this marketplace. What brands need to realize is that ignoring Amazon is not a viable option unless they want to risk losing the bulk of their e-commerce sales.
A better solution is for brand owners to approach each sales channel in a unique way and appropriately shift their perspective on marketing, customer acquisition, sales and profitability for each market.
For example, traditional e-commerce sales utilize email campaigns as part of their marketing strategy. However, this approach doesn’t translate well to Amazon, as brands are not allowed to remarket to consumers.
Once brand owners have adjusted their thinking, they can develop tailored strategies to maximize profits appropriately for each market.
Part of a brand’s strategy to improve Amazon’s profit margins is to validate all listing descriptions and check for inaccuracies. Brands should only keep items in their Amazon catalog with fast turnaround times and remove slow-moving inventory.
In addition to maximizing profits, it is 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 factors such as influence and exposure can far outweigh profits alone.”
