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Improve Your Profit Margins on Amazon With These 3 Steps

By Catie Grasso June 5, 2018
Improve Your Profit Margins on Amazon With These 3 Steps
Catie Grasso
About the Author

Catie Grasso is a marketing content writer for Feedvisor. She enjoys running, trying new restaurants, and exploring New York City.

No Amazon business is quite like the other. Sellers and brands all have different approaches to operational efficiency, prioritization, and establishing a business model specific to their goals and sales targets. Optimizing your catalog will naturally aid in streamlining other facets of your business, therefore saving you time so you can invest your resources where they will have the most impact. Here are three ways to increase your marketplace performance and simultaneously boost your profit margins:

1. Utilize AI-powered technology to monitor inventory replenishment

Having a sharp understanding of your Amazon business’s inventory position is crucial, as slow-moving or non-selling items can easily eat away at your profits. With Amazon FBA, storage costs can become substantial if the inventory is sitting stagnant for too long. Monitoring inventory replenishment will become even more of a focus in Q3, as Amazon’s new long-term storage fee assessment begins on a monthly basis in September.

In order to avoid being pummeled with limited storage access and inventory storage overage fees, it’s imperative for sellers to know what items to restock and the appropriate times to do so in order to avoid going out of stock, understand when to discontinue an item or dispose of stale inventory, and realize when you’re noncompetitive on an item. With Feedvisor’s revenue intelligence reports, that process is automated for you and the data is provided at your fingertips so that you can transform the information into proven actions to drive business growth.

2. Set actionable targets specific to your store

Third-party sellers need to look at their business holistically and cannot define them by sales or profits alone, but by both variables together. Having targets in place that focus on both sales and profits will be crucial to making sure that one facet of your business isn’t entirely ignored or undervalued.

Top selling items (regardless of their margin) usually also drive profitability, as they remain in high volumes and drive the relationships with vendors. For items that are selling nicely but have low profit margins, you should ask yourself if you want to continue selling them, as they aren’t generating profits. Lastly, items that are not selling frequently but that have high profit margins are generating profits, so sellers need to focus on optimizing the velocity of those items. For profitability targets, three metrics to track regularly are total profit, profit per unit, and profit margin.

3. Optimize your returns management process

Lost sales on Amazon alone have an annual valuation of about $500M. For online marketplace operations, returns can compromise profit margins if not handled properly and can have a massive impact on overall profitability. Known as e-commerce’s “silent killer,” returns can cause businesses to lose money and can rapidly spiral out of control if you are reactive instead of proactive when handling them.

The best way to deal with returns is not to hyper-manage them or wait idly for the issue to come across your desk. It’s crucial to be extremely proactive to make sure that in the future you have fewer returns. Once you identify the offenders, you can find the cause of each return and take appropriate action, keeping the customer front of mind and moving swiftly to ensure that the returns don’t eat into your store’s profitability.

In conclusion, in order to maximize the growth opportunities for your business, you need to have a true understanding and 360-degree view into all of the variables that impact profitability. Examples of these variables are storage and fulfillment fees, shipping costs, cost of goods sold, operating costs, advertising spend, and costs associated with returns. It is important for marketplace sellers and brands to have a strong handle on inventory performance and understand that data-driven actions and strategies can help you outperform the competition while maintaining healthy profit margins.

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