In the fast-moving world of e-commerce, there are many seller metrics that vendors on Amazon and other marketplaces need to stay on top of to ensure their success.
From minimising Fulfilled by Amazon (FBA) costs by effectively managing your product’s weight and dimensions to getting the most out of advertising budgets to achieve an optimal return on investment (ROI), keeping track of metrics – particularly those available on Amazon’s Seller Central – is a critical component of the day-to-day operation of a profitable Amazon business.
Most Amazon seller metrics impact the bottom line. The most vital metric for Amazon sellers to stay on top of is their profit and loss (P & L) statement.
A P&L statement is a financial document summarising a business’s revenues, expenses, profits, and losses over a period. It is a fundamental metric that helps Amazon sellers track their performance over time and make strategic decisions to improve their bottom line. By understanding the ins and outs of a P&L statement, businesses can gain valuable insights into their financial performance.
A P&L statement determines the net income of your business. It allows you to dive deeply into the nitty gritty of your brand’s financials, including your overall operating and marketing expenses. As the overall costs of running an Amazon business continue to climb, including shipping, fulfilment, labour, sales, and marketing, paying strict attention to profit margins is critical to success in the ultra-competitive space.
Common tactics for improving profit margins
According to sellerapp.com, the average Amazon seller sees roughly 15 to 20% profit margins. While every e-commerce business is different, with some sellers in specific categories seeing significantly higher profit margins than others, there are some common tactics sellers on Amazon can employ to reduce their expenses and improve their margins:
· Calculate the break-even point: Using a simple formula, you can calculate the break-even point of an e-commerce business. This formula determines the sales your business needs to make to cover expenses and start making a profit. It is crucial to calculate the break-even point to update your business plan and set sales targets.
· Restock inventory: Running out of inventory of your best-selling items is a common mistake that can hurt profit margins. When products go out of stock, sellers must inefficiently start from the beginning of the product launch cycle all over again. Sellers should forecast demand accurately to ensure they can capitalise on consumer demand.
· Expanding your Product Line: By adding complementary products to your current portfolio, e-commerce brands can provide better opportunities to sell products in bundles and increase per-sale margins.
· Mapping out a pricing strategy: Adjusting your pricing strategy is one of the best ways to boost your profit margins as an Amazon seller. Setting products at a price acceptable to consumers in the market ensures a business stays profitable. Successful Amazon sellers use value-based and competitive pricing strategies to scale their business.
Profit margins, Consumer Confidence and Grey market
As covered extensively in previous GreyScout blogs, grey markets refer to branded products sold through unauthorised distribution channels – have long been a thorn in the side of e-commerce businesses. Staying on top of grey market activities that impact your products is critical to maintaining healthy profit margins.
While grey market goods provide consumers with lower prices, they can significantly erode manufacturer and authorised retailer margins, hurt the brand’s consumer safety policies, and potentially harm consumer confidence.
Grey market sellers are unscrupulous and often engage in practices which are non-compliant with a brand’s commercial compliance policy, such as parallel importing to undercut the MSRP (Manufacturer’s Suggested Retail Price), damaging a brand’s reputation in the marketplace and the perceived retail value of its products.
These products sold by brand policy infringing 3P sellers could be selling stolen or ORC merchandise, unsafe, expired or materially different products, which not only may result in loss of sale for brand owners but also reflect other breaches in consumer safety guidelines and protocols.
Legitimate businesses, when challenged by-products which are counterfeits or infringe a brand’s commercial and safety policy by the grey market, can have a domino effect on a brand’s eCommerce P&L (profit and loss), margins, customer experience, customer safety and more.
The Bottom Line
The cost of doing business on Amazon is always high as brands compete with third-party sellers. Although competing with marketplace sellers generally can be tackled by providing better prices and optimising Amazon listings, policy-infringing grey market sellers and bad actors can lead to negative growth on Amazon sales, affect consumer safety, and potentially harm legitimate e-commerce businesses.
Online and eCommerce Brand protection software like GreyScout can also make it more effortless to monitor, identify, and quickly act to defend against scammers, counterfeiters, grey market resellers, and other cyber criminals online and on eCommerce.
