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Podcast (10k-podcast): Play in new window | Download (Duration: 29:15 — 24.0MB)
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Amazon advertising strategy comes in many forms. Today we talk with Mike Zagare on his tips on ads advertising and profit margins.
Background:
Mike Zagare is a recovering physical therapist.
2016-2017 he went all-in on Amazon. Learned PPC. Helped scale his business.
He started PPC entourage in order to handle the PPC across multiple (stock-keeping units) SKUs.
The connection between margins and PPC
In the summer of 2017, they were getting overcharged by thousands of dollars.
He had his Virtual Assistant go in and submit to Amazon to show them that they were getting overcharged.
That had a huge impact on his margins – 30% of margins went toward that one mistake.
How can we track this better?
What are the “margin eaters”? They have a big impact on the bottom line, margin.
What are the big mistakes you see?
Amazon has a lot of hidden fees that they call “margin eaters”.
Number one margin eater is the FBA fees. Amazon makes a lot of mistakes there.
Number two is PPC ad spend – it’s important to know what your margin ad spend should be for that individual SKU.
So a SKU with higher margin and low FBA fees means that you can afford to spend more.
Cindy Tomason “Profit First”
She said that 30% margin before overhead is necessary. Then you can afford to pay yourself and reinvest in inventory and operating expenses.
FBA Fee mistakes
The first mistake is not realising that there are fees.
The Range: 25-40% is within normal range; it can be as low as 15% if small, lightweight and decent value.
Packaging: how much does it weigh and what are the dimensions?
Get these details from the supplier and track what Amazon does.
They may mis-measure it this is an important part of Amazon advertising strategy.
Tracking this!
It’s very hard to get your money back! Prevention is key.
How to correct these issues?
Tracking! You need to get a chart over a period of time to see trends.
SKU by SKU – Then you need to see that – if it jumps up and it stays up there, it will stand out.
One of their SKUs gets remeasured often – Fees go from $5-12
You can see it. But you can also get an email alert.
You can put it in the system and send this over to Amazon to resolve.
So you notice the impact straight away on your Amazon advertising strategy.
Any number of SKUs
If you look at transactions every single day, at least weekly, you can do it manually.
How do you deal with Parent-child variations?
Some parent-child variations have more impact each day than after the “margin eaters”.
Then you can see child variations which will show you the margins.
Diagnosing margin eaters in Amazon
FBA fees are the biggest profit margin destroyer.
PPC ad spend including sponsored brand ads is one of the biggest of all.
Voucher/promo codes/lightning deals – target 2-5% “promo fees”.
Returns – can be a really big problem for a lot of sellers – 2-3%.
Storage fee: tends to be under 1% but can add up if in seller central for over a year.
There is also a COGS margin impact as well.
You also need to add in overheads – right now it’s a manual entry.
Get rid of underperforming SKUs – distribute to other products or other opportunities
Is there a justification for low performing SKUs in terms of ROI?
Yes sometimes, if you have products at low margin it can be a loss leader.
In some cases, it can be an entry point to the storefront.
Consumables are more justifiable in this case.
Depends most on: What is the purpose of the lower margin?
Long term play.
Collecting emails – collecting an email at breakeven is generally seen as good.
Exposure to other products.
The “Sunk cost fallacy”
It’s hard to chop products but you have to see it coming.
All the work you put in, the hopes and dreams can make it hard to chop.
But products do have a lifecycle, mostly of 3-4 years.
The margins shrink – PPC is too expensive.
New tool =“Entourage margins”
- Amazon is making a lot of mistakes at the SKU level.
- You can see at parent and child variations.
- You can see fees and promo and ad spend.
When you log in, you can see margins across the account.
Start day there so you can see performance on a SKU by SKU basis.
Go down to page – Parent and child breakdown.
Product margin for each product. If goal is 30%, if you see 5-10%, you can use this as a diagnostic tool.
People have said it saved their business.
Easy to see where bleeding is – see trends on the dashboard – see health of business – and by parent and variations.
“Margin eaters” have an alert
If say PPC ad spend margin =8% and you set at6%
– or refund rate rises
It also has its own tab.
You can check each area e.g. PPC – 20% margin impact – too high
Low organic sales
Also track organic: PPC ratio (aim 80:20)
Track keywords
Promo fees
Going to be adding split testing feature to see effect of promo fees.
How to communicate with Mike
We have other interviews about optimising Amazon traffic with Mike Zagare.
Watch my full interview with Mike Zagare
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