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October 9, 2023

Increase Your Amazon seller profit margin

Hi there, this is Michael from Amazing FBA and welcome to Practical Hacks. If you subscribe to the philosophy that done is better than perfect, you’re going to love these little hacks. Today we’ll look at how to increase your Amazon seller profit margin.

Do you want to grow your business bigger and faster? A free audit of your Amazon business can help you see and avoid threats and find missed golden opportunities. I generally charge per hour, but this would be free. You can be a reseller or a brand owner. All I ask is that you’re doing a few thousand dollars a month in sales already.

Just visit myamazonaudit. com, That’s M Y A M A Z O N A U D I T dot com.

Hi there folks, Michael Veazey here for another episode, this one’s going to be a quick one

I’ve got some insights from a recent audit I did for somebody who’s got only one SKU, but been selling for about a year. So quite early stages. This person has got up to around two and a half thousand dollars in sales a month selling in the U S.

So here was some insights from what is not untypical situation. There were spending quite a bit on hours and ads. The first thing is that this person was not really aware of one critical metric that I recommend everyone who is new ish on Amazon or new to e-commerce which the advertising to sales ratio or the TACOS =total advertising cost of sales. That is the same as the total advertising spend divided by the total sales of any given product.

That’s a useful metric by the way that predates Amazon selling by many decades. And I think it’s a good one to keep an eye on across e-commerce or even retail generally.

If your profit margin and your product accounting for all your direct costs- the cost of the product and your Amazon fulfillment costs- is say 30%. Then if you’re spending more than 30% of your ad revenue on advertising, you are making zero profit.

Sadly a common circumstance. If you are launching a new product line, perfectly acceptable to pay effectively for market share. If you’re not however. In launch mode, then something needs to change drastically.

So. That was the starting point of this audit that we did a few days ago.

I did it personally, by the way, I didn’t have my staff to it.

One of the things to look at is why that number so high, the advertising to sales ratio. One reason for that often is a low conversion rate. That is to say the out of a hundred people visiting your listing, only a handful will buy .

And it was true in this case, as I looked in the business reports, which if you go to Amazon Seller Central dashboard. You get a business reports under. Detailed sales page by ASIN. I think you need the one in this case by parent product. It says anyone product and it was about 8% unit session percentage, which is the number of units divided by the number of sessions. A session is roughly equivalent to visits to put it in simple tips.

And if that number is low, that means that every time you spend money on an ad you pay per click as the name implies for that type of marketing, PPC. And therefore, if you have to get in this case, 8% means 12 clicks before you get a sale, then you paid for those 11 other clicks without a sale. So that really drives up the advertising to sales ratio, which is a critical number. And that strips out the profits.

How to increase your Amazon Seller profit margin:

Improve your Amazon Listing Conversion Rate

Improve Star Rating

So how do we get that conversion rate higher? Well the easiest way is to work on your reviews. In this case, they had 4.8 star average. So that wasn’t probably the issue.

Lower Price

The price could be. Lowered. That obviously can strip out your profits of course, in a different way, but there is probably a sweet spot or they can sometimes be a sweet spot. It’s worth experimenting with price.

Value. Adding more valley. Can help with conversion rates. Optimization, obviously that probably needs to be actual value, not just simple surface level stuff that you can do. You may need to add more elements to your product.

Add more items to your kit or bundle

Now in this case was this, this was a sort of set or a kit of various different individual components put together, which is quite smart for various reasons, including this one, which is that if you want to improve a kit or a set of products- offered as effectively one product on Amazon- then you can add other elements to it.

And I don’t want to reveal any individual products, but if you imagine for example, you’re selling a cleaning kit too. You could have a brush and a sort of some kind of foam, some kind of cleaning agent, and you can add a duster or something like that. I’m trying to avoid giving the exact example of any of my client’s products. You get the idea.

So one simple way to bear in mind is that a lot of people will associate value with more stuff. So if you have 20 individual items in your set, And your competition has 30 then your competition probably has got the perception in the customer’s minds of more value.

Now if the quality looks bad in the photos, or if it turns out to be bad in real life, you’ve got negative reviews. But it’s something you’ve got to bear in mind.

Optimise Main image

Next element main image. That can help with conversion rates, but it’s more about really driving, starting to drive the click through rates, which will drive the ranking, which is a bit of a different win.

If your main image is rather boring visually and your competitors’ "pop" as they put it- so it comes off the page with bright colors- then you are going to need to do something about that.

Ways to make that work: again, we are looking at probably modifications to the actual product itself, which gets expensive and tricky quickly.

However if you can, number one, if you have a set of things -or if you don’t have a set, but you can introduce another component that is brightly colored- that will help your pictures pop as long as you take a good photo of it.

For example, I used to sell very dull generic looking black LED lights, but I managed to get one of them with an orange carry bag. I could then legitimately put into the main photo. Because that was one of the parts of the product you would receive as a customer if you ordered it. So it was totally within terms of service then, and is now.

And that also meant that the picture would pop and you can do the same thing yourself with your product itself.

Colourful Packaging

The other thing you can look at is the packaging. If you have cardboard packaging around it, and you could change the packaging without changing the product. You could do both, but either which way you want to get yourself an excuse for a nice bright color, preferably within your brand colors. Well, definitely within your brand colors. But that pops in the main image.

ACTIONS TO TAKE TO DRIVE MORE GROSS PROFITS

So we boil it down to actions, which is the list that I gave to the client in the end or the. Person who came for that audit.

Experiment with Price – 7 days per price point!

In order of ease of trying it, number one, experimented with the price. Not a casual thing, but easy to do. You can mess this up quite easily if you change it day to day and you’re not disciplined. So I would say you need to give it a minimum of seven days at a certain price. Absolute minimum for if you’ve got plenty of traffic to the listing.

Change one element at a time!

Don’t change anything else? The other elements. Have a test is don’t run an experiment and try and change four variables at the same time, because then you don’t know which lever you pulled had, which effects. If you’re going to move the price, don’t mess with our ad spend.

So I would expand with the price. And see what your ad spend. So the measure, the ad spend. As a percentage. You know, The total advertising spend is that going up or down? Measure the revenue and measure the overall profit, which I think is the most important.

In this case, there was a product selling I think it’s $24. And I said, I would personally try it for $19.99 for four days to seven days, depending on how much traffic you got. To $20.99 Then raise it maybe 20 cents a day, until I hit $20.99 . Then raise it maybe 20 cents a day until I hit the next price point. And then I’d do the same again for another week. So it might actually take you four or five weeks to test price points within the range of about $5.

This is not all exciting, sexy stuff, right? This is the meticulous work finding what works. So that’s the easiest thing because you don’t have to change a product or the images, right? You, you change the price.

Track all price changes!

Be disciplined is my hint on that. Make sure you track it on a spreadsheet. What price you got when, when do you change it? And don’t change it all the time. Cause you’ll mess up your data.

Test your main image

Okay. Next thing you can do is try mixing up the main image. We talked about that. Make sure it pops. Make sure the colors are there as they appear in real life, by the way. Don’t make your pictures so wonderful that are better than the product, or you will get rude reviews. Rightly so.

Test Bundles of more items

And then the last thing to do, because it’s more work, is create better value bundles. If you are bundling together products into sets, which is a great way to start and indeed a great way to grow as well.

Then, you know, if, as I said earlier, the perception of value is higher for your competition because after 30 items in their set, and you have say only 10 or 15, then add more and you’re going to have to experiment with adding more. Items and still doing it profitably. So you’re going to have to work with your supplier.

The good news about sets like that, those that you can construct them at home or in a third party warehouse, if you don’t want to do it yourself, and send them in, in small batches and test what works.

Start with easy wins and experiment

So, I guess the overall message I’d want to give you from this is really to set up a mindful experiments, change one thing at a time. Start with the easy wins. And then work your way towards finding a winning formula for your particular product.

Driving organic ranking for profit

The final thing we talked about, which is slightly different from conversion rate optimization or that’s related is really about getting decent organic ranking and thus reducing the advertising to sales ratio, again driving profits by reducing that number.

Avoid targetting generic (overly broad) keywords

So, if you are targeting something that say, you’re trying to sell toilet cleaning brushes, not a great example. But you are targeting the word "cleaning brush". Well, that’s too generic. I mean everything in the world could be cleaning by stat could be for cleaning floors. It could be for cleaning toilets. It could be for cleaning. Your teeth. I don’t know. So that’s not a smart bit of targeting.

Remember search intent behind a keyword

You’ve got to think about the search intent. In other words, use some common sense. What sort of results, what sort of pictures, what sort of search results would a human want who’s putting this keyword into Amazon’s search bar?

And then go check the search volume on things like Jungle Scout or Helium 10.

And then use Amazon ads data to confirm or deny or hypothesis. If people’s click through rate is very, very low, then they probably don’t perceive the results they’re getting as relevant to their search. In which case you’re probably targeting the wrong keywords. Or- and this is the problem with the click through rate, it sort of blends a few things in one -go they may perceive it’s okay but it’s not good value because it’s too expensive or because it hasn’t got high enough star rating.

And so you need to experiment with the price in order to differentiate that. But. I would say using your Amazon ads initially as a set of data, rather than just obsessing about sales is a smarter way of doing it.

Basic things that matter in advertising:

Click through rate above 1% means good relevance. If it’s below say half a percent, it means bad relevance. So I would be quite quick to kill that off.

And then the conversion rate as well by keyword, which you can see in the ads data, and you cannot see in your organic data.

And the final thing is Negative keyword targeting. If you keep finding that a -often generic -keyword is losing your money, don’t forget to put that into your auto campaigns or your broad match campaigns as a negative exact keyword.

Summary

So, this is really simple . This is nothing that anyone who sold on Amazon for a while won’t have thought of, or heard of.

If you’re new-ish, then this may be on the other hand, a bit too much rocket science in one go .But this is the kind of detailed work that I go through with my clients. And I think you have to go through if you need to improve how your listings are performing.

You can’t micromanage to success

I don’t think you can micromanage your way to create performance. Some products just don’t work very well. But what I think is really important is to take each element, break down the data and to then test each element to see which one of the elements is getting between you and a profitable product line.

Is it prices, it main images that the basic offer is it simply the quality of the product? If you’re getting rude reviews.

Sometimes after you’ve experimented with all the things I’ve listed, you may decide that it is simply never going to be profitable product line and shut it down. However, I think it’s really important to experiment. Not just to get an individual product line to work, but in order to discover other future potential product lines that you may be missing. And understanding the search intent as well.

So you get an awful lot of insight from trying to sell a product. You also gain extra insight from trying to improve how well that product converts and the profits.

But as I said before, the key is to be structured and meticulous. Otherwise you just end up doing stuff and you don’t know what levers you pulled have had which results. And then you’re just thrashing around. I don’t suggest you do that in digital marketing.

Hope that’s helpful. Now it’s hard to summarize in a short time, in a podcast things which can be more easily seen individually. And on a screen-share.

So if you want to book in an audit, head over there. So my Amazon audit.com. And if you do want to put in a free audit. That I could give you a flavour of how I help my clients. Please feel free.

Other than that happy hunting hope today has been of some practical use. Hard to put it in a nutshell. This is a sort of way you got to think. Thanks very much for listening. Forgive the voice hopefully i’ll be back soon with a more energized voice meanwhile happy hunting

 

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Michael Veazey


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