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Sometime in the last few years, you’ve made the jump into the ocean that is the Amazon platform in order to sell your company’s products on a platform uniquely built for product discovery, education, and purchase. If you are like many brands, you probably also sell your products directly through your website, or you leverage retail partners to sell your products, or both.
Whether you are a 1st- or 3rd-party Amazon seller, you’ve likely been impressed with the immediate ability to sell products on a new platform but need to answer a few questions about the channel’s long-term value and scalability before investing more into it. Being able to confirm the numbers to support your business’s best interest and understanding what levers you can use to optimize the channel will provide the confidence you can begin to really push.
So how do you get to that point – and when you get there, what does “pushing” look like? There are 3 main pillars you need to continually evaluate and optimize. At 3Q, we call them the ABCs of Amazon eCommerce success.
1) A is for Algebra (Do the Math)
Advertisers who aren’t yet committed frequently question whether Amazon cannibalizes other online sales channels, or whether Amazon’s control over pricing (or selling fees) may impact gross margins on sales through the channel. And those are good questions; you need to evaluate many aspects to the platform as a viable channel to scale.
Let’s look at the most important math factors and how to evaluate the business case for selling more of your brand’s products on Amazon. To do this, you must consider:
- Amazon fees: These are set based on whether you are a Vendor (sold and shipped by Amazon) or a Seller (sold by you and FBA – Fulfillment by Amazon).
- Margins: How much you make on every sale – you want at least 50-60% margins to be successful.
- Shipping return and restocking costs: These all come into play as well and can vary. Review your historic numbers carefully and make sure these are factored in.
- Amazon ad budget: How much you will spend each month to drive awareness of your products.
- Marketing KPIs: Your ACOS (advertising cost per sale), which is the inverse of RoAS.
If you are evaluating the costs/margins and FBA and looking for a way to plug all these into a calculator, you can actually do it here – you provide your fulfillment costs and see real-time cost comparisons between your fulfillment and Amazon’s offering for customer orders fulfilled.
2) B is for Buy Box, and How to Win It
The Amazon Buy Box was created in order to give the customer the best possible value for their money. It determines which product promises the best balance of high seller performance and low price. More than 90% of sales on Amazon happen with the buy box, so it’s imperative you are successful at competing there, especially if there are multiple sellers on the same product. Amazon determines the winner by weighing price, fulfillment, seller rating and more.
Think about it this way: Amazon uses performance-based criteria to determine your Buy Box eligibility and placement status. If you’re not winning the Buy Box, your Sponsored ads will be turned off, so falling out of the prime spot is going to basically pause your ability to sell. The Buy Box-eligible listings that do not win the Buy Box can be eligible for placement in the More Buying Choices/Other Sellers box, but Amazon does not guarantee placement in either of these locations.
The performance-based criteria that you should evaluate are as follows:
- Price, including shipping, which should be competitive with the other sellers. If you are a Vendor, Amazon is going to set the price for you and ultimately help you win that Buy Box, but if you are a Seller, you need to continually check your repricing strategy to be relevant.
- Order Defect Rate, a very important but under-discussed metric. Shoot for less than 1% and understand that if Amazon sees a spike in the defect rate, you will be bounced from the Buy Box.
- Customer service quality, which measures your ability to respond to customer service questions quickly (within 24 hours) and provide resolution to customers.
- Length of time on Amazon can be important as well, especially if there is more than one seller listing a similar product.
Ultimately, to compete for Buy Box placement, sellers must demonstrate that they are consistently creating a great buying experience for customers, which takes us to “C” in the ABCs of Amazon Success.
3) C is for Customer Experience
A great product at a great price will get you far on Amazon, but if the customer experience is lacking, you won’t be able to scale. Amazon has built an eCommerce platform based on making it easy for people to buy over 500 million products in the US alone, but you need to tap into the best practices of how to build product pages to really tap into its capability. To do this, you must employ these six factors:
- Detailed product descriptions: Summarize what your product is about and who it serves.
- Good creative: Use clean, clear imagery with callouts, and support additional exploration with video.
- Keyword-rich product titles: This really helps match the product to relevant searches.
- A+ Content: 1P Sellers (Vendors) can leverage A+ Content to add more detailed item descriptions, heightened images, comparison charts, videos, and more. This offering allows you to showcase your brand and better convey the value of your products to help customers make informed buying decisions and can boost conversion rates by 3-10%, according to Amazon.
- A comprehensive list of bullets: Explain your products’ key features and benefits.
- Coupons and promotions: Encourage faster action and immediate sales.
- Product reviews: Review what customers are saying, and make sure you are hearing feedback and reacting to it internally and on the page itself (e.g. if a spec is missing or wrong, fix it).
- Accurate product categorization: Make your products more easily findable in the browse structure as shoppers use the filter features to dive into subcategories.
If you haven’t done more than dip a toe in Amazon to this point, all of this might seem overwhelming – until you consider the risk of not committing to the platform. If selling on Amazon makes sense for your business once you crunch the numbers, start finding the resources to take advantage of its reach and utility. It’s already a dominant retail force, and it’s poised to get stronger for years to come.