Protecting suppliers can determine the success of your commercial relationship with Amazon.
In an increasingly competitive and volatile market, many consumption brands have experienced remarkable growth in Amazon in the last twelve months. However, the growing commercial demands and market fluctuations have caused a decrease in profits, forcing suppliers to take measures.
In this context, increasing retail prices may seem a logical solution, but studies show that more than 40% of consumers would change brand if the prices of their favorite brand increased.
In addition, Amazon follows a price monitoring strategy, which means that, even if you increase prices, it is unlikely that Amazon accepts the increases in associated costs. So how can you improve your margins as a supplier on Amazon?
Index
1. Check the mix of your portfolio
Knowing the composition of the profitability is key when selling online. This is not complicated if you only sell a few products, but it is likely that the brand's catalog will be much broader. Check your Amazon portfolio downloading all ASIN from Vendor and record sales, growth and profit margin on an Excel spreadsheet.
Group the products into low, medium and high margins categories. This step will help you understand how much each segment of total sales represents.
Then, examine the growth of each segment. If low margin products are growing faster than high margin, you need to find ways to decelerate their growth and redirect customers towards the most profitable products.
2. Focus on high margin products
Once you know the structure of margins of the portfolio, it is time to focus on its most profitable selection. It is likely that high margin products grow at a slower pace than their low margin pairs. Therefore, you must redirect your promotional efforts towards a profitable selection . Use important sales events such as Prime Day, Black Friday or Cyber Monday to discount these products.
Promoting your high margin products with a discount may sound contradictory, but the resulting effect can sustain sales after a promotion.
Due to the temporal increase in conversion rates and the influx of new product reviews, products are usually classified higher in Amazon search results after a promotion.
3. Clean distribution channels
Amazon bases its prices on the available offers of a product in the market. Therefore, it is essential to manage the distribution strategy to indirectly control the prices shown by Amazon. If you sell most of your products through wholesalers who are also 3P vendors, you will have more difficulty winning the Buy Box than a brand that only sells directly to Amazon.
Check how incentives your retail partners to make purchase commitments. Reforming the structure of volume discounts on your distribution channels is an effective starting point to increase prices from a frontal margin perspective .
4. launch larger packages and combos
Bundles, Bundles, Virtual Bundles and more bundles! Another way to improve your margins is to launch larger value packages or combos of your best -selling products. This aims to improve the average sale price and reduce variable costs . You can find a very interesting metric on Amazon Brand Analytics to launch this type of products, it is the cart analysis to see the products that are usually bought together.
5. Negotiate with suppliers
Increasing cost prices with Amazon is almost impossible if you sell through the 1P supplier model. Instead, it is easier to renegotiate commercial terms with suppliers .
If your sales have grown in recent months, it is likely that there are economies of scale that justify cost reductions. Fluctuations in raw material prices and the exchange rate of the dollar also impact directly on the margins. If they have changed in the last three to six months, it is time to evaluate the viability of your supply costs.
6. Using the non -profitable selection
Not all products will become a source of profits for your business, and that's fine. But, if a list becomes non -profitable for a prolonged period, it is better to eliminate the offer before after.
7. Address the hidden cost centers
As Amazon has grown over the years, it has also tightened the requirements for brands to conform to standardized processes. This helps the online retailer to soften their entry and exit procedures, improving their operational efficiency.
Failure to comply with Amazon's requirements can lead to hidden costs that affect your results account. The most common types of financial misalignments are return charges, missing and price variations.
To address these problems, follow a simple three -step formula:
- Analyze and understand the charges : Check all return positions and other financial discrepancies.
- Review and align internal processes : Make sure your internal processes meet Amazon standards.
- Dispute the wrong charges : dispute all incorrect charges within 30 days in Central Vendor. If you do not, Amazon may not accept your refund request, even if your dispute is valid.
8. Start commercial discussions with Amazon
Finally, you must always negotiate your commercial terms with Amazon. Their negotiation conditions can be restrictive and represent the roof of your profitability prospects in the market.
Do not fall into the mistake of accepting without asking for anything in return. Instead, make sure you are aware of your costs to serve Amazon and discuss your account manager on how to boost efficiencies continuously .
While the annual supplier negotiations define the framework of your terms, you can always use financing applications of the year by Amazon to request a reduction in return charges or promotional rates in return.
Conclusion
Improving your margins as a 1P supplier on Amazon can be a complex task if you don't know where to start. But even with Amazon's restrictive sales model, there are ways to effectively manage your account's profitability.
Regularly check the mixture of your portfolio, focus on high margin products, clean your distribution channels, launch larger packages, negotiate with your suppliers, eliminate non -profitable selection, addresses the hidden cost centers and starts commercial discussions with Amazon.
Following these strategies, you will be in a better position to protect and increase your margins on Amazon.
