By Martin Heubel, Amazon Strategy Consultant at Consulterce
Your Amazon Net PPM should not exceed 40%. I repeat: Your Net PPM with Amazon should not exceed 40%.
It doesn’t matter if you sell CPG, Apparel, or Hardlines goods.
Any Net PPM above 40% is unlikely to return healthy profit margins for your business. That’s because you have to think about all the hidden costs in your P/L as well:
- Chargebacks
- Shortages
- Agency costs
- Increasing headcount costs
- Increasing shipping costs
The list goes on.
So if you’re granting Amazon margins north of 40%, chances are you’re not addressing the real root cause of Amazon’s profitability challenge.
Instead, any investments beyond that figure must come from initiatives that drive ‘mutual’ cost-savings for you and Amazon.
This includes:
- Consolidating inbound structures with Amazon (PICS)
- Improving fulfilment efficiencies (Direct Import/FOB)
- Optimising product packaging (SIOC/SIPP)
- Delisting items with low/no profit margins
Granting Amazon more cost support and trade terms every year is a race to the bottom.
So ensure to focus on your variable cost structures instead.
For further information and support, contact Martin Heubel here
