By Martin Heubel, Amazon Strategy Consultant at Consulterce
56% of vendors say their Amazon margins are similar or higher than with other retailers.
Yes, you read that right.
Amazon is a profitable retailer for most 1P brands.
This doesn’t mean costs to serve Amazon haven’t gone up in recent years. But it shows that you can still run a highly profitable 1P business.
If you struggle to spot the biggest opportunities, here are 3 tips to get you started:
1. Uncover hidden cost centres
Most brands have an idea about their gross margins with Amazon. But what about all the other cost centres impacting your P/L?
Make sure you work with your finance team to create a holistic account P/L that captures all the hidden cost centres with Amazon. Whether it’s chargebacks, unpaid invoices, shortages…
If you don’t know your true cost-to-serve Amazon, you’ll struggle to address these profit killers.
2. Limit cost support to Amazon
Pricing headwinds often cause Vendor Managers to ask for cost support or minimum margin agreements. While I don’t advise accepting the latter, cost support can prevent ASINs from getting delisted.
So, if you find yourself investing in cost support agreements, make sure to limit them by market, time, and ASIN. Otherwise, you may overfund your account’s Net PPM.
3. Know the difference between the symptoms and causes of low profitability
Having problems with lost Buy Boxes? Seeing your products being delisted?
Most brands respond to these challenges by entering into funding discussions with Amazon. The problem is that this fights the symptom, not the root cause of your low Net PPM with Amazon (i.e. the lack of distribution control).
While addressing symptoms is a good short-term strategy, it is crucial to protect your profit margins long-term by addressing the underlying causes.
For further information and support, contact Martin Heubel here
