If you’ve ever asked yourself, ‘how can I lower my costs,’ as an Amazon seller, you are not alone.
With rising freight costs, an increase in competition, and higher than average rates for manufacturing, costs can escalate for any Amazon FBA seller trying to make a run on the marketplace. Before you know it, a once viable product can experience shockingly low margins, making it challenging to see the light at the end of the tunnel- the Amazon tunnel.
But, what if we told you there were a few tips you could implement in your FBA business to help you lower your costs?
What is Your Profit Margin?
New sellers often focus on revenue which, as exciting as it can be, is not profit. While revenue can indicate your sales figures, it does not necessarily mean you are making a profit.
To find profitable margins on Amazon, you will need to review all associated costs of your Amazon FBA business. Finding your profit margin can be done in a variety of ways, but a common calculation method is as follows:
(Net Sales – Total Expenses) / Revenue x 100
Once you’ve discovered your profit margin, you’ll want to figure out your floor price.
Floor price means the lowest price point you can sell your product while still turning a profit. You’ll determine the best price point to list your products by factoring in your profit margin and floor price.
What is a Normal Profit Margin for an Amazon FBA Seller?
Every brand, product, and niche will have different thresholds for profit margins, but because Amazon FBA is so competitive, it’s a good idea to price your products competitively in the hopes of finding better margins.
You’ll want to consider your total cost of goods, including your freight fees, FBA fees, manufacturing costs, alongside your marketing costs, pay-per-click advertising costs, etc.
An Amazon seller’s profit margin can vary, but some sellers see between 20 and 30 percent profit margins.
How Can You Improve Your Margins as an Amazon FBA Seller?
So how can you work to improve your margins? Well, there is no one-size-fits-all approach to improving profit margins, but there are undoubtedly several things you can review.
Manufacturing Costs - Are you able to secure a lower price point of your product with your supplier? Lower manufacturing costs means lower overall costs for your company.
Freight Costs - Have you reviewed different freight forwarding services or switched from air to boat or vice versa? Lowering freight fees can be instrumental in finding lower costs. (Keeping in mind the current state of logistics in 2021 is seeing higher than expected freight costs.
Confirm Proper SIze and Weight - Proper size and weight of your Amazon products is crucial to your cost structure. Ensure your sizing is accurately reported to help keep your costs low.
Smaller, Lighter Packaging - Amazon has a program called the Amazon Small and Light Program that offers lower fees if your packages meet the small and light size requirements.
Remove Unfilfillabel Inventory - If unfulfillable inventory sits too long at the fulfillment center, sellers must pay storage and or removal fees. By getting rid of unfulfillable inventory, you can reduce the storage or disposal fees Amazon may charge you.
Reviewing each of these factors can help you lower your costs, and each is pretty standard practice in FBA businesses.
What are Two Unique Ways to Lower your Costs?
You might have to turn a closer eye to where you can reduce your costs and look beyond the standard practices mentioned above.
1. Automated Pay Per Click Advertising Solutions
The key to pay-per-click advertising on Amazon, amongst many important factors, is to optimize your ad campaigns consistently.
Campaign optimization means reviewing impressions, clicks, ACOS (advertising cost of sales), and several other factors that keep your campaigns performing and winning high bid placements for optimal visibility and cost.
An automated PPC management tool typically integrates with your Amazon seller central account and can offer many significant benefits such as:
- Full Automation - Full automation can differ depending on the service provider, but the best services offer full campaign creation and updating of your keywords and product targets.
- m19 uses specialized machine learning that predicts conversion for each ASIN/Keyword pair—no more throwing money at underperforming ASINs unnecessarily.
- Keyword Harvesting - Keyword research is one of the most critical aspects of your Amazon advertising, and with that comes pressure to find the best, most relevant keywords for your product. Finding an automation tool to accomplish this task on your behalf with accuracy and efficiency is time-saving and cost-saving.
These are only a few benefits PPC Automation offers, but how do they help you lower your costs?
Machine learning has come a long way in the era of e-commerce, and that is precisely what it is powered to do.
Learn, track, trend, create and optimize your campaigns without the continuous and arduous manual ‘trial and error’ ‘approach. It’s about costs savings and efficiency, a great combo for any Amazon seller.
2. Amazon FBA Reimbursements
What did we say at the beginning of the article are the lifeline to your Amazon FBA business? Your profit margin and your floor pricing.
You may not realize that both factors can be heavily reliant on how well your inventory moves in and out of Amazon’s fulfillment centers.
And, because Amazon is handling the magnitude of inventory that it is, there is plenty of instances where discrepancies can occur. Discrepancies qualify for what is known as Amazon FBA reimbursements.
The five main discrepancy types are:
- Overcharges in FBA Fees
Amazon sellers are responsible for performing Amazon audits and submitting Amazon claims to recover the FBA reimbursements owed to them.
The best solutions perform a full Amazon audit going back the full 18 months looking for the maximum number of discrepancies on your account.
Better yet, these solutions know how to file Amazon claims and how to present the data to Amazon on your behalf.
Many of the costs in an Amazon FBA business rely on the size and weight of your products.
You can lower your costs by accurately depicting the size and weight of your products to Amazon in your Amazon claim. The bonus is that you can recover the FBA fees on the previous inaccurate measurements and sizes.
While rising costs are evident post-global pandemic, so are staggering numbers of shoppers flocking to e-commerce sites like Amazon to buy.
Now is still a great time to start selling on Amazon, and with more and more great services and solutions, there are many tools and resources available to help you lower your costs and find profitable margins.
Special Offer for the m19 audience! Get $400 FREE in Amazon FBA Reimbursements.
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