Making Better Wholesale Margins from the Get-Go
Being a vendor (through the Amazon Vendor Central program) has its major advantages. Better rates on advertising and access to giveaway programs like Amazon Vine, Subscribe and Save and other premium services. See more advantages here.
But with often very little contact between you and Amazon, let alone a plan for sales growth, how do you set yourself up for success with better wholesale margins from the start?
Having recently helped a Vendor increase their sales by 50%, here’s what we suggest you do for better margins in your business:
REDUCING COST BY MORE TARGETED ADVERTISING
For the purposes of this post, we’re going to talk about the Amazon Marketing Services Dashboard for Vendors. These are your pay-per-click (PPC) options. The three are Sponsored Products, Headline Search Ads, and Product Display Ads.
You’ve probably heard of or tried at least one of these, likely the Sponsored Products page. But did you do a true campaign? If you weren’t measuring the Advertising Cost of Sale, ACoS, then you haven’t measured performance.
This is a great place to start. To calculate your ACoS, figure out what your break-even margin is and your desired margin is (after the cost of advertising) for the cost of each sale. Let’s say, for example, a 23% cost per sale will make you break even but you want 14%. So your target ACoS is 14% – 23% for your Sponsored Products.
One way to make your target ACoS is to avoid bidding on irrelevant keywords. Finding your target keywords has as much to do with keeping track of the keywords aren’t converting. Add these irrelevant keywords to your negative keywords, which will exclude your ads from showing up with these low-converting terms.
Then it’s time to get organized. A few grouping ideas: you can group products by keywords, category or even brand if you have several different brands. Having organized campaigns will make your metrics easier to track!
To potentially reduce your ACoS even further, split your branded campaigns from non-branded campaigns. Branded campaigns can keep your competitors from getting purchases that would have been yours and their purpose is different than your non-branded campaigns. Keeping track of these campaigns separately helps you to keep your focus on the unique goals of each campaign.
While the exact metrics of your campaigns will look a little different based on which PPC you select (or which combination you’re using), being targeted in your approach in this way sets you up for success!
REDUCING RETURNS WITH ACCURATE PRODUCT COPY
Returns COST. While some are unavoidable, if they’re happening in larger numbers, it likely has to do with a discrepancy in the information buyers are being given.
While some Amazon listing management services can help you to determine which aspect of your listing is causing the most confusion, you can usually find it yourself by doing a few simple things.
For starters, a good product page, description, and other copy should be three things: concise, precise and consistent. Take a look at the negative reviews or returns because a trend gives you the opportunity to see where the problem is and fix it immediately based on customer feedback.
This doesn’t mean that you have to settle for unhelpful reviews. In fact, while Amazon has strict guidelines, when a review is completely out of hand you may be able to get rid of it in certain circumstances. It’s not something to count on, but it is something to consider.
WORK AMAZON’S FEES INTO YOUR PRICE
Wholesale the way it used to be doesn’t quite translate into Amazon’s world because Amazon takes 5% -25% off the top for co-op fees. There are a few distinct co-op fees to factor into your price because they are all mandatory. They include Marketing Development Funds (MDF) which supports the visibility of your products, a percentage for freight allowance, and a percentage to cover damages.
Calculate these percentages to the best of your ability and set your wholesale price higher for Amazon than you would for other accounts. Be sure to manage your expectations, though, because Amazon will have a set price already in its mind based on similar items and product category.
Often times this is an area that Amazon management companies can forget to mention when signing you up for an Amazon management service! So when considering Amazon vendor management, you’ll want to be sure that the Amazon experts you’re talking to have successfully helped vendors work Amazon’s fees into their price. Are they true experts?
If you’re preparing your desired wholesale fees yourself, be prepared to negotiate where you can and know when you’ll need to make up your margin elsewhere.
Changing prices to Amazon after they are set is very difficult. Get it right the first time.
NEGOTIATE YOUR VENDOR TERMS
Amazon’s negotiations work much differently than brick-and-mortar operations. Amazon is focused on the customer first in that they care about what the customer will buy, not about what you are trying to sell to them.
For this reason alone, do not come to the negotiation planning to work out terms then. Do your research and create a strategy by doing some or all of these things:
- Look at your competitors and their pricing.
- Figure out which metrics are important to Amazon in your category.
- Take into account time of year and recent Amazon news you’ve read.
- Come to the table with how your company’s plans match Amazon’s priorities.
- Be prepared to be firm and don’t be afraid to say no in the negotiation process.
- Know which services you do and don’t need so you don’t get oversold.
- Have data, studies and anything else that will BACK you up numbers wise.
The more prepared you are, the less you’ll fear the process, and the better the deal will be for you. Knowledge is power.
Don’t accept terms too quickly. Try to negotiate. Sit on it for some time. If you jump on it too soon without thinking it through, you may miss a detail you wish you’d addressed.
DON’T ACCEPT BULK BUYS
Speaking of no fear, don’t be afraid to say no to Amazon more than once. This will not disqualify you from future sales. Sometimes Amazon will ask for a much larger order than usual, at a lower price or different terms. While the cash up front can be tempting, do not ignore your margins.
This can greatly reduce them in a way that likely just won’t make sense for your business. We advise against it every time because to Amazon it can ultimately reduce the value of your product and the terms you’ve already worked out.
As part of a small team of Amazon specialists currently working with many vendors to successfully offer Amazon account management services they trust for results, I can say with authority that it’s never worth it. Just say no.
VELOCIFY YOUR SUCCESS
If you feel like you’ve been given information overload, you are right! Improving your margins (and keeping them that way!) is built on a delicate balance of all of the techniques listed above.
Want to see better wholesale numbers, sooner?
Schedule a free consultation session here so we can get to the bottom of what’s costing you the margins you know you could be making! Our professional Amazon vendor account management team is ready to see you crush your sales and margins goals.
Let’s reach your full potential on Amazon together.
To your success!
Jake