How To Improve Profitability on Amazon As A Vendor

How To Improve Profitability on Amazon As A Vendor

Aug 1, 2022, 12:49:33 PM Business

Being a vendor on Amazon, doesn’t come without its challenges. Sure, the logistics and customer service is handled by Amazon, but what about staying profitable. At the end of the day a business is only worth continuing if it has the capability to make money. But with so much competition and so many elements in the sales process out of your control, how can you ensure you are making a profit?

So, how can you increase your profitability as a vendor on Amazon?

Nip unprofitable products in the bud

Amazon often wants to offer a vendor's entire catalogue on their marketplace,  but sometimes there are products which just don’t sell. Instead of allowing these to continue being listed, which can result in being made to compensate Amazon for the losses incurred.

Review your products and remove listings that are on their way to becoming unprofitable. Not only will this help you avoid having to make up the difference for poor sales, but it will free up your time and advertising budget to focus on the products with higher profitability potential.

Launch bigger packs & bundles

Another way to improve your profitability as a vendor is to offer bigger ‘value’ packs and bundles of your existing best selling products. For example, if you sold dishwasher tablets or something that consumers would typically have to go to the shop and buy regularly, offering a large pack size will not only drive up the price of the sale, but it offers the end customer a competitive price and therefore an incentive to shop online.

This tactic aims to increase your average selling price and lower your variable costs, such as shipping and packaging.

Focus efforts on the higher-margin products

You should know the margin structure of your offering, which products have a high-margin and which ones have a lower one.

In order to make more of a profit, vendors should steer clear of putting all of their focus on fast selling low margin products and instead give added attention to those with a higher margin, and there are a couple of ways of doing this.

  • First is to amp up your advertising efforts for these products. As the margins are higher there is the ability to spend a little on advertising without it cutting into your profits. These ads should then improve your traffic and sales of these advertised products.
  • The second is to offer promotions and discounts on the high margin products, particularly around big sales events such as Black Friday and Prime Day. Putting them in front of a bigger audience and increasing their urgency to convert.

At first, both of these tactics seem nonsensical and more like losing money than making it. However, by using these tactics for your high-margin products you should experience a halo-effect. This describes the sustained sales increase of products after a promotion on Amazon. Due to the temporary increase of conversion rates and an uplift in new product review as a result, these products typically start to rank higher on Amazon, leading to more organic traffic and sales.

Review your distribution channels

Amazon bases its pricing on the availability and price of products in the wider market, aiming to always offer their consumers the best price, but also wanting to ensure they are making sales.

As a vendor it is likely you have other distribution channels, other than Amazon, such as third party sellers, some of which you may offer a discount to these sellers in order to incentivise bulk order or tie them to a certain volume of orders. By doing this though you are giving these retailers the ability to offer a lower price to their consumers. This action has a knock on effect as when reviewing the market for your product, Amazon will discover these retailers offering a cheaper price and will lower the price it charges for your product, meaning less of a buy price for you.

Amazon won’t change how it prices items, but you can control the discount offered to your distributors. Choosing to carefully control the price at which other retailers can get your product means Amazon can charge more and buy from you at a higher price.

Enlist the help of a professional Amazon consultancy, like Arthia, to help sort your vendor strategy to ensure profitability is at the forefront.

Published by Samantha Brown

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