What it REALLY Takes to Build and Scale Your Amazon Business
Amazon is the highest revenue-generating e-commerce company and largest online conglomerate in the world. The global giant garners more than 95 million unique monthly visitors in the U.S. alone, so it’s a strong draw for sellers. However, there are currently more than 2 million small to medium-sized businesses selling on Amazon, so the market is highly competitive. While earning as an Amazon Seller can be lucrative, it can also be challenging to make a profit.
Becoming a seller is relatively simple. When it comes to making money, though, your business needs to do more than offer top-notch customer service and creative products. To gain a firm foothold in this active marketplace, it’s essential to look beyond basic business practices and track your financial standing. How much are you making, and how much of that is actual profit? Business metrics with measurable results are vital to your growth and help to maximize your profits.
Focus on Key Metrics, See Profits Soar
To run a profitable business, you need to have a strong understanding of your business key metrics. What are you spending on each order? Is your advertising money well-spent? What are the hidden fees and can you eliminate them or at the very least get them down? By tracking (and measuring) your results, you can determine whether your approach is working and make adjustments to your profit strategy as needed.
Tracking starts with identifying your Amazon Seller account type. Amazon offers a variety of programs for sellers, and each has its own varying benefits, available data, and costs. You’ll want to look them over and see which one best fits your needs. Your cost of doing business will depend on which program you choose, but ultimately, you’ll want to focus on these key metrics to see your profits increase.
1. Product Cost
Product cost is crucial to the decisions you make for your business – the products you offer, the prices you charge, and the strategies you implement to reach your goals. First, determine how much the product costs you out-of-pocket. Then, take a look at what Amazon is charging you to post that item. Do you intend to offer samples? What are those costs? All of this counts against your profit margin, so it’s essential to have a firm grasp of what you’re spending before you make any money.
2. Advertising Spend
When it comes to promoting your products, Amazon offers two different categories of advertisements. Self-Serve Ads are like Google Ads, found in search results for products. Premium Ads are like display ads, appearing as banners and sidebar ads.
Among those two categories are an array of types of ads with varying associated costs:
Sponsored Product Ads: These ads typically appear before organic product listings. To get an ad position, you must bid on keywords.
Sponsored Brands: These ads appear in search results as headline banners. Again, you’ll bid on keywords to secure these spots.
Product Display Ads: These ads target people instead of keywords. Product Display Ads function on a pay-per-click model, so you only pay when interested parties click on your ad.
On average, Amazon advertisers pay $0.81 for every click on their ad. Your campaign costs will depend on your budget, your competition, and your goals. The beauty of this kind of advertising is that you can bring costs down by choosing the right keywords, optimizing product listings, and monitoring your campaign’s performance.
3. Amazon Fees
While there are significant benefits to selling on Amazon, the experience comes at a price. Depending on which program you use and what your needs are as a seller, you can find yourself facing several additional fees:
Monthly Subscription Fee: Up to $39.99 per month.
Selling Fee: When your product sells, Amazon collects the amount paid by the buyer.
Per-Item Fee: Up to $0.99 for each item sold on the Individual Selling Plan.
Referral Fee: Sellers pay a referral fee on each item sold. Fees vary by category.
Closing Fee: Sellers pay a closing fee of $1.80 per media item that is sold.
There are also fees for Rental Book Service, High-Volume Listings, and Refund Administrations. Evaluate your needs carefully and prepare your budget accordingly.
Sell Smarter on Amazon
If you’re making Amazon sales, but you’re losing money, you’re not alone. Sellers who want to boost their revenue should closely examine their unique data. Between product costs, advertising expenses, and Amazon’s additional fees, there is much to consider when planning – and achieving – your sales goals.
As a seller, your key to success is tracking your metrics so you can make informed decisions, increase profits, and get closer to financial freedom.