The largest ecommerce platform in the world, Amazon, allows scale and reach that is hard for any other channel to compete with.
And while Amazon has been gaining immense strength, retail has been losing in overall retail sales:
It’s clear that Amazon has become a behemoth to capitalize on.
But growing on Amazon can also be a road of challenges, frustrations, and lost sales.
What does it take to succeed on Amazon?
By now we have worked with hundreds of brands, and I personally have talked with hundreds more about their experiences of growing on Amazon. And regardless of industry, level of sales, products, or type of a company, companies that do well on Amazon have a number of things in common.
While there is no ‘easy’ button for success, and every company has their own ‘secret sauce’ , they all focus on same things.
1. They Invest in their Brand Representation on Amazon
A brand that sells well and is poised for sustainable long term growth on Amazon scores ‘excellent’ on the following brand presentation indicators:
- Easy to navigate product catalog. If a customer is searching for a specific size, color, flavor, etc. is it easy for them to find the right variation? The more clicks a customer has to make in their search the higher chance of a customer navigating away
- High resolution images. Role of images on Amazon product pages is more and more critical. In addition to high resolution product images successful brands include lifestyle images
- Optimized title, bullet points, and product description. Copy should include relevant keywords, and benefit driven product description to optimize SEO and customer experience
- Enhanced Brand Content (on Seller Central), or A+ page (on Vendor Central). Adding EBC or an A+ page increases conversion up to 7%. Investing in brand-centric rich content will pay dividends over a long period of time
- Average review rating 4 and above. Increasing reviews is a moving target, but brands that do well focus on average review ratings just as much as on the quantity of reviews
- Public responses to customer questions or negative reviews on product pages Brands that do well respond to customers’ questions and negative feedback
Product pages are the first, and often, the only opportunity for a brand to turn a browsing customer into a buyer.
Ask yourself a question: if Amazon were the only place a potential customer could get introduced to my brand, how would I feel? Even on a ‘gut’ level an answer to this question indicates if you need to invest into your brand presentation.
2. They Obsess with Key Metrics
The most important KPI (key performance indicator) is usually revenue, however, sales numbers in isolation do not give a true picture of the health of your Amazon business. Amazon charges a number of fees, some are fixed, and some are variable. In addition to Amazon fees, your business has its own costs: production, operational, etc.
So what performance indicators do successful brands track? Metrics can be broken into 3 main categories: Revenue, Advertising and Marketing, and Operational.
Revenue Metrics:
- Top Revenue
- Bestsellers, i.e what and how many SKUs carry at least 70% of revenue (exception: highly customized catalog)
- Product Page Visits
- Conversion Rate
- Average Order Value
- Product Review Average Rating
Advertising and Marketing:
- Impressions
- Clicks
- Orders
- Conversion Rate (orders/clicks)
- Cost of Sales (ACOS)
- Promotion ‘Take’ Rate
Operational:
- In Stock Rate
- Refund Rate
- Monthly Storage Fees
- Average Transactional Fees
- Shipping Costs (if FBA – average cost per pound, if merchant fulfilled – cost of shipping to a customer)
- Seller Feedback Rating
- Account Health (Account Status and Performance Notifications)
I often talk to brand owners that are frustrated with Amazon fees, and how challenging it can be to reach desired profit. If you feel that way, remember you are not alone. But it does not mean there is no opportunity to grow profitably.
The first step is understand all the costs associated with operating on Amazon, and understand revenue driven performance indicators.
Improvement is impossible to reach without understanding the full picture. And getting that ‘full’ picture means knowing all the relevant data.
3. They Focus on Experimenting and Incremental Improvement
One of my mentors often says that in nature there are only two states: there is a state of growth, and a state of dying – there is nothing in between. So if you are not growing, you are slowly dying.
While it seems harsh, in business it is often true. And growth does not necessarily mean top revenue growth. It does not always mean huge leaps. Growth means experimenting and focusing on incremental, and ongoing improvement.
Few months ago I talked to a brand that was one of the first in their niche to sell on Amazon. Their first mover advantage (back in 2010) helped them reach dominance in their category. However, growth turned into stagnation of sales, and then quickly turned into consistent decline. During their robust growth phase this brand got comfortable, and when red flags emerged, it was almost too late to act.
Unfortunately, stagnation often means upcoming decline.
Brands that do well are constantly experimenting, and they are focused on small improvements. Why? Because even a small improvement means exponential return. And bigger improvements are simply accumulation of smaller changes. For example, even 0.5% increase in conversion rate can mean thousands, or even hundreds of thousands in additional annual revenue.
Let’s look at an example, and pick area of improvement:
Your current In Stock Rate is 75%, which is means you are out of stock 25% of the time
Analyze your forecasting, production and shipping lead time. Identify the reason for less than 100% in stock rate: do you sell through faster than you plan? Do you underestimate your shipping lead time? Once you understand the reason behind running out of stock, put action steps in place to improve that rate. Do not aim for 100% – aim for more than 75%.
Remember, growth is merely an accumulation of incremental changes.
Growing on Amazon can be challenging, but if you follow the lead of successful brand owners, your chances of success go dramatically up.