Selling on Amazon is never boring.
Or easy.
Or, automated (in spite of some YouTube videos say).
And this year has not been an exception.
Our team stepped back and looked through the whole year through the lens of these questions:
What has better on Amazon? What has gotten harder? What has worked well? What is no longer working well?
We put the most important insights into this post – with the purpose of helping you plan and sell better, with more profit in 2023.
(And if you need help getting more sales AND more profit on Amazon – let us know).
Inventory management became more serious
The pandemic caused a lot of interruptions in the supply chain, which lead to OOS scenarios for many brands.
The domino effect was a lot of adjustments to how businesses manage production, supply chain, and inventory forecasting had to be done. And Amazon, as a business, was no exception.
In 2022 Amazon has gotten more strict with FBA inventory planning and management.
In other words, if you were not granular with your FBA planning and replenishments, it became more painful to sell on Amazon.
his friction really culminated in the Q4, when most sellers on Amazon saw drastic changes in FBA storage limits.
Many brands that did not have inventory in FBA late Q3 found themselves with a fraction of older storage limits. Which meant no ability to send in new inventory for the busiest shopping time of the year.
Some were able to offer merchant-fulfilled, but some had to stay OOS, missing out on holiday sales.
And that is painful.
Let’s look at on of the most recent announcements from Amazon:
“This year, we saw some sellers use more of our storage than we expected or believe was needed to serve customers well, and that constrained how much product from other sellers could be sent into FBA. As a result, we will make updates and create additional granularity in our FBA fees that continue to better align fees with our underlying costs.
Read: Amazon will charge more fees if you do not have your FBA inventory processes dialed in.
Below is what we already were doing for clients in 2020-2021, but in 2022 we really had to lean into our both creative and agile inventory management, to minimize OOS interruptions:
- Scrutinize what SKUs to send to FBA
- Send smaller and faster inventory replenishment cycles
- Toggle between pallets and boxed shipments where possible
- Use hybrid merchant fulfilled and FBA method where possible
We anticipate this speed and flexibility will be even more crucial in 2023.
To summarize all of this, here is our recommendation for inventory management in 2023:
- Adopt a mindset of 80/20: not all of your brand’s catalog needs to be Amazon
- Curate your Amazon catalog throughout the year, especially if Q4 is your biggest sales quarter. You do not want to be in a situation where lower selling SKUs are preventing you from sending your bestsellers
- Send your better selling SKUs for Q4 August, September the latest
- Consider offering merchant fulfillment for lower selling items
- Have a hybrid MF/FBA method to fall back when needed. If you do not offer MF fulfillment now, put it on your 2023 ‘to do’ list, if Amazon is a key channel for you
Ecommerce packaging design is a must to grow on Amazon
Packaging design is ecommerce has to do double lifting: not only be attractive, but also entice customers to buy when they can not involve other senses of touch, smell, taste, etc.
And this is especially relevant for CPG.
E-commerce selling means there is no nice lady giving out samples. Or you picking up a sweater to feel how soft it is. Or
Customers make buying decisions on a number of factors, but based on our vast amount of empirical data, their decisions on Amazon are based on this:
90% – reviews, images, price
10% – everything else
Because packaging is often part of the main image, it plays a significant role in a customer’s decision to buy your product or not.
What does ecommerce friendly packaging mean?
To stay true to this point, we would rather show you, than tell you:
Business fundamentals reinforced
Last couple years demonstrated that we live in a world with a somewhat unpredictable future.
We experienced our existing paradigms of how we live, work, run businesses challenged, morphed as a result of things we can not control.
We all learned to adapt.
When looking through the list of brands we support the ones that had their business fundamentals in place before the pandemic, are also the ones that are managing
That means there are so many things in your control. Control what is consistent and reliable regardless of what economy, suppliers, competitors, etc. are doing.
Businesses that came out of the pandemic into 2022 stronger than before 2020, were the ones that not only adapted well, but who also had business fundamentals in place.
And fundamentals are really simple questions of:
Is your product quality consistent, and delivers on your product promise?
How do you talk to your customers?
How do you show up in front of your customrs?
How you ship orders? What is customers experience around fulfillment?
How do you resource your businss?
How do you take care of your team?
How do you approach cash flow? Do you manage it, or it manages you?
How is your overall fiscal management?
These fundamentals apply to business on any channel, not just on Amazon.
But Amazon has a tendency to amplify both good and bad: your business gaps can kill your success on Amazon, and your strengths can catapult you on Amazon.
Amazon is both a meritocracy and autocracy.
And knowing your margins re-affirmed
Knowing your margins is always great advice – because a business can not thrive, or even survive, without being profitable, right?
how can you improve something without understanding it first?
But 2022 also re-affirmed for us that:
- While sales can cover multitude of sins, they do not always produce profit
- Many brands do not know their Amazon profit % (which is why we focus on getting that number first, before we start working on improving Amazon profit for our clients)
And growing profitably is a super hard thing to do to begin with. Often focus is singular – you either are working on your top line growth, or optimizing your profit.
Amazon is a notoriously hard channel to be profitable on. Not only because of fees, but because of the hyper competitive environment.
(Side note: this is also why most of the content out there is focused on growing sales on Amazon. It’s sexy.
Fixing or making your Amazon bottom line is a harder and often messy exercise).
If you can give me your Amazon profit % before you can even finish reading this sentence, you can skip the below.
But if not – these are the fundamentals of knowing your margins on Amazon:
- Solid single SKU economics, first and foremost. Solid = ideally minimum of 60% gross margin
- Understand Amazon transactional fee structure – goes hand in hand with the above
- Know how much it costs to acquire a customer via advertising
- Consumables – know how many times customers come back (aka repeat buyer rate)
- SKU performance – this is a multi-facet analysis with inventory management, advertising/marketing, COGS
Amazon Seller Central tools and resources have gotten more transparent, and actually, useful.
In the early days of Seller Central we needed a lot of third party tools to support marketing, copy and keyword research, and operational aspects of running and growing Amazon channel for clients.
Over the last few years Amazon has accelerated the pace of releasing supporting that we can group in 2 main areas:
Marketing and sales growth:
- Advertising capabilities – most around video advertising, which shows where Amazon sees marketing effectiveness and also learns from video based social media platforms
- Brand related analytics – insights into customers, some keywords data, repeat buyers data, more granular SKU performance. Not all of that is always useful, but it makes it easier to provide specific data points to help you make decisions on marketing allocations across your catalog
Operational account management:
- FBA inventory reconciliation – simply put, Amazon has gotten better at not losing items or mis-labeling received inventory
- FBA inventory planning – not perfect but it’s usable for FBA replenishment planning
- Account Health – more insights in your overall account health to help stay proactive in addressing potential performance dings
As an Amazon agency we have a suite of 3rd party tools we use to close gaps in data analytics and research. But this suite has been slowly decreasing, where we now have tools to support content and visual creations, PPC analytics and reporting, and keyword research.
While Seller Support has moved to fully ‘do it yourself’ model
If you have experience communicating with Amazon seller support, you know that in a way it’s a test of a lifetime that even raising children has not prepared you for.
In the glorious days of the past (why are they always glorious?) Amazon platforms for sellers (both Seller and Vendor) had less features and less data, processes were more prone to accept manual errors. But you could also communicate with Seller Support as humans with humans that are there to help you, and, more importantly, help solve your issues.
Over the years Amazon has been eradicating the human, custom element in seller support, moving to default answers of containing links to resources articles, requirements, and so on.
In other words, a self-serve platform.
Vendor managers on the 1P side are also harder to come by.
Amazon improvements in operational checks and balances (such as FBA inventory management), opening up data to sellers, creating a lot of Help section articles and videos means that seller support is there is only to guide you to finding a solution to your Amazon selling problem, but not give you a solution.
It can be time consuming and frustrating even for those of us dealing with it daily.
It is worth to note, that Amazon does provide brand growth human support, mostly in the onboarding phase. However, we also found it to be fully focused on getting brands to invest in marketing, and 0% operational support.
As an agency we do have internal communications with Amazon outside of seller support, but its a result of years of building relationships and understanding Amazon internal organizational retail structure. This is not accessible to every seller, and every brand selling on Amazon sooner or later has to interact seller support.
If you manage Amazon channel in-house, here is suggested mindset to embrace:
- Set expectation of every issue requiring multiple round of communications
- Be specific and direct in how you communicate with seller support
- Switch between email and chat – sometimes we find chat mode to be less frustrating
- Expect first answer to be a set of links to Help articles
- Be persistent – on some more complicated issues around catalog, brand control, product restrictions we have had sagas with seller support going for months before resolution reached
Success metric of advertising shift from ACOS to TACOS
ACOS used to be the main metric, when Amazon was less integrated with other channels, and there was simply put, less competition. You used to be able to grow organically. Advertising CPCs on average were manageable, which allowed sellers operate on a linear judgment of effective marketing based on ACOS.
Those were the good days of advertising.
Increased competition, ongoing democratization and accessibility of the platform for sellers, changes in social media advertising and Google advertising that pushed at times higher waves of ad money to Amazon – all of that contributed to the steady trend of rising cost of advertising.
And, to keep it even more interesting, Amazon introduced Sponsored Display for brands that do not sell on Amazon (aka non-endemic brands) in 2022.
Everybody is welcome to a party where Amazon is the biggest winner.
All of that just solidified the holistic assessment of marketing based on TACOS.
It captures the underlying premise of Amazon algorithm interaction between organic and paid traffic – they support each other, or impact each other negatively. And
And the overall digital advertising, and how Amazon leverages them, just confirm that ACOS is a useful, but also an isolated metric of how to measure success of your advertising.
Last, but not least: Amazon opened doors to incentivizing brands to bring traffic TO Amazon through Brand Referral Bonus – a discount on your referral fee for sales that come from website, your social media, etc.
Content visuals trump copy. Visuals lead copy.
Wording (aka usage of words on your Amazon content) has become even more restrictive since the 2020 pandemic. Amazon pesticide and germs claim scrubbing has really accelerated to a new degree of ridiculousness.
But, the irony is, visual space has become more creative, AND, more supported by Amazon through features.
Amazon framework and modules for A+ and Storefronts creation has loosened a bit to allow more creativity for brands to tell story, sell and really showcast their products.
Of course, it’s only because Amazon can see that most buyers make buying decisions heavily based on visuals and reviews.
But Amazon’s North Star of serving customers first is benefiting brands here.
Here are couple specific examples on why visuals now trump copy. Because majority of shopping is done via mobile devices, we will use Amazon App examples:
- Amazon App – ways Amazon displays images, search results can be swiped through images while still in search results, without going into a listing
- Amazon App – Re-arrangement of A+ showing above bullet points, visuals are more prioritized
Ace in your hand – video advertising
t’s no secret for anybody with experience in ecommerce that video advertising now often delivers better results, both sales and conversions rate.
As a savvy company, Amazon will give more space to advertising that generates more clicks and keeps customers on its platform.
Which means video advertising will only grow in the Amazon ecosystem.
While we were doing video ads for clients since our agency’s participation in its beta years ago, in this last year we really double downed on it as our ‘secret’ tool.
“Secret’ because we are still shocked how many clients come to us without any video ads in their Amazon advertising, in the year of 2022. But it also meant we could get momentum from the get go just by placing videos in content (pages, Store) and deploying video advertising via Sponsored Display.
Here is an example of a video ad we created and setup for one brand. Over 70X return in one day.
N
ot every video ad gives 70X return. But regardless of product category, season, price, even branding, we consistently get an average of 5-7X on video ads.
Not having presence on Amazon is no longer an option
Amazon’s main appeal to brands has always been a growth and brand awareness opportunity for brands.
That’s why most clients to us for: they want more sales on Amazon.
But Amazon has become such a behemoth, that no brand no can afford to ignore Amazon.
Whether you like it, or hate it, you have to consider it.
Because even if a brand chooses not to sell directly on Amazon, eventually their products end up on Amazon sold by others. And when you are not in control of your brand on the largest e-commerce platform – that is an Achilles heel for any DTC company.
Is Amazon a key channel for you in 2023? Are you happy with how Amazon is going for you? Or do you struggle with any aspects of it? Tell us, and perhaps we can help!