Don't Miss the Amazon Experts Webinar. Learn More

Joe HansenJoe Hansen is the Founder and CEO of Buy Box Experts, a digital performance marketing agency devoted to helping brands on Amazon. Leading and working with the executive and director-level teams, Joe successfully converges marketing and fulfillment strategies to deliver a fluid marketing, sales, onboarding, and management experience for clients. He is a serial entrepreneur who has built and sold half a dozen different brands and is also the Co-founder of the Prosper Show, the largest educational conference for Amazon sellers.

 

Greg MercerGreg Mercer is the Founder and CEO of Jungle Scout, a software tool that helps everyone from entrepreneurs to large brands win on Amazon. As a leader in the Amazon selling community, Greg originally built Jungle Scout as a Chrome extension to automate his process of finding products to sell on Amazon. Today, he leads a team of 125+ global employees who have built Jungle Scout into a robust suite of SaaS solutions.

 

Available_Black copy
Available_Black copy
partner-share-lg
partner-share-lg

 

Here’s a glimpse of what you’ll learn:

  • Joe Hansen and Greg Mercer discuss the most significant drivers of selling price on Amazon
  • Costs, commissions, and fees Amazon sellers should pay attention to
  • The importance of ensuring that your products are listed in the right category
  • Joe and Greg’s thoughts on selling below book cost to drive traffic to your listings
  • Understanding the Amazon flywheel and the consequences of opening the marketplace to all types of sellers
  • How Jungle Scout helps sellers monitor their competitors and dominate their market
  • Joe’s strategies for optimizing Amazon paid advertising to avoid stockouts
  • Greg talks about Amazon tariffs and what he does to decrease the costs involved
  • How sellers can allocate and keep track of short-term costs over time
  • Joe and Greg answer listener questions about Jungle Scout, Amazon’s inventory cap on FBA, and winning the buy box

In this episode…

All e-commerce sellers who join the Amazon marketplace do so with the intention of driving traffic to their listings, making sales, and growing their brands. However, many sellers notice that after some time on the platform, their reports show declining sales and margins.

In order to reverse this situation and avoid any subsequent losses, it’s essential for these sellers to first identify the causes behind their declining margins. According to Amazon experts Joe Hansen and Greg Mercer, some common reasons include pricing, competition, and Amazon costs and commissions. So what are their tried and true tips for increasing margins and boosting profits?

In this webinar hosted by Buy Box Experts, James Thomson is joined by Joe Hansen from Buy Box Experts and Greg Mercer from Jungle Scout to talk about the common causes of declining margins on Amazon—and how to reverse them. They discuss the nuances of the Amazon flywheel, their best strategies for optimizing paid advertisements, and how to monitor your competition in order to stay at the top of your market. Stay tuned.

Resources Mentioned in this episode

Sponsor for this episode…

Buy Box Experts applies decades of e-commerce experience to successfully manage their clients’ marketplace accounts. The Buy Box account managers specialize in combining an understanding of their clients’ business fundamentals and their in-depth expertise in the Amazon Marketplace.

The team works with marketplace technicians using a system of processes, proprietary software, and extensive channel experience to ensure your Amazon presence captures the opportunity in the marketplace–not only producing greater revenue and profits but also reducing or eliminating your business’ workload.

Buy Box Experts prides itself on being one of the few agencies with an SMB (small to medium-sized business) division and an Enterprise division. Buy Box does not commingle clients among divisions as each has unique needs and requirements for proper account management.

Learn more about Buy Box Experts at BuyBoxExperts.com.

Episode Transcript

Intro  0:09  

Welcome to the Buy Box Experts podcast where we bring to light the unique opportunities brands face in today’s e-commerce world.

James Thomson  0:18  

Good morning to everyone. Thank you all for joining us today on the first day back from hopefully an enjoyable long weekend for everyone. I’m James Thomson from Buy Box Experts. I’m joined today by Greg Mercer from Jungle Scout, and Joe Hansen, also from Buy Box Experts. We will be doing a one hour discussion here on issues around losing margin in your Amazon third party business. I will be your host and as such, feel free to submit questions throughout the discussion. Greg and Joe will be doing the discussion in terms of covering the primary content. But I certainly welcome you all to submit questions throughout the discussion. We look forward to a very productive conversation. Let me turn things over now to Joe who will handle the responsibilities of managing the deck. Joe, did you want to share your screen and we can start introductions. Again, welcome today to our discussion on how to reverse declining margins on your Amazon business. I’m joined by Greg Mercer, founder and CEO of Jungle Scout and Joe Hanson, founder and CEO of Buy Box Experts. Gentlemen, would you like to introduce yourselves please?

Joe Hansen  1:25  

Well, I think founder and CEO Buy Box Experts for me

Greg Mercer  1:30  

Joe found has founder in a Jungle Scout too

Joe Hansen  1:36  

I’m Joe Hansen. I’m a serial entrepreneur. I’ve built up half a dozen different brands over the years and so those off ecommerce brands, James and I actually are co founders of the prosper show with largest amazon seller conferences in the world. And today I run Buy Box Experts, a digital agency devoted to helping brands on Amazon. Thank you.

Greg Mercer  1:59  

I’m Greg Mercer, founder and CEO of Jungle Scout. I personally started selling on Amazon back in 2013. And that’s kind of was the start of where I’m at today, which is now primarily running the software company. So Jungle Scout is a software tool to help everyone from small entrepreneurs to large brands win on Amazon. And that’s primarily through like our e-commerce intelligence. And yeah, Joe, I’m excited to chat with you today about the decreasing margins.

Joe Hansen  2:33  

Great. Absolutely. All right. So let’s start off with defining the problem here. The purpose of this webinar is really to get into the meat of understanding what’s happening to your margins on Amazon, when you start to notice that you’re, you’re not raking in as much profit as you used to be. And when you see declining margins on Amazon, really you have to look at this from a scientific perspective and really start to think diagnose the problem and understand why you are having a declining margin. What is the root cause of that decline in margin? Where is it coming from? And there’s a number of different places that it can be coming from the generic formula that we tend to look at on Amazon if you’re looking at the selling price of your product, you subtract all the costs that you see on Amazon, and that results in your margin. There’s a lot of things that go into costs. So that’s going to be kind of the bulk of our discussion today. Is there anything you wanted to add to that, Greg, as far as kind of a summary, where we’re starting off right now?

Greg Mercer  3:37  

Oh, I think that’s a great summary. And this is a topic that it’s been very clear to me over the years that it can be a little bit mysterious. And I think there’s a lot of good nuggets in here that even if you feel like you’re pretty informed on this particular topic, I think you’re gonna learn a lot.

Joe Hansen  3:59  

Let’s talk about The decreasing margin on your account. One of the best things for us to really stay clear, you know, front and center here that it’s not just looking at your margin and aggregate. But really looking at your margin on the sku by sku basis is where you’re going to start to be able to disaggregate that data and start to understand where you’re seeing increasing costs, there are going to be some bulk areas of cost attributed to your entire catalog. But really, you have to be able to look at your catalog to sku by sku basis, or an ace and by ation basis for the amazonians here to really understand what is happening to your margin. And chances are that you have erosion of margin to a particular set of products within your category, but not to the entire product, not to the entire product catalog that you have. So understanding that is going to be I think the pivotal part of really getting into the meat of this.

James Thomson  4:57  

I think it’s fair to say there are a lot of sellers that probably sell a bunch of products today that they don’t realize put them underwater. And so they’re doing Amazon a favor, but they’re certainly not doing themselves a favor by choosing to keep their economics across the catalog rather than doing unit economics across each individual skew.

Joe Hansen  5:18  

I agree with that.

James Thomson  5:20  

Sorry to cut you off, please, Joe, please.

Joe Hansen  5:23  

Okay. Um, Greg, why don’t you take it away on this one?

Greg Mercer  5:26  

Yeah. So when we think about the kind of topic from a high level, obviously, one of the most important things with your overall margins or profit here is going to be the initial selling price. And when you’re thinking about what the drivers of the selling price are, we’ve listed out a few here that are the most important. Some people aren’t as familiar with Amazon. And I guess one of the more unique things about the Amazon platform is the fact that a whole bunch of different sellers can all compete. For the buy box, so that means that different sellers are going to have essentially the add to cart or buy button, depending on when a different consumer lands on that page. So a result of that, there’s always going to be fierce competition for the exact same product to kind of like driving down the price. And that’s I think one of the most important things that people need to understand or look for if they’re new to kind of selling on Amazon. We’ve listed out a few others here. Another one that I think is kind of like a common problem or something that I see happen fairly often or can be quite costly is when your particular listing gets suppressed. And what we’re talking about there is Amazon has some kind of issue with the listing. Maybe that means that the return rate was too high or someone complained about it for a number of different reasons. That means that there isn’t anyone there to kind of like own the buy box or add to cart. And the result of that is typically Amazon’s not going to show that in the search results. Sure, what else do you have to add on the drivers of the selling price?

Joe Hansen  7:17  

Oh, let me go back here real quick. I was just going to say that it’s one of the areas that I think sellers or brands don’t really attribute an erosion of margin to. They aren’t putting that into the picture. Typically, they’re looking for an increasing cost, but they aren’t. They’re looking at the historical picture of what the price of their product is. They’re selling it typically and understanding that there’s typically a huge decrease in margin over time, where you have people competing for the buy box with you, or where you’re having to lower the price of your product over time because maybe you’re seeking promotional activities on Amazon. And you’re trying to get featured for a Deal of the Day or Lightning Deals. And over time, the list price of your product tends to drop lower and lower and lower. And so that’s one of the areas to look at is historically what are the prices of your product, then over the last 12 months, have they decreased? Why did you make those changes? Are they continuing to happen? Because that’s one of the reasons that the top line figure is where we start from. Yep.

Greg Mercer  8:30  

We want to talk a little bit about where you can find that the pre pricing information at now some of its going to be available inside of Seller Central for those who are third party sellers, other pieces of information is or I should say, there’s information inside of Seller Central that you can only see the real time data point for that. There’s information inside of Seller Central that you can see like reporting and historical reporting. And besides that you have to use third party tools unless you want to take advantage of a really manual process. So we listed out some of them here. But for example, things like what your competitors are pricing at, or often testing to see if the buy box is suppressed and quickly notify you of that. Those are good examples of where third party tools can really come in handy. If you think about it, something like a buy box depression and being suppressed for a few days without realizing it can have a really serious impact on your sales.

Joe Hansen  9:35  

When we start to dive into all the elements of cost, and there’s a bunch of things that we’ve listed out here, and I think the way in which we’ve listed them here is that you know, the drivers of cost or if any of these particular areas are increasing. We need to be aware of each one of them, right, the Amazon sales commission and we’ve actually worked with a number of clients over the years who weren’t aware that commission with their category had increased from the previous year didn’t pay attention to that, or, in some instances, a few of them have been charged a commission that was too high by Amazon, they were in a category where they should have been paying a 12% commission and they’re getting charged roughly 13 and a half percent commission, and it was this weird fluke air, they had to go to Amazon and get credited that back and it took him several months to happen. So that’s one area to pay attention to to look at. You should be looking at your payment summary reports and be looking at the commission that you’re paying to Amazon on all of their products. And then be aware if you’re one of the areas of potential areas and if your products are Miss assigned to particular categories. And if they’re being charged too high of a commission as well. As far as FBA fees go. We’re you’re only we’re only going to see if the FBA fees continue to increase over time. Amazon will continue to build additional fulfillment centers and shore up additional room and bandwidth for supply to get in. That’s not going to keep up with the pace of products and sellers that are listening to products on Amazon. And so you’re going to see FBA fees not only increase in order to offset the cost for Amazon, but you’re going to see those increased in such a way as to actually try to temper the amount of product volume that’s taken up in those fulfillment centers. And that’s one of the reasons why you see the storage fees increase in the fourth quarter. Amazon’s trying to place a disincentive for people to overstock inventory and their FBA fulfillment centers. So keep track of how the FBA fees are increasing and understand that those are going to increase over time. That’s going to be part of what’s leading to your profit erosion as well. As far as advertising costs, those are also going to continue to increase over time and that is another thing to be aware of. And one of the best places to look at that not only in the actual advertising section of sellers, central If you’re using the advertising console, is to actually pull up your payment reports as well. And to look at the total amount spent on advertising over time as well. Advertising paid per click advertising is going to continue to increase because we have a lot of bigger brands finally realizing that Amazon is the third largest advertising platform out there. And it’s going to continue to grow the ability for brands and, and large sellers to be able to use it to utilize Amazon advertising effectively. It’s just as powerful as just a powerful phone for them as Google and Facebook and some of their other advanced platforms because of the one PII data that they can leverage with things like the DSP platform, and so they’re putting a lot of institutional money into Amazon, for advertising. And so we’ve seen the process to hundreds of clients that we work with kotlin CPCs are going up pretty high. mean, you’re seeing increases instead of the typical 10% year over year type of increases that you see, in most platforms, you’re seeing 50% 60% increases in CPCs. So that’s an area to pay attention to. It’s also an area which you can potentially mitigate, if you have, if you’re working with good software and solution providers, and if you’re keyword mining, and if you’re using the appropriate kind of keyword isolation techniques and finding new keywords. So like, part of the issue here with some of these drivers of cost is that as you see more people get into the Amazon space and the costs go up, there’s areas of mitigation. And one of those areas with advertising is that if you can continually mind the keywords, you’re going to find additional ones as new eyeballs Come on Amazon, they’re gonna be searching for new things, which can then actually alleviate some of that cost burden for you. The other thing is that non Amazon traffic is going to continue to increase in cost as well. What we mean by that is, if you’re driving traffic to Amazon, from Google, from Facebook, from Instagram from other channels, you’ll tend to see that increase over time as well. I’m gonna let Actually, I’ve been speaking a lot on this particular slide here. I want Greg to jump in and just talk a little bit about some of these other costs as well.

Greg Mercer  14:17  

Yeah, I just wanted to first add that I can’t emphasize the importance of really optimizing all of your sponsored products spent on Amazon. As the platform matures, just like all the big platforms do, it becomes a bigger and bigger driver of how you get traffic from that particular platform. And I guess we’d like all the sellers that we’ve worked with and everyone’s accounts I’ve worked with, it’s always kind of shocking to me how many are like severely under optimized so that’s usually a huge cost center and it’s also a huge opportunity for you to be saving money on something else to do that. He said that really resonated with me and was making sure that you’re in the correct category if there are different conditions. I actually personally a few years ago was selling this product, that it was a way to put a watch tablet in the shower. And it actually got categorized in the Kindle accessory sub category, which the commission in that one’s like 40%, as opposed to, you know, 15% and a lot of other ones. And I actually didn’t recognize that for quite a long period of time. So that’s, I think, really important.

James Thomson  15:38  

Greg, can I ask a clarifying question, we got a question from the audience asking how do you go and research what commissions you should be selling? When you look at the categories you’re supposed to be classified and you look at what Amazon is actually charging you can you give some concepts and some direction on like, where would you go to figure out that You might be Miss charged.

Greg Mercer  16:02  

Yeah, if, if you just do a Google search for, like Amazon commission structure, one of the couple top results, there should be the different commission rates that they have for different categories. So what you’ll find there is the vast majority are all all shared the same 15%, if I remember correctly, but then there are other ones that don’t fall within that. Um, I think more specifically, like media and some of the jewelry stuff, collectibles, some of the items like that. And then as far as finding out what category you’re in, the easiest way is probably just to go straight to your listing, scroll down into the product details section and find what category you’re listed in right there. Thank you. Yeah. And just another clarifying point here. Like when we think about high level, what are the fees that Amazon charges us? If you’re using FBA, which the majority of you probably are, there’s essentially like a pick pack and ship for us, right? So this is what it costs for them to go grab your item, put them in a pot, put it in a box and send it out. That doesn’t matter what category you’re in. That would depend on the size and weight of your items. And then there’s the commission like we’re talking about right now. That is, it is dependent, it depends on what category you’re in. And then there are of course, some of the other fees and we have some that are listed out. also kind of in this webinar, but those are things like your monthly fees and your storage fees and some more items like that.

Joe Hansen  17:40  

Yep. And going along with that we have returns fees, and this is I think one of the areas that a number of brands or sellers overlook as well is understanding not only the fees that Amazon may charge you for returned product and restocking fee but the incidents or product that can’t be restocked Sold right? product that is now attributable to your inventory. It’s you have lost inventory at Amazon but for returns you have a product which now is non recoverable is the term that we use. It’s either damaged or it’s used and it can’t be resold. And so that’s an additional cost in selling on Amazon. And it definitely varies by category. You know, in some categories like apparel, you’re seeing incredibly high return rates, and almost all of that is going to be non recoverable versus other categories, like sports and outdoors, you’re typically seeing a much higher recovery rate per product. And then you have some of these other factors that we’re talking about when it comes to cost are really kind of general business costs, right? The costs of your manufacturing the overhead and overhead costs are very much to do with everything from the employees. That you have within your company, the sources of financing that you have, and that you may be paying to produce your product or leverage marketing and other things like that. And then all of the other kinds of operational components behind the scenes with your business. And then there are costs for getting a product from your manufacturer to you, prepping that product, and then shipping that product to Amazon, right. So there’s the shipping costs to Amazon as well. So when you factor in all of those things, then we have kind of a clearer picture of the drivers of all of your costs on Amazon. And the thing that’s difficult for a lot of individuals to do is actually disaggregate this data and get down to okay let’s take a portion of this and apply it to each of my products. And then look at the FBA fee associated with each of my products. And, and the return rate of each of those products, and then you start to get it once you’re able to do that then you get a clear picture of whether you’re profitable. As James mentioned earlier, we find that lots of people selling on Amazon have a strong portion of their catalog that could be anywhere from five to 15% of their catalog, which is breakeven or they’re selling at a loss.

Greg Mercer  20:16  

Right, let’s talk about where we can find some of this cost information. So one of the questions earlier was regarding what you’re being charged for your sales commission. As you can see, kind of in the table here we’ve listed out where you can find these different items. Those will all be inside are all the ones are almost all from here except your non Amazon traffic costs can be found in Seller Central, as most people know who are familiar with Seller Central, some of this can be a little bit difficult to locate in there. Or when you do locate it, it’s difficult to kind of price it out on a per item basis. So of course, our other third party tools and we have some more lists a little bit later that can help with Things like that. But it’s important that you understand, regardless of where you get it at that you just understand this different information. And there’s a clear way for you to see it from both like a high level and see where those biggest cost centers are. And then I think what’s more uncommon for people yet, just as or more important, is on a SKU by SKU basis. And then on the next slide, we have a few more of just where the different data metrics would be located. And Jordy spoke a little bit about this, but just make sure that you’re thinking about all these different costs because you know, you don’t want to just look at the ones that Amazon’s charging you. It’s like these other overhead type costs are going to need to be factored in there as well.

[continue to page 2]