[Webinar] How to reverse declining margins in your brand’s business on Amazon
June 30, 2020
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
- Buy Box Experts
- The Prosper Show
- Joe Hansen on LinkedIn
- Greg Mercer on LinkedIn
- James Thomson on LinkedIn
- Jungle Scout
- Jungle Scout Cobalt
- Get Your Cobalt Demo – [email protected]
- “The 12 Reasons Your Amazon Listing Has a Missing Buy Box—and How to Get It Back” by Joe Hansen
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.
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.
James Thomson 21:49
And I want to tackle a couple questions that we had come in and look at the issue of you know, there are sellers for example, you know, some Chinese sellers or sellers elsewhere, that Maybe selling below book cost. If you look at that, that issue, but you also consider the fact that when you start selling on Amazon, you may need to invest and actually be underwater in order to drive some initial traffic to your listings. How do you think about all this cost in conjunction with actually making money in the short term, or the long run on Amazon?
Greg Mercer 22:24
Yet, overall, on the way that I guess the way that I personally think about it is I have targets for when I expect to either raise the price or decrease the costs or when I start to be able to break even just in business and entrepreneurship in general, it’s common for like brand new businesses or brand new products to have to burn some cash for a little while, before they can kind of ramp up and get profitable, but I think like the thing that you need to be thinking about is is This associated with shorter term or one time costs, for example, like new photography, and I don’t know, maybe some packaging design, or you’re running a promotion at the beginning to help you get some initial sales. Those are all things that I’m okay with. If those are factored in that I’m losing money, but long term, you know, like your ongoing sponsor products costs and these other long term costs. You know, you should be making money when you factor all that in on more of a long term basis. What do you think about it, Joe?
Joe Hansen 23:35
I definitely agree with what you said, meaning, if you aren’t making money, marginalize all those kinds of long term costs associated with running a business on Amazon that I think it’s a losing proposition for that product line, like the launching. I think the one thing that I would add to that, and I think it runs in parallel with it is that you should be looking at the product mix within the subcategory That you’re selling and understanding, like the price points of the popular products within that subcategory. And are you and are you competing with with a similar value product at a much higher price, then you’re probably like you, there’s a phrase you’re kicking against the pricks here, like it’s gonna be very difficult, I think for you to even burning a lot of cash and get to a place where you’re substantively organically competitive with them unable to be profitable. But if your product has some sort of unique value proposition to it, right, there’s a difference in why a consumer would buy it versus a competitor’s product that I think it can be, you know, substantively much higher priced, and still compete very well for those other products. But it just needs to not be commoditized with all the other products in that category if you’re going to be pricing higher, and as long as you have that sort of material. difference in your product, then I think you can definitely afford to have the business case to burn some cash be less profitable or not profitable in order to get to a level where you have enough sales and recurring volume of sales that you’re going to be profitable. Okay, so this next one here really quickly, I think what we wanted to talk about is just understanding the Amazon flywheel. You know, this, this Amazon flywheel or Amazon calls it internally, the virtuous cycle is really built on this idea of opening up the marketplace to sellers letting anyone sell product on the channel, and not just a brand but you know, anyone who’s obtained that product, authorized or unauthorized, and the brilliance of that idea is what led to a bigger catalog of product on Amazon and people competing on price and competing on delivering that product in a Quick timeframe or are wanting to use FBA so that it can be delivered with high quality and decrease time to customers. And that meant to increase satisfaction of customers that made more people want to come to Amazon and that made more sellers want to sell on Amazon that’s this big virtuous cycle that Amazon ads that they call the Amazon flywheel. But the natural consequence of opening up the marketplace to anyone is that you’re gonna have a lot of people selling for someone like us who you know or, or other brands selling on Amazon is that you have a lot of people who are unauthorized. Get people obtaining product on the gray market, you know, you’re selling your product to distributors, you’re selling it to retailers and then you find that your product is being sold on Amazon and they’re selling it at a price lower than the price you can sell it on Amazon and now you’re in a buy box for or if you are a reseller on Amazon, you’re purchasing product and you’re competing against the brand or you’re competing against other resellers on Amazon. And these buy box wars, they lead to price wars. And in that price competition is a strong contributor to price erosion and decreasing profit margins. And one of the best ways that a brand in particular can really gain control over this is to start to actually create tight distribution policies and understand who they’re selling their product to, and create intellectual property rights that give them the teeth to enforce their, their distribution policies. For those that are that are reselling product, one of the best things that you can do is become is really put on just call it your A game become very, very good at creating great product listings, become very good at advertising and managing your Amazon business. And then go out and try to get an exclusive agreement with the people that you buy product from. If you Get an exclusive arrangement with the brands that you’re buying product from. And then work with them to start to control the channel, then you’re going to be able to start to sell product at a higher price. And you’re going to be able to reap a lot more profit margin and re-invest more in advertising, and reinvest more in actually buying products as well.
James Thomson 28:21
Joe we had a question come in from someone who said that they were sourcing products from a distributor that has also started now to sell the products directly on Amazon. And so now the distributor and the retailer are competing against each other on Amazon on the same listings. What do you do?
Joe Hansen 28:38
That is almost like a loaded question there. Right? What do you do because you’re obtaining product from a person that’s competing against you. It’s not even the brand right? The distributor. One of the things that you can do, depending upon the product assortment is you can bundle the product if it makes sense. You can create a bundle of products and don’t go Crazy here like, we need to be realistic, let’s not create a bundle of 3456789 and create a bundle that really provides the customer value. And then you have an alternate easson at which you’re actually selling the product on. And I think that’s a reasonable thing to do. And it’s a totally white hat within Amazon’s TLS. That’s one of the kind of, you know, nifty little things that you can do from a fundamental level. I think one of the best things that you can do is obtain distribution directly from the brand that gives you better margin. And then over time, you start to prove yourself perhaps you can get into some sort of exclusive agreement as well. Okay.
Greg Mercer 29:46
When we’re thinking from kind of a high level of what’s causing these decrease pricing, you know, Joe spoke a little bit about kind of like on the particular listing and how that you know, on that Particular SKU basis how different people are competing for the buy box and competing for the kind of the lower price right there. But if we then zoom out one level, we can think a little bit about the overall competition like the overall market or niche itself. Jungle Scout at the beginning of this year released a new product called Cobalt for large brands that are some of the largest three piece sellers on Amazon. And it does a lot of competitor monitoring. And what was really interesting through this is to see the different trends over the past couple of years like for example, are the overall market trends going up for your category? Are they overall going down? How’s the price trending over time? And through this you can start to better understand like I guess, where the pricing pressures coming from, as you can imagine, most kinds of markets or niches on Amazon mazon are getting more and more competitive. So it seems like the price is trending down. But then there are plenty that are kind of trending upwards. You know, I think if you find yourself in one of these markets, it’s kind of like overall trending down and pricing pressure being put on, I think you need to be thinking a lot about how you can differentiate yourself. So I know there’s a lot of different types of things like selling models that are represented on the webinar right now. I’ve worked from brands to distributors, resellers, but if you Yeah, I think it’s appropriate for all these different people to be thinking about how they can differentiate their particular offer from the other competitive listings.
Joe Hansen 31:51
So let’s talk a little bit about advertising and I when we talk about advertising and in it I’m really glad that Greg brought this up earlier. You know, he mentioned, one of the main things that you see when you get into someone’s account is that they just haven’t optimized their paid advertising appropriately. And part of the issue with optimization is actually optimizing in tandem with your inventory. So it’s not just optimization of the ads itself as far as making them more efficient, and creating a better return on ad spend. But it’s also optimizing on a calendar basis. And so you’re understanding like, and putting forth more ad spend for products where you’re trying to accelerate clicks and sales volume, because you have additional inventory for that product. And you also have, or you’re moving into promotional time periods, holidays, other other seasons, as well. But if you’re going to stock out also under Standing where you need to turn off certain advertising as well, we have a number of advertising products on Amazon that will automatically turn off. But then when, but we have a number of advertising units, if you’re more sophisticated that won’t automatically turn off, you need to be able to pause that sort of advertising when you’re stocked out or when you know that you’re going to be stocked out. And that is also one of the understandings that we want you to come away with here is to know that it’s not just about like letting Amazon turn off the advertising. When you get stocked out. It’s understanding the volume of sales and when you’re going to be stopped out and pausing before you get stopped out. Because then if your product if you know you’re going to sell your product, for instance, if you know you’re going to sell out of your product within a month should probably be pausing your advertising now or you probably should have paused six weeks ago. extend the life of that product, maybe an additional four weeks for six weeks until you can get it back in stock and you’re selling that product at a higher profit margin because now you’re not spending on advertising for it. That’s one strategy that you can use to increase your profit margin. And it’s simply by decreasing the cost of advertising in accordance with the inventory amounts that you have. Anything you want to add to that quick
Greg Mercer 34:18
No, I think they summarized it well. Okay,
Joe Hansen 34:21
Great. Let’s, here we go.
Greg Mercer 34:26
Yeah, so, you know, overall, this presentation, we wanted to think about the highest value things that you can be doing to decrease the cost. So some of the others like big contributors of increased costs, especially this year, or for a good portion of last year, are tariffs. And tariffs are I think first people’s initial reaction is like, okay, you know, this is I just have to pay this and you know, this sucks. That was kind of my first reaction to someone telling me this, a little bit of a new way to think about a new way to look at it. That is, it’s pretty tactical, but I want to share it with you because I know it saved me a lot of money when importing goods. So I import a lot of stuff I sell from China. And I, you know, historically just always did it FOB, free on board or freight on board, where the factors responsible to essentially get it to the port, and then it was up to me to get it from the port into Amazon, including any of the duties or tariffs during that time period. After the tariffs were implemented, I started asking for delivery duty. And what that means is the factory is responsible essentially to get it all the way to Amazon. And the reason that this is I think it’s more common for it to save money is because when the factories are declaring the value, they’re thinking about it, I think a lot of the time as the value of the goods are kind of like what It costs them. Whereas, you know, if you’re filling them out correctly, and you’re filling out the declared value, you’d be like the value that you paid for it. So I want to acknowledge this is definitely a little bit of a gray area. And of course, I’m not an attorney as far as this stuff goes. But from what I can tell, it’s kind of like the factory taking out all of the risk associated with this. And I can see where they’re coming from as well. So the result of all of this was I was getting them to Amazon’s warehouse for cheaper using DDP. And I think the reason is a big piece of the tariffs that I just spoke about right there. The other thing I just want to add to that is, over the years I’ve been kind of like a little bit amazed how much freight prices can vary. Again, if you’re, you know, like doing fob shipping from say, China. It feels like one of those things where, like, I’ll sign an agreement with a new company. Over the course like the next year I think there’s kind of slowly increasing, increasing increasing, because then when I shop it around again, all of a sudden I get kind of like these much better rates are much better deals with other companies. So that usually is one of the line items that is quite high that businesses are spending a lot of money on if you are importing your goods. Saad encourages you to do that.
James Thomson 37:25
We just acknowledge we just got a note from one of the attendees who indicated that doing this alternative form of tariff thing is considered a form of under invoicing which may actually be illegal. So I just want to make sure that anybody who decides to use this process is verifying with their attorney to make sure that they’ve set up things properly, so that there isn’t an issue with illegal activity with importing products.
Greg Mercer 37:50
And just add to that, just to be super clear, on sent, I guess I’m definitely not recommending and I would never write down something like the wrong value of what I paid for goods if I was paying for them. So I think a lot of times people kind of like to get that mixed up. I understand that kind of figuring out declared value. It seems like there is a little bit more of a gray area there. But yeah, I agree that you should definitely look into it or use it at your own discretion. When we’re looking at overall profitability of our businesses here, like we’ve spoken a lot about what you know how to reverse declining margins or where declining margins are happening. And one of the things that I’m usually most shocked by is the lack of insight or transparency that people have into where they’re spending money, what their costs are for on a per unit basis, how their prices vary over time, how much they’re spending on sponsored products for these different items. So I will encourage everyone or like, it feels like one of the first spots or the first spot that you should get an order from, if you don’t already. It is just a good financial system for keeping track of all your costs and profitability. So there are a few different software tools that are listed out here. One Fetcher is owned by Jungle Scout for full transparency there, but there’s, of course, some other ones listed out there. All of them are going to help you gain more insight into what you’re spending money on, as well as have a way to kind of log what the costs are associated with it. But also, if you have a kind of an SRP that you’re managing your business off of, or you have a different system. At the end of the day, it doesn’t really matter. It’s just important to have good visibility into Yeah, all the items that I kind of just listed out.
Joe Hansen 39:51
And one thing I’ll just throw in here, it’s a little bit of a tangent, but I had mentioned earlier earlier about planning for promotional discount periods and things like that. That is one of the areas that you should keep track of. Just like you can keep track of the amount that you’re devoting to advertising as a cost line item as well, you should be keeping track of the discount amount that Amazon is applying for the different promotional tools that you use, whether that’s coupons or discounts on your products, or whether you’re doing Lightning Deals, best deals or deals of the day as well.
James Thomson 40:28
So as we think about, you know, the all of this different material that’s coming together here in this discussion, I’d like to, you know, summarize this into if you’re seeing this material for the first time, what would you be doing, to go looking for problems in your products so that you can update some of your financial information. To do that. You need to be able to take all your costs and break them apart, to be able to allocate costs. This is a challenge for someone who’s never had to do this before. How do you say you have nothing but Excel? How do you actually start this process of allocating costs? breaking things down into unit economics? Where would you start with this? Greg, where would you start with this, Joe?
Greg Mercer 41:15
I mean, honestly, I think the first steps kind of what I just spoke about as far as like the system that you’re using to do it.
James Thomson 41:22
I don’t let’s, let’s say unless you’re a seller, I don’t even have a system. I literally have no software other than Jungle Scout and Excel. How do I do this? I don’t want to invest in big expensive software. I have five products. I want to be able to figure out, you know, how, what are my all in costs? How do I make sense of all these costs that are coming my way? Again, I’m trying to keep this all as possible. Greg, really
Greg Mercer 41:49
excels a great way to get started with it. What I would do is I would look at this deck after we’re done. Make sure you’re accounting for all these different costs that we are Talking about. And then when you’re, I guess one of the most important things here like if you’re a small seller, one of the things I see kind of like go wrong, is not allocating the cost associated or like the, like, for example, freight costs, not allocating that freight cost for those 500 different units that you purchased. So I guess that was, that’d be one of the things I would want to kind of warn you of or make sure that you’re careful with, what do you have to add to that Joe?
Joe Hansen 42:29
I mean, I’ve seen basically the same thing, which is that if I were starting here at Ground Zero, I’d open up an Excel sheet, I would, I would start with kind of like a Payment Summary Report. And I look at my general costs for like, let’s say the last month based upon sales, then I would also download a sales report looking at the actual unit sales of each of those products and then I would then break down my cost on each of those items. But I know what it is, depending upon what that cost was purchased from the manufacturer. I bring in my free costs and divide that out over the entire total units. I bring in like, what are my overhead costs? Do I have a loan that that’s paying for this and am I paying interest on that to find that out over the total units, or whatever portion I should be dividing that out over and then each unit then you now have a particular amount for each of those, you know, items, like shipping or finance or some overhead costs that you would then add into each unit, along with the commission that Amazon is charging, and then I would also divide out and then I, I mean, the easy way to do this is to kind of divide your advertising in general across all of your units. The more accurate way to do this is to download an advertising report and look at how much you spent on each particular unit. You know that particular ski race and then attribute that to each one And now you have a pretty clear picture as to Okay, it looks like I’m actually, you know, in the red on these 10 SKUs over here. And these are the ones that are actually generating profit for me.
James Thomson 44:14
One of the things that I saw when I left Amazon many years ago is that sellers were not fully incorporating their product launch costs, their costs of going to China, their cost of going to meet with a new provider, their costs of actually sitting down and doing test buys and all that kind of stuff. Those costs definitely add up, especially if you’re a small catalog. And what do you think about, you know, I had to go to China to meet with my provider, I had to, you know, get this half palette of product and discover I had to throw it out because it wasn’t high quality enough for me. How do I keep track of that? How do I allocate it? How do I figure out how to break out those costs in terms of whether it’s a short term cost or whether I can allocate it over time across all of these? The cost that I might have to or all the units that I might sell this product for, that I’m not an accountant. But these are things that we have to figure out as we allocate costs. And that might be a very peanut butter approach. But it strikes me that it’s more important to at least acknowledge these costs are real and have to be applied somewhere, then get the actual art of how it gets allocated as perfectly as an accountant might get. thoughts, Joe?
Joe Hansen 45:26
Yeah, I mean, my thought is, I think it’s best to attribute that cost more in general than anything else. And to look at things like your product launch expense or marketing expense, kind of r&d, expenses and see how that’s trending over time more than anything else. And I would almost like to remove that categorically from my regular cost of business because there really is kind of a cost to launching a new product and everything that goes into that. Unless, unless, like you plan on always launching a product every single month or every three months, right, you have a very repeatable regular pattern of it, then you should probably build it into just your regular cost. That’s part of your cost of doing business. But if it’s not a very regular thing for you launching new products, then I would build it out into kind of its own r&d costs. Okay,
Greg Mercer 46:26
one other way that you can kind of think about this if I guess like if you’re watching this right now and it feels a little bit overwhelming, maybe you know, the math and financial stuff isn’t your strong suit. Another way you can do it that I do see a number of sellers do is think about all your sales on a per unit basis. So that’s including the sales price minus the Commission’s minus your sponsor, products span and like the fees that Amazon charges like all those ones that would take place on Amazon. It’s really easy to get those out. have kind of like a software that can combine those for you. And then set a margin level that is wide enough to also account for all of these more kind of like one time costs or like launch costs or like some of the examples I gave about going to China or different things like that. That is another way that you can look at it. Or it might be easier to like to keep a close eye on it week by week if you’re thinking about it a little bit that way. Because otherwise, it’s kind of like man, how, you know, how long do I allocate this trip to China for like, how does that get split out to my expenses over time?
James Thomson 47:37
We had a couple questions come in Greg, specifically asking around which parts of this cost data might Jungle Scout be able to help provide? So you’ve got different data fields in your standard Jungle Scout offering. Talk to us about what fields of information sellers would benefit from using and I realized in your tool there are extra options you can turn on from the standard display to tell us a little bit about which fields you like to use, if you’re calculating some of these Amazon specific fees.
Greg Mercer 48:11
Yeah, so inside of Jungle Scout the, you can sync it up with both your seller central account, as well as your advertising account. It collects all the data from Amazon through those. So that’s everything from you know, the unit sales to the Commission’s to the storage fees, all your sponsored product costs, all those different types of fees. And then it’s going to kind of correctly combine all of those for both a per unit cost basis, as well as allocate the other costs that aren’t associated with a particular product. So to answer your question, it’s any fee or like anything that Amazon charges you or any revenue that you’re getting from Amazon, it’s going to be accounting for those.
James Thomson 49:07
That’s great. Thank you. We have some other questions that have come in on lots of different topics that have been covered today during our discussion. I’m going to start with one that came in early on and this is for you, Greg. Seller had asked if I would start selling a new product on Amazon, how is it that I don’t get the buy box right away, and the only one selling it, it’s my product and still there’s no buy box that’s actively in place, what’s going on there.
Greg Mercer 49:38
There could be a few different things going on. Some of the ones that are the most common are with a sorry if you sign up for a brand new Seller Central account. It’s much more common to have your or like to not control the buy box or for Amazon to not give you as many rotations Through the buy box, because like you kind of haven’t proven yourself yet. And that can be a frustrating thing. One of the other things that is most common why Amazon’s not displaying a price in the buy box is they believe that the price for your product is too high, that it’s not like a fair price for that type of good. And the result of that is they don’t show any price in the buy box. And if I click through to look at the number of sellers, or if I click through to see the sellers and purchase directly from a seller
Joe Hansen 50:33
and I’ll add to that charge. Oh,
James Thomson 50:35
Joe Hansen 50:36
Yep, I think I’ll add to that is that often when you’ve created a new product and it doesn’t have any sales traction, Amazon may require you to actually submit a ticket to seller support, asking them to activate the buy box, which is kind of a weird thing to to consider but they’re oftentimes when a new ation is created that is not eligible for the buy box. Until someone in essence flips a switch on the other.
James Thomson 51:05
We had another question come in specifically, again about Jungle Scout. Is there a feature in Jungle Scout that we don’t know about the triggers of notification? If one of a seller’s products goes offline? Like it goes out of stock, or it’s taken down by Amazon? Did you have anything like that? At this point, Greg?
Greg Mercer 51:23
Uh huh. So, uh, just to clarify, a lot of people are kind of like no Jungle Scout or familiar Jungle Scout from our Chrome extension. So you know, that will end is one when you’re on Amazon’s page, you hit the little button and the Chrome extension pops up and shows you sales data on there. If you go to the Jungle Scout website, there’s also a web application or software application that runs in the cloud on there as well. In that tool, that’s where this different profit analytics stuff would be that I’m talking about. But inside of that tool, there’s also alerting functionality. So you can set up a whole bunch of different types of alerts. So it’s, maybe the price went below this amount or the listing suppressed or There’s a new seller on the buy box or there’s like dozens of different types of alerts you can set up there. And it will send you a message as soon as one of those is triggered.
James Thomson 52:10
Yeah, that’s a great point. So many of us are familiar only with the extension, and there’s so much more information that you could pull out of your desktop solution. So thanks for pointing that out. You had talked about earlier on one of the slides, one of your new offerings, which is a much larger offering, are there pieces of functionality there that might be logical for a well established Amazon private label seller to also consider investing in?
Greg Mercer 52:39
Yeah, there is, um, how we thought about it when we’re developing Jungle Scout Cobalt is that art. Let me start by saying our kind of offerings that we’re most well known for, are very much suited for third party sellers. And most of those are small businesses or entrepreneurs and it was kind of like built in design. With that in mind, what we found is there are a lot of big brands, like some of the world’s largest brands or these large third party sellers, using our tool that have like a little bit of a different level of kind of like sophistication and are looking for a different level of granularity or robustness. And that’s how the Jungle Scout Cobalt product was designed. So yeah, if you’re watching this right now, and you’re quite a large amazon seller with large brands, you know, you can shoot us an email, we have it on the last slide here, but it’s [email protected]. We’d be happy to give you a demo.
James Thomson 53:34
That’s great. One other Jungle Scout question that came in, if I’m looking at all of my fees, do I sync Amazon information with Jungle Scout research? Or how do I pull my information versus the information that Jungle Scout might have on its desktop? solution?
Greg Mercer 53:53
Yeah, so when you sign up for not the Chrome extension, but kind of the Jungle Scout web application. When you go into it, it will ask you to sync up your seller central account through an API that connects to Amazon. So Jungle Scout is going to communicate with Amazon to your account. And it’s going to download all that data and have it stored in there and kind of like reorganize it and show it in a way that’s a little bit easier to digest and understand.
James Thomson 54:26
Thank you, Greg. We had a question come in, that ties back to Amazon’s recent policy around this 200 unit maximum that you can put into FBA for sellers that are trying to figure out margins and manage margins during q4. This inventory cap certainly put certain constraints in place. While it’s not directly a margin issue. I’d love your thoughts around. How do you manage a 200 unit capacity and FBA when you expect to sell many more than that during a successful q4.
Greg Mercer 55:01
Joe, do you wanna take this one?
Joe Hansen 55:03
Well, I think there’s, there’s a number of things you can do here. One is that you should definitely be prepared to fulfill yourself through fbm or mfn, however you want to call it. And that should be either fulfilling your own warehouse or you should be leveraging a number of different third party logistics, three, three PL companies that are out there. There’s a number that I think can really handle that very well and they’ve come much better equipped in working with particular three p Amazon sellers. That’s number one. Number two, I would leverage additional shipping providers to get products into Amazon. When you use the Amazon partner carrier, you’re typically experiencing much higher delays and you may be running into a backlog of shipments where there’s multiple truckloads waiting To get into Amazon, when you actually have chickens scheduled to get into Amazon through a third party provider that is not a partner carrier with Amazon, then you actually get to the front of the line. At least that’s what we’ve found. Yes. And so that is one of the ways that you can replenish inventory much quicker. Yeah, you sold out, I need to replenish now you need to replenish. That’s one of the areas that you can do that.
James Thomson 56:25
Thank you, Joe. We only have a couple more minutes left. And we’ve got some very challenging questions that have come through. Let me see what I can do here. We had a question come in, specifically around Well, no, that’s a good question. What is the buy box? Can you explain how it works? I’d like to understand what I need to do to make sure that I continue to be eligible for the buy box.
Joe Hansen 56:52
Sure, I can jump into this one. The buy box really, it’s best in order to understand fundamentally what the buy box is. The very quickest thing to do is to think of eBay versus Amazon on eBay. If you’re trying to sell your iPhone, every single person has their own listing, right? There’s going to be a million people selling it, there’re a million listings. Amazon a very long time ago said No way, Jose, there’s going to be one listing just one. And all of those million sellers need to compete to sell that listing. And we’re going to determine who gets to sell that to the customer or wins the buy box, meaning someone clicks on the Add to Cart button, it’s purchased from that supplier, that seller of the product, we’re going to determine that based upon things like what the product is fulfilled by Amazon, its price, time to respond to customers, seller account metrics, a whole bunch of things. Amazon has its own algorithm of sorts, that determines who has the buy box and the buy box rotates throughout the day, depending upon those factors. We at Buy Box Experts, just a little shameless plug here. We wrote an article that talks about like the 12 Reasons why you can lose the buy box. There’s a lot. I think it’s 12. There’s a lot of different reasons why you can lose it a bunch, which are very murky and unclear. And I think we can probably just have a link to that afterward here to send out to everyone or you can go and read and understand and what are the different things that could keep me from winning the buy box.
James Thomson 58:20
We only have a moment left here. Joe, if you could put the last slide up, please. And while you’re doing that, Greg, any closing thoughts around managing your margin and keeping an eye on where you are with where you are with maintaining profitability as an Amazon seller?
Greg Mercer 58:36
Yeah, hopefully, just after washing through this presentation, you’ve got some of the new ideas or some of the costs you weren’t associating for, or you’re thinking a little bit more how your price has fluctuated and changed over time. Because it’s easy to get in deeper to the more exciting parts of the business, whatever that is for you. And kind of forget about this one which is really at the core of the health of your business.
James Thomson 59:01
Any closing thoughts from you?
Joe Hansen 59:03
Just all the details really need to pay attention to, like when we talk about advertising and attributing cost. I mean, you may think if you were to just blanketly layout all of your advertising evenly across all of your skews, then you may be thinking that a number of your SKUs are profitable when they’re not, you may be spending Dysport disproportionately on ads on SKUs that could be affecting it. I think that same principle applies in other areas of your business, when you’re able to actually apply costs in proportion to each of the skews that you have and you get a clear picture on the profitability.
James Thomson 59:41
Joe, Greg, thank you both for your time today. For everyone who’s listened I thank you for joining us today. We will be sharing a video recording of this as well as the deck itself so that you can use that as a reference tool going forward. Thank you all for staying healthy and having a good rest of your week. Take care.
Thanks for listening to the Buy Box Experts podcast, be sure to click subscribe, check us out on the web and we’ll see you next time.