As a vendor on Amazon you may find controlling profitability to be a challenge, particularly as Amazon sets the price for your products. They may say they honour a minimum advertised price (MAP) but their entire business is hinged on being consumer focused, meaning that if a customer is expecting to see a lower price, they will edit the pricing.
There are however ways in which vendors can improve their profitability, away from just hoping the MAP is honoured.
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1. Regularly review and remove unprofitable listings
When selling your products to Amazon it is likely that they want your whole catalogue, but not everything is going to be a bestseller. One way vendors can control profitability is to ensure only profitable listings are live and to remove those heading towards unprofitability.
Amazon will not tell vendors when a listing is unprofitable, instead they are likely to pass on charges to the vendor, to make up the difference for poor sales. Therefore it is important that vendors regularly review the performance of their listings and remove those that are underperforming before they become an issue.
2. Focus on high-margin over fast selling
Fast selling or high volume of sales may seem like the dream for any retailer, but if these products are from low margin lines then a high volume of sales isn’t going to make a huge difference to your bottom line, particularly when you consider advertising spend too.
Instead, vendors can move their profit needle more significantly by focusing their efforts on their higher margin lines. A great way to give these products an initial boost is to discount them during a high traffic sales event, such as Black Friday or Prime Day. This will see an influx of sales which will bring an increased number of reviews too. Both of these things are ranking factors on Amazon, which means your high-margin products should experience a sustained increase in sales post promotion thanks to ranking improvements.
3. Introduce bigger packs and/or bundles
Another way a vendor can improve their profits is to take existing smaller pack products and offer bigger ‘value’ packs and bundles.
For example, if your product is something like detergent pods, offering a larger individual pack size or a bundle of your regular packs will not only drive up your customer’s average order value, as consumers will consider spending more than originally planned in order to save in the long run, but it also offers the end customer a competitive price and therefore an incentive to shop online rather than in store.
This tactic aims to increase your profitability by increasing your average selling price while lowering your variable costs, such as shipping and packaging.
4. Control and restrict retailer discounts
In order to persuade retailers to increase the size of their bulk order, many vendors will offer incentives, such as a discounted individual item price when a certain volume is reached.
Although effective in securing the distributor, these incentives can actually have a negative knock on effect which decreases your profits. A vendor will offer a good incentive to a retailer in order to get them to make a large order, due to the saving per item the retailer can then lower their asking price for the items in order to compete with other retailers.
Amazon prices items based on availability in the market and the going price, meaning they could lower the price they charge for your products to pass a saving onto the consumer. This then lowers the price Amazon pays you for your products.
In order to increase profitability it is vital that vendors control and restrict these incentives, perhaps looking into different methods of incentivising retailers, such as via a volume rebate for example.
5. Hire a specialist agency
One of the most effective ways to improve your profitability as a vendor however is to work with experts to develop a business strategy with profit as the central focus. There are specialist Amazon consultancy agencies, like Arthia, that know everything there is to know about being a seller or Vendor on Amazon, including best practices and their policies.