Being a successful vendor is not without its challenges. The leap from the seller to the vendor can be extremely stressful, and often businesses lose sight of keeping the entire business profitable, blinded by the amazing opportunities that being a vendor opens up to them.
Once you’re a vendor, you suddenly find your products are not only competing with other sellers on Amazon, but you are also likely battling other third-party retailers selling your products elsewhere online too at a cheaper price, leading to increased competition and the risk of chargebacks levied against you for unsold stock.
That being said, there are ways to help better increase and ensure continued profitability as a vendor on Amazon, we’ve outlined five of them below to get you started, but recommend reading more or contacting an agency to help if you’re still struggling.
1. Consider your retail partners and the incentives offered
As a vendor, you may have other retail “partners” other than Amazon with who you sell your product. It is common practice to offer incentives to these retail partners in order to achieve a bulk purchase from these distributors. These incentives are usually successful in achieving their end goal, however, if you are also supplying products to Amazon, these offers may have a negative knock-on effect.
Amazon prices the product they sell by comparing items to the current market price and the saturation of that product. If too many similar items are available on the web that it is diluting sales, Amazon will lower the price point in order to try and attract the majority of these sales. They also try and offer the lowest price to their consumers, so will price items to be less than or match the current lowest priced version of a product available online.
The latter is where the offers given to distributors cause an issue. If a retail partner is given a deal for a bulk purchase, their margins will be higher per item, this allows them to price competitively to try and attract a volume of sales. This price is then used as a benchmark for Amazon’s pricing. Meaning you could unintentionally be undercutting yourself.
In order to improve profitability, restrict or carefully control the price at which other retailers can get your product.
2. Remove listings that are not profitable
It may seem obvious that in order to improve profitability you should remove products that are not profitable but you may be tempted to leave those listings to appease Amazon, who prefers to offer your whole catalog.
However, the unprofitable listings not only fail to bring in money, but they could also end up costing you money as well. Amazon, when buying in bulk from a vendor, expects to make a certain return. If the products fail to make this return on their investment it is likely that Amazon will demand you make up the difference out of your own pocket.
Not only this, but under-performing products can also draw focus, and advertising budget, away from the more profitable lines, meaning you are likely diluting the traffic and ending up with fewer overall conversions as a result.
Amazon will not tell you if a product is heading towards unprofitability so it is your job as a vendor to monitor sales and performance of listings, removing those heading towards being unprofitable before it happens.
3. Focus on your high-margin lines
A mistake many vendors make is pushing their fast-selling, low-margin products in order to bring in a high volume of sales. Of course, this looks great from the outside, particularly to Amazon which uses the volume of sales as a ranking factor, however, from the inside, these items will not be bringing in a lot of profit.
In order to improve profitability, vendors should instead push their high-margin items. It is likely that those fast-selling, low-margin lines will continue to sell (especially as the rankings improve) but vendors should invest in actively advertising their higher-margin listings.
Run discounts on these products during high-traffic events such as Black Friday and Prime Day. Although you will be squeezing your margins through advertising spending, the products should experience the halo effect. Which is sustained sales post promotion, which then leads to improved rankings due to the influx of conversions and reviews, which then leads to increased visibility and long-term higher sales as a result.
In addition, optimizing better your listings and reviewing them on a regular basis is also recommended. For instance, a small increase in sales due to an improved title, or added hidden keyword might result in a large increase in sales and the ability then to make savings that you can pass back onto the buyer, feeding the cycle and increasing volume even more.
4. Renegotiate your Amazon Terms
Lots of vendors are led to believe that with Amazon, it’s “their way or the highway”. This couldn’t be further from the truth, and while trying to negotiate better terms with Amazon might seem daunting, it’s important to remember that Amazon’s Vendor Reps are there to improve things for the end customer, so if you can present an argument for cutting costs, where ultimately the saving is passed onto the end consumer, then they will be all ears.
In addition, it’s not unknown for your vendor rep to help you set up your paid advertising, or offer ideas for promotions. Quite often, this comes with some free or discounted spend on Amazon’s cost-per-click platforms and vast display network, which might incentivize you to continue advertising after this initial introductory period.
5. Consult a Specialist
If you are a vendor that is struggling with profitability, you can also enlist the help of a specialist Amazon consultancy to help develop a business strategy with profitability at the forefront – in everything from internal operations and logistics, product management and optimization, through to negotiating terms with Amazon and setting up promotions. Click here for one such agency.