Amazon sellers have had their work cut out for them for the last few years. While in 2014 they were paying an average of 19% of total sales in fees, now they’re paying an average of 34% in fees. Even though it’s getting progressively tougher to maintain acceptable profit margins, Amazon is raising their seller fees once again in 2022. Not only that, but they’re also placing limits on the amount of inventory that third-party sellers can send to FBA warehouses. All in all, this is going to be a challenging year for sellers.
Given these changes, the question becomes: how can sellers respond in order to keep optimizing their profit margins? If they want to really fine-tune their businesses, a profit calculator like Shopkeeper could make all the difference. Sellers can look at their Shopkeeper dashboard and compare margins item by item, track inventory forecasts, view Amazon orders pending, and more. A tool like this can help a seller identify low-margin products, for instance, meaning they can get rid of the items that are dragging their margins down and focus on the ones that are still making them money.
It may help to delve into Amazon’s perspective.
Just like any other story, this one has two sides. On the one hand, there are the sellers, who are now scrambling to figure out how the fee increases will impact their margins. On the other hand, there’s Amazon, a gigantic ecommerce platform that’s been consistently growing for years, and shows no sign of stopping.
From the seller’s viewpoint, they’re constantly having to adjust their strategies just to keep the same margins, let alone to improve them. Even the inventory limits could be tricky to figure out; instead of stocking a surplus of all their items and simply paying the extra storage fees, sellers will now have to track their inventory more carefully to ensure that they don’t run out of fast-moving items due to inaccurate inventory forecasts. In a nutshell, Amazon is making their jobs harder.
From Amazon’s viewpoint, though, things look a lot different. That’s mainly because, since Amazon is the one calling the shots in this situation, they’re also the one making the money. It’s easy to see how they’re increasing their profits with the fee increases; sellers are literally just handing over more of their cash to Amazon. What about the inventory limits, though? It may not be as cut-and-dried, but the ecommerce giant still made this decision with their own profits in mind.
FBAs have been in high demand from Amazon sellers for years, with just over 90% of sellers using them for storage, order fulfillment, and all the other services these fulfillment centers provide. The problem is, if Amazon let sellers store any number of items in FBAs, they would quickly run out of room for future expansion. They could either build a lot more warehouses, or make sellers cut back on the amount of inventory they stored – and you already know which option they chose.
The point is, Amazon makes decisions for their own benefit, not for their sellers’ benefit. Even if you dislike the way they do things, you still have to admit that it’s worked pretty well for them so far.
Amazon isn’t the only one who can make those kinds of decisions – sellers can too.
Anyone who runs a business, whether it’s online or not, should consider a lot of different factors when they’re making decisions. Things like building customer loyalty, prioritizing high-margin products, and how to get ahead of competitors should all play a part. What shouldn’t be on their mind, though, is whether those decisions will make everyone involved happy. Remember, this is business advice, not life advice; Jeff Bezos figured this out a long time ago, and it’s part of the reason why his company is now the biggest ecommerce platform in the world.
For example, there will probably be some disruption among sellers as they adjust to inventory limits. Say you manage to accurately forecast your inventory needs, but the competition runs out of their top sellers. Before you know it, you’re the only person who has certain items in stock, so you double the price tags – because you can. Potential buyers will probably complain about how expensive everything is getting, but guess what? A lot of them will still buy the products, and you’ll make significantly higher margins for a while because you were ready to go when the opportunity presented itself. Maybe it isn’t fair that people had to pay $80 instead of $40, but neither you nor Amazon should set prices because it’s fair; you should set prices that result in the highest margins.
The best decisions are the ones that are based on accurate data.
If you’re going to take advantage of this type of opportunity, it’s important to make data-based decisions. If you were using Shopkeeper in the scenario above, for example, you could have used their inventory forecast tool to know how much you had left, as well as how long it would take to sell the stock on hand for each item. You could also have used Shopkeeper to see precisely when your sales started going up, so you wouldn’t waste any time in raising your prices once competitors ran out of stock. And no matter what you were keeping track of, the information you were viewing would have been displayed in real time.
Even if you aren’t looking for spur-of-the-moment opportunities, Shopkeeper can still be an invaluable resource to help you optimize your profit margins. Gone are the days when you had to pull multiple seller reports and re-arrange everything in your own spreadsheets. Shopkeeper combines all 72 Amazon fees, refunds, COGS, and whatever else could impact the bottom line to give you accurate margins for each item. You might find out that your top sellers aren’t actually making that much money, or that aged inventory surcharges are eating up your profits for slow-moving items. Whatever the case, Shopkeeper could be instrumental in optimizing your Amazon business. To try Shopkeeper for yourself, sign up for their extended 30-day free trial!