2022 could be a challenging year for Amazon’s third-party sellers. Not because of any particular sales forecast, but because Amazon has raised seller fees yet again. In addition to that, there will also be inventory limits on the number of units that sellers can store in FBA warehouses for the first time ever. Between the fees cutting even more deeply into profit margins, and the inventory limits potentially resulting in disruptions to availability, sellers will certainly have to stay on their toes.
Neither of these things provide any obvious advantage to sellers, but that doesn’t mean they should just sit back and watch their margins take the blow. Instead, it’s time for them to see if they can optimize their strategies in order to get those profit margins back up. For example, they could use Shopkeeper to calculate their margins for each item side-by-side; this would make it easier to prioritize the more profitable items, while identifying any products that aren’t making an acceptable minimum. That’s not all you can do with Shopkeeper; you can also keep tabs on Amazon orders pending, track inventory, and filter by marketplace to get more details on how your business is really doing.
The reasoning behind Amazon’s decisions actually makes sense.
It’s only natural to see things from your own perspective, but sometimes it’s possible to benefit from seeing the other side of the story as well. Even if you don’t like how things worked out for you, sometimes you’ll realize that you would have done the same thing if it were up to you.
This is especially true for Amazon when you consider their frequent seller fee increases, as well as their generally ruthless business model. They keep their customers happy with features like Amazon Prime, and they keep everyone else working hard to turn a profit. That’s to be expected from a huge ecommerce platform like Amazon, or any business for that matter – you have to put profits above most other considerations. Even Amazon Prime, a service that (according to some estimations) operates at a loss, still benefits Amazon through customer loyalty. And besides, it’s been pointed out that given what sellers pay in fees, Amazon is easily making back whatever money they’re losing on Prime.
Looking at the new inventory limits, it’s possible to see the same logic: profits come first. Until recently, FBAs would accept inventory based on who got there first; provided all the storage-related fees were paid, it didn’t really matter who was using the space. Due to rapid growth, however, FBAs ended up with a problem: they would run out of space if something didn’t change. They could build more FBAs (which would entail massive expenses), or simply implement limits on the number of items that sellers were allowed to store. It’s clear which choice they went with; now they’ll have plenty of room when future sellers need it, and they don’t have to spend the time and money to construct additional FBA warehouses. Just like always, Amazon chose the option that made sense for them, even though it would probably put other people at a disadvantage.
Can sellers use this same strategy, though? Absolutely – they just have to pay attention for opportunities that arise from changing circumstances.
What could this look like for sellers?
Putting Amazon’s somewhat cutthroat approach into action will look different for everyone, but there will usually be a common denominator. To be more specific, you’ll need to be ready to spring into action whenever the situation calls for it. Just to illustrate, let’s look at what could happen as a result of Amazon’s inventory limits:
You and your competitors carry the same popular item, priced at $40 a pop. Not only does it enjoy a healthy profit margin, but it’s a consistent best-seller. Then the inventory limits come into effect, and since most people’s inventories are reduced, they start running out of this item, among other things. You, on the other hand, planned ahead and made sure that you had enough of your top-selling items available for orders.
If you weren’t looking out for this opportunity, you’d probably just be pleasantly surprised when your sales for that $40 product jumped up, thanks to the fact that you’re now one of the only sellers on Amazon with that item still in stock. What a savvy business owner would do, though, is increase the price by quite a hefty amount. Not only will you still be selling more of that product, but you’ll be making way more money per unit because 1) you planned ahead based on sales forecasts, and 2) you were able to quickly identify an opportunity and adjust your strategy. This may not be the best news for the people who are now paying $70 instead of $40, but that shouldn’t be a factor in business decisions – all you have to think about now is how long you can keep this going.
No matter how big or small your Amazon store is, data-informed decisions are always the best decisions.
In order to identify these types of opportunities, it’s best to have access to reliable, real-time data. Shopkeeper doesn’t just spit out numbers for set time frames; it also reflects fluctuations in profitability, sales, COGS, and everything else that affects your bottom line, all on one dashboard. In the above situation, you could have used Shopkeeper to not only optimize profit margins, but also to manage your inventory so you’d be prepared in the first place. With this tool on your side, you’d be able to react quickly to new developments, rather than finding out about them a day later as you’re entering everything into a spreadsheet.
Running a successful business takes someone who can make bold decisions; the better informed you are, the more of an impact your decisions will have. You might need to re-calculate the way you manage inventory, get rid of items with low profit margins, or simply get acquainted with the big picture; whatever the case, Shopkeeper can help move your business forward. If this sounds right for you, try Shopkeeper’s extended 30-day free trial!