No matter what a seller’s profit margin looked like before, it’ll probably be affected by Amazon’s increased seller fees. Not only that, but new limits on FBA inventory will be another change to which sellers will have to adapt. Even so, this doesn’t have to be the end of the story; there are still a few different ways for sellers to minimize the effects of higher fees and other changes in 2022.
Before breaking out the calculators and crunching some numbers, there’s something else a seller should do. They need to decide whether they’re going to sit back and accept the changes, or find a way to improve their margins despite rising fees. It’s the victim vs. victor mentality, and it can make all the difference in the success of an Amazon store. Of course, once they get to the number-crunching part of the process, there are few better tools than Shopkeeper. This profit calculator lets vendors view their margins item by item in a unified dashboard, meaning their decisions are based on solid data, not educated guesses.
Why Amazon doesn’t make seller satisfaction a priority
Regardless of what you think of his most recent decisions on Amazon’s seller fees, you have to admit that Jeff Bezos is a savvy businessman. He’s guided the world’s biggest ecommerce platform to success, and he didn’t do that by being nice. Rather, he found a balance between putting his profit margin first, and keeping his customers happy. And if that means that Amazon sellers end up paying higher fees every few years, that’s the kind of decision he makes. For instance, it’s thought that Amazon Prime loses money because of all the extras and freebies it provides for customers. However, Amazon doesn’t offer it because they’re just a great corporation; they offer it to retain business and build loyalty. Plus, it’s been pointed out that whatever they may be losing from Amazon Prime, they more than recuperate from seller fees.
If you dig into the reasoning behind the inventory limits, you’ll find much the same story – it’s all about driving up profits in the most efficient way possible. In this case, Amazon faced a choice: they either had to change the way they let sellers store inventory in FBAs, or build more facilities to accommodate demand and allow for future growth. Rather than spend all kinds of money on new warehouses, they decided to optimize the space they already had. Previously, sellers could send as much inventory as they wanted to FBAs. After all, that meant more money for Amazon in the form of storage fees, aged inventory surcharges, removal and disposal fees, etc. As time went on, however, it became clear that this approach wasn’t sustainable, so it was changed to prevent shortages in storage space. Once again, Amazon used a strategy that would benefit them, even though it wouldn’t exactly make life easier for anybody else.
What’s the takeaway for sellers?
If you don’t look at things from Amazon’s viewpoint, it simply appears as though they don’t care about their sellers. But guess what? In one sense, that’s true. They care about having people who want to sell on Amazon; as long as they don’t price themselves out of being a viable option for online vendors, they’re doing fine. What’s another thing they don’t do? Prioritize seller satisfaction.
To some degree, this attitude should be a part of every seller’s strategy. If you could improve your profit margin (and overall profits) by getting rid of low-margin items, that’s the approach you should take. Even if those items bring in good reviews or make your overall sales numbers look better, the data could indicate that they really aren’t helping you out. In that case, it’s probably time to let go of those items and focus your efforts on developing high-margin offerings.
Even more important than this is recognizing opportunities to get in front of the pack. As an example, let’s look at how this could work out after Amazon’s inventory limits take effect. The sellers that don’t plan adequately are going to run out of their best-sellers because those items weren’t prioritized over the slower-moving products. If you strategized which items to stock up on, though, you’ll be the only one (or nearly the only one) who still has those items for sale on Amazon. You could literally double your prices, and you’d still make the sales – all because your competitors couldn’t keep up.
If you really want to hone your strategy, Shopkeeper could provide valuable insights where inventory is concerned. You could use their inventory forecast tool to calculate the number of items you have left, when you’ll need to order more, and how much to order. Even if you’re just trying to eliminate low-margin products from your store’s line-up, you’ll be able to see how each item performs in the same dashboard.
Profits should come first
Sticking with the same scenario, say you double the price tag for those best-selling items. Should your customers’ potential reactions influence your decision? Maybe, but only if you’re thinking about how they might affect future sales – but that probably won’t happen because of a temporary price fluctuation. The point is, Amazon doesn’t care about how other people feel (unless it hurts their profits), and neither should you. If you’re talking about your life philosophy, that’s a terrible idea; if you’re talking about running a business, though, it’s one of the best things you could do. Look at it this way: if it’s good enough for Jeff Bezos, it’s good enough for Amazon sellers.
In order to make informed decisions, you need the right information – and that’s exactly what Shopkeeper can give to sellers. By combining data on Amazon’s seller fees (all 72 of them!), administrator fees, refunds, COGS, and whatever else could affect profit margins, you get to view real-time information on each item. You’ll even be able to see drivers of profit and loss, manage inventory, and more – all to help you make bold decisions that’ll move your business forward. To see Shopkeeper in action, try their extended 30-day free trial now!