Hunting for Profitability: 3 Areas to Find More Profitability on Amazon
The ebb and flow of a brand’s consumer cycle creates an ongoing shift in priorities. Long-term growth and profitability are always the main goals, but there might be seasons when you focus more than others on short-term profitability. While there are nuances for every brand, when one of our partners wants to focus on short-term profitability, we typically look to 3 areas:
Advertising
Retail Readiness
Operations
These are all massive areas so we can’t cover every corner of them in a single article. Instead, we’re featuring one case study for each area to highlight how we’ve helped brands hunt for and achieve even more profitability with adjustments to their advertising, retail readiness, or operations strategies.
Building an Amazon Advertising Strategy Designed for Profitability
When focused on profitability, advertisers might choose to lean heavier into lower-funnel tactics and KPIs like return on ad spend (ROAS) to ensure campaigns are driving immediate returns. While ROAS isn’t bad, it’s not always an indicator of long-term profitability. We often consult with advertisers who are confused because they have strong ROAS performance, but their overall business isn’t profitable. Their ads are selling products, but the brand still isn’t growing.
GO firmly believes in a full-funnel approach that leverages all of Amazon’s ad tools, but some brands might have budget limitations that keep them from being able to maintain year-round investment in a multi-touch strategy like Sponsored Ads and DSP. So, for those seasons when brands are focused on Sponsored Ads, it’s important to ask some critical questions about your strategy:
What combination of KPIs will help you measure profitability? ROAS is one metric but it’s not the whole story. Adding others like cost per purchase (CPP) and total advertising cost of sale (TACoS) can help fill in more of the broader context for your campaign performance.
Are your campaigns structured to align with your KPIs? Carefully evaluating things like your keyword strategy and ASIN prioritization could reveal opportunities to refine your targeting and featured products to drive more engagement and conversion.
Does your targeting reflect the right balance of offense vs defense? Defensive targeting (brand protection) is where your advertising is most likely to cannibalize organic sales. Offensive targeting (category and competitor) is your greatest opportunity for incremental growth.
There are a lot more questions to ask, but starting with these questions can help determine if there’s more opportunity for profitability within your advertising strategy. Our team asked these same questions when our client provided a sizable increase in ad budget but wanted profitability to, at minimum, remain steady.
CASE STUDY: Maximizing incremental budget to drive greater Amazon Advertising efficiency with Sponsored Display
In this case study, our client provided a 22% increase in advertising budget and wanted to protect their profitability by finding more efficient ways to grow their total sales.
We were already utilizing Sponsored Products, Sponsored Brands, Sponsored Brand Video, and Sponsored Display ads, but we recognized that the increased ad budget allowed us to reevaluate how much spend was dedicated to offensive versus defensive targeting. We chose to invest more in offensive targeting, increasing the brand’s visibility and reach by leaning into category keyword targeting and competitor product detail page (PDP) targeting while also utilizing Sponsored Display for remarketing.
Typically, a 22% increase in spend would negatively impact efficiency for a time. However, we were thrilled to see our strategic changes improved profitability across our key metrics, including:
CPP = -4.6%
ROAS = +4.4%
Ensuring Retail Readiness on Amazon for Maximum Profitability
One challenge related to Amazon’s self-serve marketplace is that brands are responsible for more of the retail aspects of the business than with typical brick-and-mortar stores.
Depending on the complexity of your catalog and how familiar you are with best practices for retail readiness on Amazon, your brand could face issues that hinder your profitability. For instance, if shoppers have a negative customer experience navigating your PDPs or brand store, it could hinder your ability to convert them. Retail readiness is part of the foundation of your business and impacts all other areas, including the effectiveness of your advertising.
As a full-service agency, we naturally think holistically about all the aspects of a brand’s Amazon business and are structured to support the nuances of each area. This means we think critically about the impact of key retail elements like:
Titles and bullets
Hidden keyword optimizations
Variation strategies and addressing issues related to Automatic Variation Systems (AVS)
New item setup for effective product launches
UPC/SKU transitions
And more (see Retail Services)
The case study below highlights a few of these specific retail elements but more importantly showcases how retail readiness drove holistic gains for one of our partner brands.
CASE STUDY: Retail Support as Part of Our Full-Service Management Spurs Rapid Sales Growth
We partnered with a new client that had strong organic growth on Amazon but was struggling with their retail readiness, resulting in things like:
Titles and bullets were lacking clarity and consistency, confusing shoppers and creating a poor customer experience.
Automatic Variation Systems (AVS) blocked the brand from combining the right items on the same product detail page.
As a result of these issues, among others like their advertising and operational challenges, their sales growth was becoming limited, and they needed to make some critical changes to reignite it.
To address the retail-specific issues, we...
Edited their titles and bullets to be clear, consistent, and share the brand’s story.
Fixed/set up 22 variations to optimize the customer experience.
Addressed their AVS problem by adjusting the item-type keywords to the same classification in the backend of each item’s details so that the AVS combined the right products.
Launched 23 new products, giving shoppers more options to choose from.
Additionally, we addressed other challenges the client faced across the brand’s content, advertising, operations, and data strategies. This holistic approach produced some incredible results, including:
+148% increase in monthly consumption
+43% increase in shipped PCOGS
Leveraging a Strong Operational Foundation to Protect Profitability on Amazon
Like a brand’s retail readiness, a strong operational foundation helps lay the groundwork for success across all other areas on Amazon. The impact of operations is evident when a brand faces stock shortages or struggles with Amazon’s fulfillment fees. If your product is out of stock or you’re losing your margin to things like chargebacks, you’ll lose no matter how compelling your creatives or ads are. The operational challenges will be different depending on if your brand operates within Seller Central or Vendor Central, but strong awareness and support of these challenges are critical for your operational elements like:
Inventory reporting, reconciliation, disputes, and forecasting
Chargebacks
Shortages
Compliance reporting
Project transparency utilization & management for counterfeits
Net PPM analysis
And more (see Operations services)
The case study below focuses on Fulfilled by Amazon (FBA) fee reduction. With so many brands struggling with the recent increase in Amazon fees, it’s a good reminder of the power a strong operational foundation can have on your overall profitability.
CASE STUDY: Fulfilled by Amazon (FBA) Fee Reduction Through ASIN Repackaging
A client utilizing FBA was facing increased fees for an ASIN that was a 4-pack of their core product. The fees were based on the dimensions and weight of the packaging, so we utilized Amazon’s FBA cost calculator to identify the package specifications that would realign the fees with the client’s goals for profitability. This showed the client that the best course of action would be to reduce the 4-pack to a 3-pack, allowing them to ship the product in a smaller package size and reduce their FBA fees.
When changing the 4-pack to a 3-pack, there was a natural reduction in the item value. However, we were able to reduce the FBA fee by 53%, resulting in the following net benefit:
Item value decreased by 25%
FBA fees were reduced by 53%
Net benefit gave a +28% increase in profitability
How is your brand hunting for profitability on Amazon?
Brand building on Amazon is a complex undertaking because it requires expertise across a wide range of disciplines. When you’re on the hunt for profitability, you have to carefully examine each area on its own and ensure all areas are playing their part to help the broader business succeed. That’s one of the reasons why finding the right full-service agency is so important for brands who are leaning into Amazon but don’t have the internal resources available to be experts across advertising, operations and retail.
If you’re struggling to find new areas of profitability for your brand, click the Contact Us button below to reach our team and explore if we might be the right fit for your goals.