Note: This post is authored by Allison Lee, Marketing Manager at Zentail
It has already been a wild year for Amazon sellers. Some have seen a fortuitous spike in their sales, gaining exposure across Amazon’s massive pool of buyers, even in the midst of a global pandemic.
Yet others face the harsh reality that no matter how big nor how small, how new nor how veteran, no business is immune to the volatility of selling on a marketplace like Amazon.
As more than a third of Amazon sellers struggle to remain active today, we decided to look into what makes an Amazon seller successful apart from good fortune. Here’s a rundown of what we found by analyzing data across more than 200,000 Amazon profiles and interviewing a few leading sellers.
A Large, Diverse Catalog
It may not come as a surprise that some of the most successful sellers have some of the largest catalogs. This is not to claim that a large catalog always means a large profit. What you sell and how much you pay for your products obviously play a big role.
However, on average, the top-performing sellers who overcame the extreme pressures of the COVID-19 outbreak earlier this year had thousands of items listed on Amazon.
Sellers carrying 150 to 200 different brands also saw at least 25% more activity in 30-day feedback (and presumably orders) between March and April, while those with fewer than 150 brands saw a sharp decline. As demand violently swung from certain categories to others, sellers with large catalogs could better sustain sales than those with only a few ASINs in their pocket.
During normal times, the hyper-competitive nature of Amazon’s marketplace already influences many sellers to develop a large assortment of products; this ensures that if customer preferences change drastically in one category, it won’t affect all parts of business.
Another seller points out that in addition to breadth, the depth of your inventory matters.
“I’m always looking for new product lines to add depth to my inventory,” says Ken McCombs III, whose company, McCombs Supply, ranks among the 1% of Amazon sellers making multi millions a year. “You don’t want to just have what everyone else has, but also what everyone else doesn’t have.”
“The deeper your inventory—that’s where the money is,” he adds.
Sales Channels Outside of Amazon
Nearly half of all marketplace sellers report that Amazon accounts for 81% to 100% of their total revenue. That’s a precarious position to be in, as Amazon is unpredictable. Accounts can be suspended overnight because of a single policy change or false counterfeit claim (as examples).
Amazon’s recent freeze of non-essentials to FBA wasn’t a far cry from the company’s usual tendencies either; in an effort to honor its unwavering commitment to buyers, Amazon promptly cut off thousands of sellers from its service to focus on just the essential products and businesses.
“This is the latest wake up call for sellers to reduce their reliance on Amazon as their only sales channel and fulfillment partner,” CEO of Zentail, Daniel Sugarman, said in a recent interview with Business Insider. “In general, you don’t want your business to be entirely reliant on the whims of one company.”
Sure enough, a recent study found that multichannel merchants saw the most gains during the first several months of the COVID-19 outbreak. The study compared single-channel Amazon sellers against those that had at least one other webstore or marketplace account.
While single-channel merchants saw YoY sales drop throughout February, multichannel merchants saw double-digit growth. This is at the same time that eBay and Walmart GMV grew around 3% and 20%, respectively (before climbing even higher in March).
Top sellers share the sentiment that Amazon cannot be treated as the end-all-be-all. Investing in channels outside of Amazon pays great dividends, especially in the long run.
A Hybrid Approach to Fulfillment
Similarly, merchants with the greatest immunity to Amazon’s unpredictable nature tend to have fulfillment capabilities outside of FBA. While a whopping 73% of marketplace sellers use FBA, the most lucrative businesses adopt a hybrid approach or their own fulfillment capabilities altogether.
As an example, after the better part of two-decades selling on Amazon, McCombs Supply now fulfills 100% of their orders from their own warehouse, keeping supplier information and inventory close to their chest.
This strategy is paying off in the current climate. As FBA is struggling to ramp back up, Prime orders are delayed and overall orders on Prime products are dropping, McCombs is keeping up with on-time deliveries.
While FBA is still critical for earning Prime status (and the huge ranking benefits associated with it), more sellers are turning to 3PLs for at least a portion of fulfillment. 3PLs offer FBA-like service while providing greater control. By gaining visibility over details like product packaging and inventory location, sellers have widened the opportunity to build their brands while selling on Amazon.
A Modern Approach to Inventory Planning
At a time when stock outs are costing retailers $1 trillion in sales a year—and holding costs are eating up 20% to 30% of total inventory costs—top sellers are finding ways to work outside traditional 30, 60 or 90-day forecasting cycles.
This often involves tapping an automated forecasting system that factors in sales history alongside lead times, profit margins, sales velocity and a slew of other variables. The real-timeness of automation allows these sellers to forecast demand and identify new buying behaviors (and inventory needs) much faster than their competition.
This system additionally provides the freedom for sellers to establish their own reorder frequencies. Many choose to reorder less products more frequently to increase cash on hand—or, when supply chains face disruption, they’re able to quickly pivot to plan for greater quantities and longer lead times for certain SKUs.
Sellers with the most cutting-edge inventory planning systems are also centrally and digitally managing their purchase orders. They enjoy greater flexibility to make “out-of-cycle” purchase orders under special circumstances and, in general, are replacing traditional inventory models with more custom, data-driven programs.
On Amazon—where ads dominate the first page of Amazon’s search pages and more than 60% of conversions goes to the top three results—advertising is practically a necessity.
At the same time, the top players have a clear grip on their spend. They reserve ads for select products (such as competitive products, new releases and/or slow movers that need a push). They have a clear path for pivoting their strategies when emergencies hit and a ready-made game plan for holidays, including Amazon Prime Day.
As a majority of sellers pump money into day-of holiday ads, these experts consistently find ways to capture pre- and post-holiday traffic at lower costs. And as other sellers measure ROI by simply calculating advertising cost of sale (ACOS, or ad sales divided by ad costs), these experts are looking at total advertising cost of sale (TACOS, or the sum of ad sales plus organic sales divided by ad cost).
The latter formula takes into account the big picture—or the fact that Amazon’s A9 algorithm rewards listings with high conversion rates. Ads not only generate quick short-term traffic, but also drive higher organic rankings and sales.
To propel this ‘flywheel effect,’ the top players adopt “bid to value” approaches and leverage technology (like Teikametrics) to maximize their margins on each sale. In a nutshell, they don’t simply advertise. They advertise with clarity and intelligence.
Even though succeeding on Amazon is part strategy, part luck, the top 1% of Amazon sellers are constantly developing their strategies to push luck in their direction.
Learn from the trends and experiences above when building out your own strategy. Always keep in mind the big picture, and don’t develop tunnel vision that so often traps sellers into investing everything into Amazon alone. Heed warnings to look outside of Amazon and find the best path forward for diversifying and growing your ecommerce empire.