Most Amazon automation services come at an additional cost. So, if your business is not perfectly planned out, it might take a huge cut from your profits. Do you need to automate your business while you do not want to suffer losses? This guide is for you.
One of the easiest ways to increase your profit is by pushing up your profit margin. Today we will teach you how to use automated Amazon tools to rake in more profits from your Amazon sales, so read until the end.
What is Your Profit Margin?
Every Amazon success story out there is mostly talking about growing revenues. However, revenues simply indicate the value of your sold products, whereas to actually keep the business running, you need to focus more on profit and profit margin.
Profit is basically the amount left from the revenue once all the product and business associated costs are deducted.
Here is a simple formula to calculate the profit margin of your product:
(Net Sales – Total Expenses) / Revenue x 100
Once you have an idea of the current profit you’re making, you can manipulate the existing business factors to increase your profit margin.
5 Automation Tools to Help You Increase Your Profit Margin on Amazon
If you have been selling on Amazon for a while now, you have undoubtedly heard about Amazon automation tools. These tools automate certain business processes so that you have both time and resources to focus on other essential aspects of your company.
However, some of these tools can also be used to push up your profit margin. Here is how you can use them:
1. Amazon FBA Reimbursement
All the losses you make on the damaged, lost, or returned products might seem insignificant but can be pretty bleeding for your business when added together. However, by enrolling in the Amazon FBA reimbursement program, you can do away with all such overhead expenses.
Under this program, each seller gets reimbursed for all the products that are:
Here are a few situations in which Amazon reimburses you for your damaged products:
1. Products Damaged During In-bound Shipping
Amazon is responsible for picking up the product from your storage unit and moving them to their own fulfillment centers. If, during the shipment, any product is lost or damaged, Amazon will reimburse the seller for it. The reimbursement price is usually based on the average sales price of the concerned product.
2. Discrepancies Within the Warehouse
A lot can go wrong with your product, even inside the warehouse and fulfillment centers of Amazon. For example, considering the volume of sellers associated with Amazon, your product can easily be misconstrued as a different seller’s inventory. Although these accidents are rare, Amazon will reimburse you for them.
3. Outbound Shipping Problems
If any product is lost or stolen when out for delivery to the customer, Amazon will compensate the seller. Simultaneously, it is also responsible for handling all the return-related discrepancies on behalf of the seller.
For example, if customers do not return the products even after receiving a refund or if they do not send the original product, Amazon will be asked to reimburse the seller.
4. Items Destroyed in Warehouses
When a product comes back from a customer and is deemed unfit for sale, it might get destroyed in the Amazon warehouse. However, the seller would qualify for compensation if this is done without the owner’s prior knowledge or consent.
Simply put, whatever goes wrong with your product under Amazon’s supervision, you’ll be compensated for that. Together, these reimbursements reduce a substantial part of your overhead expenses, helping you make more profit.
2. Amazon’s Small and Light Program
Amazon charges a certain fulfillment fee for each product they store and deliver on your behalf. This fee generally starts at $2.50 per product and increases as per the product weight, delivery location, or quantity.
Your profit margin for any product depends on the total selling price and the overhead expenses, including the fulfillment fee Amazon charges.
Suppose you give more than 35% of your selling price just as fulfillment fees; there will be hardly anything left for you to profit from. For cheap products, Amazon came up with their Small and Light program. Under this program, every light item priced, i.e., products under $7, gets a rebate on the fulfillment fees.
Here are a few criteria that your product must fulfill to qualify for the Amazon Small and Light program:
- Dimension: 16 x 9 x 4 inches or smaller
- Weight: Less than 10 oz
- New products only
- Must have sold 25 units or more in the last four weeks
- The ASIN on the product should be at least 90 days old
- Must have Amazon’s barcode instead of the manufacturer’s barcode
NOTE: Since this program is also a part of Amazon’s FBA fulfillment program, it is 100% automated.
Along with reduced fulfillment fees, this will also help you increase your profit margin through free discounts. For example, certain products in the beauty, personal care, baby products, and grocery section that are priced under $5 are eligible for an automatic discount to customers who order more than two units.
Under natural circumstances, the discount would be covered by the seller. However, under the Amazon Small and Light program, Amazon pays for the discount and helps the seller promote their products without spending even a penny extra.
3. Amazon Global Logistics
Imported products are almost always costlier than local items, and for a good reason. The multiple checkpoints, service providers, transportation costs all add up to increase the product’s acquisition cost without helping the profit margin.
If you seek better returns from imported products, you need a way to minimize your product expenditure; the best way to do so is through Amazon Global Logistics.
Amazon Global logistics program allows you to import products from the Chinese market into various other markets. Amazon supervises the entire transaction, so the number of checkpoints is less, and the process is way more streamlined. The reduced complexity of the import helps you get products at a much lower price through Amazon than any other service provider.
This program is integrated with Amazon FBA; hence you need to first register your store with FBA to access the benefits of Amazon Global Logistics. Along with the USA, this program allows you to ship goods to the UK, France, Germany, Italy, and Spain.
Moreover, when you sign up for Amazon Global logistics, you can choose to get your products shipped via the ocean or air. And for shipment through the ocean, you can choose between a full-container load (FCL) or less-than-container load (LCL).
4. Inventory Forecasting
Although Amazon does not offer its own inventory forecasting tools, you can certainly take help from third-party software like SoStocked, Sellbrite, and Restock Pro.
Suppose you want to increase your profit margins. In that case, you have to cut back on unnecessary expenses like inventory fees for extra products. Amazon charges a substantial fee for each product you store in its fulfillment centers. There is no point in stocking up your inventory without selling the previous batch of your products.
Inventory forecasting tools calculate the current demand of your products, your prior sales record, seasonality, and the current inventory stock to estimate the perfect time for you to order your next batch of products.
Also, instead of investing your money in a stock that is not in demand at the moment, we recommend you spend it on other business activities.
5. Amazon Compliant Packaging
Amazon has a strict set of packaging guidelines to ensure that every Amazon seller follows a consistent packaging format and the product reaches the customers safely. If you don’t abide by these guidelines, your product will be sent back from the fulfillment centers.
Processing these returned items, repacking the product, and sending them back will require additional investment. That is why it is best to get the packaging right on the first go. You can find out more about Amazon packaging guidelines here.
Also, Amazon charges for inventory storage depending on the space taken up by your stock. That’s why it’s best to opt for space-efficient packaging. Cut back on unnecessarily large boxes and bubble wraps. The packaging should be such that it protects the product during transit and nothing fancy.
Although there aren’t any tools to automate packaging yet, you can either leave this responsibility to Amazon or sign for a third-party automation service.
Amazon has come a long way in providing effective automation solutions that help you save both time and money. Every Amazon seller should be conscious of their brand’s profit. After all, it’s more than just a personal need – more profit would entail more reinvestment into your business, accelerating its growth. Use the tips mentioned above to your advantage and increase your profits without increasing your products’ selling price.