5 Ways Brands Can Improve Profit Margins on VendorCentral
Maintaining or improving your profit margins is essential to the health of your business. Business owners on Amazon have a lot to keep in mind and it can easily become overwhelming.
Profit margins let you know how profitable your business is and how successful it is. There are many factors that affect your profit margins.
The obvious solution to improving profit margins is to charge more for your products. However, over 40% of consumers would switch brands if they saw that prices increased. Adding to that, it is very unlikely that Amazon would even promote your new price or let you change it at all.
So, how can you improve profit margins?
Today, we’re going to go over 5 ways you can improve your profit margins on VendorCentral.
Practice Good Inventory Management
Inventory management is definitely tricky. It’s also super punishing if you mess it up.
Not enough inventory? You go out of stock and your performance on Amazon plummets.
Too much inventory? Now you’re stuck with all the storage fees.
These are the common inventory management problems—there are plenty of things you can do to prevent any of these from happening to your business:
- Find a great supplier. Do some research into the best supplier possible. Double-check their credibility and compare their prices. Once you’ve secured yourself an awesome supplier, treat them well. Pay your bills on time and don’t ask for any sudden production changes.
- Always maintain some stock. Try to keep around 60-90 days of stock ready. Monitor sell-through rates and try to predict fluctuations in sales.
- Monitor lead times. Expect the unexpected. Have backup plans ready in case something goes wrong.
Negotiate Vendor Terms with Amazon
Amazon is different from other vendors as terms can be renegotiated every year. The deals put in place here are the rates that will stay in place for the whole year.
Keep in mind that Amazon is a business, too (duh). They want more profit by scaling back on costs and by being in an advantageous position. Ultimately, they’re the ones in control. So you just need to negotiate terms that aren’t completely unfavorable to you or compromise.
To prepare for Amazon vendor negotiation, you should:
- Gather your data. You need to be prepared with the numbers. You need to know your supply chain improvements, promotional partnerships, successful NPD launches, out-of-stock performance, and cost savings over the last 12 months.
- Plan your budget beforehand. Look at your past growth and try to project future growth. Talk to your financial team to build a plan for the next 12 months. Amazon will present you with an investment plan, so try to see where it lines up with yours and where it falls flat.
- Know your worth. Vendors do have power on Amazon. That is how Amazon makes money from the platform, after all. So you should know your worth. The higher you are in a product category’s ranking then the more negotiating power you have.
- Be prepared. Going into the negotiation, be prepared for absolutely anything. Best or worst-case scenario, Amazon won’t be affected too much. But you will. Have contingency budgets/strategies and red lines for the negotiations ready to go.
In the negotiation itself, don’t settle for their first ask. It’s likely that it’s going to seem absolutely ridiculous to you as a vendor, and that’s the point. Their first ask is their best-case scenario.
They know that your first ask is your best-case scenario, too. So don’t expect to be in the best situation possible after the meeting.
Once you both agree on terms that seem reasonable, make sure you’re clear on absolutely everything. Ask questions, repeat terms, and hear a few opinions on it before you sign off.
Optimize Your Shipment Operations
If you deliver products into Amazon’s warehouses, then it’s likely you know how much of a pain all the requirements are. They could eat into your profit margins and hurt your business.
Mistakes in purchase orders, shipping, receiving, packaging, and data misalignment will result in an Amazon chargeback.
Shortages happen when Amazon believes that you delivered less product than they ordered.
If chargebacks happen, then try keeping an eye on your supplier. Find the root cause of the problem. What’s going wrong and where? Identify and solve the problem as soon as possible.
If you’re dealing with shortages, then it’s likely a data entry problem. Or a problem that proper data entry could fix. Keep track of what you’re shipping, when you’re shipping it, and how much product you’re shipping. Ship products on time and clearly label them.
Bundles could appeal to buyers looking for a deal. They’re a great way to encourage consumers to spend more on your products.
There can be 2-5 unique products (ASINs) in a bundle. One ASIN could have multiple units in a bundle of 2-5 products but it can’t be a bundle on its own.
In order to bundle products, you’re going to need a new UPC, title, bullets, description, and content.
Directly Fulfill Your Catalog
Amazon’s Fulfillment by Merchant program can offer a lot of benefits to vendors who want to see more profit.
The obvious money-saver is the lack of storage fees you have to pay to Amazon. With Amazon FBM, there will be absolutely zero shortages as well!
Many Amazon vendors are reluctant to make the switch from FBA because of all the extra responsibilities that come with FBM. They also don’t want to miss out on FBA benefits like Prime.
With Amazon’s new Seller Fulfilled Prime program, FBM is becoming a much more viable option for businesses that can handle the extra responsibility.
Profits could vastly grow if you make the switch to FBM.
Need Help with Amazon? Let ShipmentBot Help!
It’s not easy to scale your Amazon business. Improving profit margins means putting the work into data entry, inventory forecasting, and labeling. It could become overwhelming if you don’t have a team.
That’s why ShipmentBot is here to help. ShipmentBot is advanced software that can crunch your numbers, file & send data, predict sales, and print labels. All the things you would usually need an entire team to do.
Amazon could be a tricky business to navigate. If you keep learning and staying on top of your work, then you’ll be selling more in no time.