Your sales are growing on Amazon and your brand is booming too. However, how do you know if your business is really net profitable?
Revenue is often what vendors and sellers look to as a marker of success, with rising income seen as the holy grail of great businesses.
However, while growing your revenue is certainly central to profitability, it’s also essential that you don’t overlook your brand’s less showy best friend – the humble margin.
Take a trip below the top line
For vendors and sellers on Amazon, their top line can be a tempting place to hang out, with a healthy-looking income figure providing reassurance that sales are flowing out and money is flowing in.
However, the top line can be deceiving, as while year-on-year revenue growth is undeniably fantastic, it will only bloom into an increase in net profit if running costs aren’t eating away too greedily at your margins.
This is why it’s important to take a breath, lower your eyes, and brave a trip down to your brand’s bottom line to become better acquainted with the running costs of your business.
Taking a look at your real bottom line
For vendors that means getting a handle on how much you’re spending on:
- Increased Amazon COOP fees
- Rising Amazon Advertising Bids
- Transport Costs
- Logistics Admin Costs
Whereas Sellers need to get to grips with the costs associated with:
- Increasing Amazon FBA fees
- Rising Amazon Advertising Costs
- Amazon Commissions
- Transport fees
- Raised Storage Fees/Terms
- Inbound issues (mistakes with Amazon FBA check-ins, etc)
It pays to be tactical
For all these areas of your business, having a plan and acting tactically and methodically will likely save you money.
Take advertising, for example. If you’re not planning ahead it’s easy to waste money on a reactive, scattergun approach, where you pay to promote your product if sales dip but don’t have a long-term plan as to how you’re going to increase your brand’s presence.
You’ll likely end up spending more on panic-tinged last-minute campaigns if sales slump than if you planned your publicity tactically ahead of time to keep your brand visible throughout the year.
It’s also worth looking at your partners in areas like transport and logistics to see if you could be saving costs there too.
If you’re using a partner to handle any side of your business, it’s key that you are crystal clear on how much they’re charging, exactly what you’re paying them for, and why.
Once you have all the information laid out in front of you, you might well find that you’re paying for services you don’t need and that there are simple ways you can reduce your outgoings.
Snatching back margins for future sustainability
Going into 2023 it’s essential that brands have sustainable margins in order to survive and thrive in what, post-pandemic, are still difficult times.
With costs continuing to rise, e-commerce profit margins are not going to increase naturally any time soon. And, however much revenue you’re making, all of your hard work to generate sales will count for very little if your net profit isn’t rising overall as well.
Improving your margins is all about looking at the little investigated areas of your business and asking the question ‘What can we save on here?’, and then reinvesting in your brand in a more strategic way.
Long-term sustainability is the aim of the game, and while low margins are ok for single events such as the launch of a new product, a successful brand ultimately means strategic thinking, clarity on costs, and profit margins that are strong and maintainable.