Fulfillment by Amazon (FBA) businesses are rising in popularity and at FE International we’ve noticed that buyers and sellers are increasingly looking to get involved in the space. As these businesses are still relatively new, there is not a great deal of formal advice on how to go about scaling FBA businesses effectively, though it is of course of interest to both buyers and sellers looking to operate in the space.
Having recently joined FE International as an Executive Broker with a strong background in customer acquisition, I wanted to bring some of that experience across to outline a few ways to help scale an FBA business.
Quick Overview – How Fulfillment by Amazon Works
Amazon has created one of the most advanced fulfillment networks in the world. With Fulfillment by Amazon, you store your products in Amazon’s fulfillment centers, they pick it up from the center, package it, ship it to the buyer and provide customer service for all of your products. Marketplace sellers have increasingly started to adopt FBA to leverage Amazon’s fulfillment infrastructure and customer base for significant financial gain.
Nonetheless many FBA business owners can find scaling beyond the small thousands per month in revenue so in this article I’ll cover the top five ways I think you can help grow an FBA business into the five, six and seven figures.
1. Know Your Numbers
FBA business owners should wherever possible use Amazon’s provided Revenue Calculator to determine if selling specific products via Amazon is cost effective after fees and expenses are accounted for. One very important metric to know is your adjusted gross margin. The typical adjusted gross margin for an FBA business is 15-20%.
Also, track anything you can and record everything from day 1. Many businesses make the mistake of skimping on the amount of data they are keeping track of and analyzing. It is very important now as the business grows and in the future, when you might plan on selling your FBA business.
Without proper tracking, there is no way to determine the true pulse of the business. It also isn’t a bad idea to set up multiple sources of tracking, or ‘redundant tracking’ in order to determine that the information that you are basing your business decisions on is truly accurate.
I would recommend looking into TeikaMetrics Software which offers one of the most robust software solutions catered specifically for Amazon sellers. Alongside this software, I would recommend using a tool by The Moore Collective for redundant tracking and customer information capture (I’ll cover this further in section 3).
2. Capitalize on Your Strengths
At FE International, we typically advise against investing in a business that you have minimal interest for the products/services on sale. Even if it is an extremely profitable business, being passionate about what you are selling is going to give you an advantage in your industry, especially over the long term.
In FBA, personal passion can be helpful in seeking out exclusive relationships that can grant you significant competitive advantage. Use your passion to leverage existing connections that you may have in the industry you are entering. If you need to hire, make sure you are hiring people who share a similar passion for what you are selling. This can help the business grow as a team and not as individuals.
In addition to leveraging existing connections, it is important to nurture and improve these connections moving forward. Entrepreneur for example suggests simply reaching out to your supplier routinely and asking about improving quality, communication and/or costs. If you don’t ask, you can never know if they are willing to work with you or not. This is also a good way to gauge if the supplier you are currently working with is your best bet for a longer term relationship. If they are unwilling to work with you on simple requests, it might be time to look elsewhere.
3. Build Your Own Platform
One major pain point with running an FBA business 100% through Amazon is that you will not have any direct access to your customer data which Amazon holds on to.
My view is that obtaining customer information is important for long term business growth. As Amazon will not provide you with this, I would recommend looking into using The Moore Collective’s Amazon Marketplace Web Services (MWS) Customer/Order Export tool.
The tool provides users with a simple web interface that displays order and customer data, historical exports, shipability exports and automatically updates data as orders are placed and fulfilled. In addition, you can now view your top 50 grossing items, highest revenue customers, your bottom 50 grossing items and most loyal customers using this tool.
Here are some detailed instructions that can be used to set up this tool with your Amazon FBA.
With this being said, it is also important for a business owner to find an alternative method to capturing customer data and this can be done through establishing yourself with a corporate brand.
My tip = let Amazon be your surrogate – build a dedicated website for your business.
This can help you in three ways:
- Maintain your corporate brand. Having your own web presence, off of Amazon, can allow for your business to obtain its own direct searches instead of Amazon absorbing all of your customer traffic. In addition, this allows your business to grow through another customer acquisition channel while still benefiting from the convenience of an FBA business model.
- Use your corporate website to collect affiliate commission from Amazon. Normally, by selling a product through your FBA business, Amazon will take 30% of your revenue. By using your own website to link to your products on Amazon, you are able to collect an additional 5-10% affiliate commission from Amazon, adding a material increase in margin to your product.
- Email capture can be performed on your own website. As mentioned above, Amazon does not allow FBA businesses access to any of their customer data, by building a website, with the proper tracking (Google Analytics, Google Tag Manager and UTM codes), you can determine who purchased from your site, where they came from to find your business and what their email address is. All of this is valuable information which can be used later to optimize your business’ sales funnel.
The value of email should also not be underestimated when it comes to the eventual sale of your business. Email is a sustainable traffic source and a valuable tool for learning about customers and growing the business to the next level. As a digital marketing fanatic myself, I have learned that email addresses can be an extremely valuable asset to a business and ultimately help increase sales if used correctly.
These addresses can be used in a myriad of ways. You can use your email list to send email newsletters that keep customers up to date with your business. Email marketing campaigns can be used to announce sales or promotions that you are offering. Lastly, email drip campaigns are a great way to retarget those customers who may have browsed but not purchased, purchased in the past, but not for 6 months, or even customers who have added something to their cart, but didn’t follow through with the transaction. These types of emails can not only keep your customers engaged with your business/brand, but also drive ‘lost sales’ back to your site to hopefully convert.
Facebook is another tool that can be used to make the most out of your email addresses. It allows a few, very specific forms of targeting through paid advertising. The first is Facebook Lookalike Audiences. Facebook describes lookalike audiences as, “…a way to reach new people who are likely to be interested in your business because they’re similar to customers you care about.” Meaning, after you upload your email list, Facebook finds 1-2M other people on their platform that have similar interests and behaviors to those in your uploaded list.
In addition to lookalike audiences, Facebook also allows you to create Custom Audiences. These audiences are a bit more simple than Lookalike Audiences as they allow you to simply upload a specific list of email addresses and show your ads only to those in the uploaded list.
4. Optimize Best Seller Rank.
The Best Sellers Rank (BSR) of your key products is an important metric for your customers and sales. Whilst no one knows definitively the calculation behind BSR, it is widely thought to be a function of most recent sales and a predictive algorithm based on historic sales.
Focus on outselling your competition. If you can’t seem to keep up with the competition’s BSR rank, it might be time to switch up your product offering and find something with less competition. By doing this, it can be easier for you to increase your BSR rank by outselling the competition. In addition to BSR, make sure you don’t give your customers a reason to rate your product down or write poor service reviews.
Keep in mind too — From: MakeUseOf – “A rank of #1, therefore, means that product has recently sold more than any other product in that category, on that store.”
One additional BSR tip is: Win the Buy Box
The Buy Box is located directly under the price on a product page and displays 3-4 of the same products that are priced similarly. If you can not be profitable and have the lowest priced item, make it a goal to at least get into the Buy Box.
Startupbros.com discusses 3 variables that effect your products status in the Buy Box:
- Pricing – Amazon automatically filters Buy Box priority by Price + Shipping costs. Adjust your price accordingly to make sure you are priced competitively and can at least appear in the Buy Box.
- Shipping Performance – As to be expected, the key point here is hassle-free, high performance shipping. In addition, when it comes to the Buy Box, Amazon is also looking at Perfect Order Percentage (POP) and Order Defect Rate (ODR)
- Perfect Order Percentage is how many orders go perfectly smoothly without any customer intervention and Order Defect Rate is how many orders are cancelled, returned, shipped improperly or get negative feedback for any reason
- Seller Rating – 90%+ is ideal. Do not give your customers a reason to rate you down as a seller. Having stellar shipping performance, great prices, quick customer feedback on any inquiries are all variables that can help keep your seller rating high.
As MakeUseOf says: “When it comes to ranking highly on the Amazon Bestsellers lists, as the ranks are based hourly, then a quick spike in sales due to a successful marketing campaign, followed by a lull in sales a couple of days later will only serve to see the product’s rankings quickly plummet. It’s far better to space out a product launch over a period of week, so Amazon can collect consistent historical data to make predictions on future sales. This will thereby make it easier for you to break into higher spots on the ranking table in future.”
Advertising can be used as an effective tool when it comes to building your customer base. Unlike the slower effect of SEO, paid advertising can be a relatively quick solution that if done correctly, can lower customer acquisition costs by up to 80% in just under 2 months as was done here.
The most important thing when it comes to advertising is test, test, test. Even if you think you know your business, it can surprise you. The best way to learn about what advertising works for your business is to conduct multi-variant testing across each step of your sales funnel.
- Testing the creative on your ads first (images and copy) can help lower CPC.
- People click on advertisements based on what they see first, the image, and second, the copy. By A/B testing images first, you are able to determine which image can get you the highest CTR for the lowest CPC. The same goes for testing copy too. Optimizing both image and copy first can allow you to reallocate ad spend to focus on the more expensive process of audience testing and optimization.
- Use all of the email addresses that your business has accrued over time (as mentioned above) and build retargeting, custom and lookalike audiences to advertise too.
- I have found that in past ad campaigns, audiences generated from email lists tend to perform better than the ones I created using the typical Facebook filters of behavior, interest and demographic.
Bonus Tip: Try Drop Surfing
Drop Surfing is a different form of dropshipping. In short, it is when you decide which vendor you will buy a product from on a product-by-product basis. This way, when you receive orders, you can see where you can save the most money for each product, as opposed to using a regular vendor.
This can create loyalty issues and isn’t recommended for every dropshipper, but it can also create dramatic savings. Passing these savings on to the buyer can be a great way to boost your sales, which in turn can make setting up arrangements with vendors easier. For a more in-depth look at this topic, you can find a useful guide here.
Running an FBA business can be done with minimal up front capital (in comparison to a traditional e-commerce business) and a little bit of hard work. Growing that FBA business once it is off the ground is where the potential roadblocks lie.
Much like running any other fulfillment e-commerce business, the basic keys to success all surround utilizing the resources you have wisely and optimizing each step of your process along the way. Amazon is an amazing company with a wealth of resources that can help make an FBA business successful. Making sure to tap into everything they offer and being as diligent with every single process possible, can help make sure your FBA business is air tight and optimized for growth.