Many sellers on Amazon hope to increase their sales profit margin and ROI on Amazon. But what is ROI on Amazon, and how do you increase earnings as an Amazon seller? You have several types of sales channels to choose from, as well as different pricing options and inventory management strategies to make a good ROI for Amazon.
How Do You Calculate ROI on Amazon as a Seller?
If trying to determine your ROI, or “return on investment,” from Amazon sales, how do you calculate it? You must be able to determine your net profit from selling an item and understand Amazon’s seller fees as they apply to your operating costs.
Most Amazon sellers use FBA (Fulfillment by Amazon) to manage their inventory and distribution from Amazon’s network of warehouses and distribution centers. General fee categories include the selling plan, referral fees, fulfillment fees, and other costs. Individual fees a seller might be responsible for paying include:
- Individual vs. Professional selling plan fees (per item vs. monthly subscription)
- Referral fees based on category (8-15% for most categories)
- Amazon FBA fulfillment fees based on shipping size and weight
- Amazon FBA storage fees
- Inventory fees
- Rental book service fees
- High-volume listing fees
- Refund administration fees
Calculating Your ROI
With so many possible fees for your different sales channels, what is your ROI on Amazon, and what data do you need to calculate it? You must first calculate your net profit by subtracting the cost you paid for the item plus any fees from the sale price. The price you paid for the item plus your Amazon fees and other costs are the “cost of goods sold,” or CoGS.
Net Profit ÷ CoGS × 100% = ROI percentage
So, if you sell an item for $20, and you paid $8 in CoGS, your ROI would be:
$12 Net Profit ÷ $8 CoGS × 100% = 150% ROI
What Is a Good ROI for Amazon Sellers?
Amazon sellers should strive for an ROI of 100% or greater. However, differences in account plans, sales volume, inventory storage, and Amazon fees could make attaining a 100% ROI a lofty goal. Can you increase your profit margin by raising prices, or should you strive for more sales by lowering prices?
Manipulating prices in your Amazon store is one way to influence sales and strive for a higher ROI. Some sellers follow the “3x Rule” for pricing, while others mark down prices to move product quickly. However, you will reach a point where you are unable to lower prices and still earn a profit. Short-term sales are excellent ways to bring in new customers and raise product awareness, but regular price markdowns can reduce your ROI.
Strategizing for a Higher ROI
What can you do to increase your ROI without sacrificing brand reputation or reducing your profit margin for popular items in your store?
Verify All Seller Fees for Your Products
Your products are subject to Amazon FBA storage, distribution, and shipping fees. You should spot-check different items regularly to ensure Amazon is calculating all fees correctly based on product category, weight, and size. A miscalculation or misattribution of one of the measurements could lead to higher fees for a certain product.
If you believe a certain item has higher fees than necessary, contact Amazon seller support to request a new assessment for your products. Are they using the correct box size for shipping? Is the product in its original packaging in the warehouse? Were your products repacked to fill a differently sized space? Contact Amazon to ensure your fees are accurate.
Update Product Images and Descriptions
When was the last time you updated your product description or added new images or product videos? Amazon shoppers like to see information that includes how to use a product, how a product can help in their daily lives, and how a product’s construction proves a high-quality investment for their hard-earned dollars.
New pictures, a video of the product in action, and an updated description of the product’s uses and materials can help customers make the right purchasing decisions. You can increase your average order value (AOV) by bundling products, offering product ordering subscriptions, and setting up temporary sales or coupons.
Amazon offers Voice of the Customer (VoC) analysis for you to improve customer conversions for shoppers who land on one of your product pages. Utilizing VoC data effectively can help you determine which product description and image changes help you sell more of each product in your Amazon store.
Manage Your Amazon Inventory To Move Product
Amazon FBA storage fees are higher for inventory that doesn’t sell well with an aged inventory surcharge and other add-on fees. Watch for Amazon stock-outs so you can restock in a timely manner, as out-of-stock inventory can turn customers off from buying in your store. Additionally, look for inventory that doesn’t perform well so you can run promotions, reduce prices, or fix listing issues.
Utilize Amazon Ads Appropriately
Amazon Advertising offers pay-per-click (PPC) ads to direct users to your products in your store. You will need to do effective keyword research to determine which keywords perform best for your products and optimize your ads to target these keywords.
PPC ads are one option to increase your Amazon sales ROI. Other strategies include using search engine optimization (SEO), affiliate marketing, email marketing, and other techniques that don’t rely on paid ads through Amazon’s platform.
Choose Click Fluency To Help Maximize Your Amazon Seller ROI
So, what is ROI on Amazon, and how do sellers improve ROI to earn more? ROI is an important metric to determine whether you’re making as much profit as possible after Amazon’s seller fees and the costs of supplying product to your Amazon store.
At Click Fluency, we know how to help our clients maximize sales with Amazon product opportunity strategies. Schedule your free Amazon Discovery Call with a knowledgeable representative today to improve awareness, convert customers, and elevate your brand.