If you're selling on Amazon, you’ve likely noticed how challenging it has become to maintain solid profit margins. Rising fees and fierce competition demand smarter strategies and tools to stay profitable. Recently, Xmars brought together experts from Crush, an agency specializing in Amazon advertising, and 3fin, a financial software platform for Amazon brands and agencies, to dive into what truly drives profitability.
Here are the key insights from our discussion, covering how to navigate Amazon’s fee structures, leverage advanced tools, and set up a sustainable growth plan for end of 2024 and the coming year. To view the on-demand webinar recording, sign up here.
Financial analytics: a new standard for success
In the past, many Amazon brands and agencies enjoyed steady profits without analyzing every cost. Today, even minor expenses can significantly impact the bottom line. Many brands believe they’re earning more than they are because they’re not tracking the full range of costs involved. A financial software platform like 3fin provides valuable clarity, offering a complete view of cash flow, unit economics, and other metrics beyond just revenue.
With this level of financial insight, brands and agencies can set realistic, data-driven goals for ad spend and operational costs. As Amazon’s marketplace becomes more complex, having a detailed, comprehensive view of these metrics makes all the difference. Even a small miscalculation in cost estimates can affect profitability, underscoring the need for precise tools.
Managing Amazon’s fees to maintain profit margins
Amazon’s fees—covering everything from fulfillment and storage to returns and referrals—can quickly eat into margins if left unchecked. Brands and agencies benefit from actively managing these fees, and tools like 3fin, along with support from agencies like Crush, help identify where fees are affecting profitability and where adjustments can improve margins.
Sometimes, even small adjustments yield big results. For instance, minor modifications to packaging dimensions can often bring a product into a lower fee bracket, generating significant long-term savings. While some fees are unavoidable, understanding where they impact profitability enables advertisers to control expenses more strategically, helping them protect and improve their bottom line.
Moving beyond ROAS and ACOS
While familiar metrics like ROAS (Return on Advertising Spend) and ACOS (Advertising Cost of Sale) offer insights into ad performance, they don’t capture the full profitability picture. For brands focused on growth, TACOS (Total Advertising Cost of Sale) is emerging as a valuable metric. By looking at ad spend relative to total revenue, TACOS offers a more complete view of profitability.
Tracking TACOS allows brands and agencies to adjust ad budgets in real time rather than sticking to fixed limits. This flexibility enables them to allocate resources dynamically, optimizing ad spend where it drives the strongest returns. This adaptability is crucial in a marketplace where conditions change quickly.
Maximizing profits through dynamic pricing
Dynamic pricing is a valuable strategy for profitability, allowing brands and agencies to adjust prices based on demand, competition, and seasonality. This helps advertisers remain competitive without necessarily increasing ad spend.
Temporary discounts and coupons, for example, can improve click-through rates and conversions while lowering TACOS by reducing the cost to attract each customer. These pricing strategies make it easier for brands and agencies to respond to shifts in the market without relying solely on ads, which is especially useful in a rapidly changing environment.
Streamlining inventory and supplier management to cut costs
Optimizing inventory and supplier relationships also plays an important role in profitability. Managing Cost of Goods Sold (COGS) can have a substantial impact on overall financial health. This might involve negotiating better terms with suppliers, sourcing materials locally to cut shipping costs, or refining production processes to improve efficiency.
Effective inventory management is equally important. Amazon’s fee structure penalizes both excess and low stock, so keeping inventory optimized helps brands avoid extra costs and direct saved funds toward growth initiatives. Small adjustments in inventory and supplier relationships can further free up resources for reinvestment in sales and expansion.
Leveraging Amazon Marketing Cloud (AMC) for better insights
Amazon Marketing Cloud (AMC) offers a more granular view of customer behavior, lifetime value, and ad performance. By tracking the customer journey in detail, brands and agencies can tailor ad strategies that better align with what their customers want.
For example, AMC data can reveal how often customers interact with a brand before purchasing, which can help to develop more effective retargeting strategies. Combining Xmars AMC Hub insights with analytics platforms like 3fin gives advertisers a well-rounded, data-driven perspective, making strategic planning far more effective.
Key steps for a profitable holiday season
With Amazon’s marketplace constantly evolving, brands and agencies who take a proactive approach to profitability are better positioned for long-term success. Here are some strategic moves for the holiday season and upcoming year:
- Prepare early for major sales events: As the holiday season and other high-traffic shopping events approach, early planning for inventory and supply chains can help avoid last-minute issues and maximize returns during peak seasons.
- Focus on building a distinctive brand: A strong brand helps advertisers stand out and build customer loyalty. A brand that resonates with its audience can command higher margins, making it easier to avoid competing solely on price.
- Explore new marketplaces: Diversifying across multiple platforms broadens brand reach, attracts new customer segments, and increases visibility. This multi-channel approach strengthens brand presence and builds a more sustainable growth model.
By focusing on accurate financial tracking, making data-driven ad spend adjustments, and managing inventory proactively, Amazon brands and agencies can build a strong foundation for profitability for the rest of 2024 and 2025. Using tools like 3fin and Xmars provides the insights needed to make every dollar count in a competitive marketplace.
To dive deeper into these strategies, watch the full webinar here or contact us to book a personalized demo—and discover how Xmars can help you maximize your profitability and efficiency on Amazon!
