New Developments
As I continue my Amazon sales journey there are new developments that readers may be wondering about. When I completed the book it was fall 2023. Since then there have been changes to the Amazon platform as well as new insights into how I approach my Amazon sales. As readers of my book, you are probably interested in how I approached these challenges. My future blog posts will address these changes as well as any comments that readers may have.
Inventory
Amazon recently announced minimum inventory levels. As I addressed in the book, there are benefits to keeping enough inventory at Amazon, but too much inventory is just a drain on your profitability.
I’ve noticed right away that Amazon is padding their books with this new change. The “minimum inventory level” they are setting will have you keeping over a month of spare inventory at all times (closer to 6 weeks at my current estimates). That will definitley inflate the storage fees and should be taken into account when you calculate your COGS.
As I outlined in the book, I track my inventory needs using the Excel tool provided here and it can still be used. I had already incorporated a minimum inventory level into my process but I tended to keep things leaner so as not to incur unnecessary storage fees.
But using that tool I can now input their manditory inventory level and still know how much and when I need to send inventory. It will definitely be a higher minimum than I’m used to. Since I’m already tracking my month-to-data, most recent 7 day activity, as well as best recent day, I know exactly how fast product is selling. When I compare those measures to their minimum inventory levels it is obvious their algorythm does not agree with my recent trends.
Right now they seem to be saying I need to keep about 6 weeks of inventory on hand for them to be happy.
I can’t know exactly how that will impact my profitabilty until I see how the fees settle out when this becomes an active mandate in April. My current Excel model does not include warehouse fees in it because my philosphy was to keep inventory as close to “just-in-time” as possible — so my warehouse fees were minimal. That is no longer valid sice Amazon will be charging a penalty per unit sold below their minimum threshold. So I’ll need to include either the higher selling fees or the higher inventory costs (or a combination of both if things go wrong in receiving) in my Excel tool. Expect an update to my Excel tools in May if nothing else.
Advertising
I spent more on advertising in January than any month in the prior year (both in terms of total advertising spend and dollars per sale acheived). It made for very disappointing January profits. So while my sales were up 400% from last January, the profit was nearly the same. Although I was still profitable, the advertising spend ate into a great deal of the profits creating a rather lackluster return on investment.
My product shows low performance due to seasonality in November and December but should be expected to pick up in January and build throughout the year. So when advertising cost per spend, as well as the total number of clicks, started to rise, I let the algorythm spend up to my daily limit assuming the seasonality was driving clicks. Big mistake.
As I mentioned in the book, there is definitely a “law of diminishing returns” on the platform and even seasonality could not overcome that. Spending more on advertising did not achieve significantly more profits.
So I pulled back my Amazon advertising bids to levels that had previously been adequate to generate decent profits and started exploring ads on Facebook to gain awareness and visits to my website (and Amazon if they prefer to click through to buy there). For those wondering, that means I was taking my Amazon advertising bids from $.80-$1.00 per click, all the way down to $.55-.70 a click. Ironically, it seemed to provide better quality placements with more clicks resulting in sales. Go figure.
My budget for Facebook is only $1-2 a day and set for general awareness. But as I explained in the book, my philosphy is based on a desire to make money, not spend all my profits chasing phantom advertising promises. My plan is to take this up higher as soon as the platform proves it is delivering. More results, more money allocated. But I won’t spend big in “hope” it pays off. Trust but verify.
It was a disappointing start to the year: not in terms of the product itself, but in terms of how well I feel Amazon is performing as a platform. But I have course correctely quickly and expect to be on track for February. It’s all about understanding your customer and how to best reach them making PROFITABLE sales. The adventure continues.
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