Run a Tighter Ship: How to Improve the Efficiency of Your FBA Business
Peak efficiency. It is what ensures the profitability and sustainability of any business venture. Building a successful business requires more than decisive action; it also entails close scrutiny of business systems in place, as well as the careful analysis of numeric data indicative of the performance of the utilized business model. These system checks and number crunching create a foundation for effective policy setting and decision making for your business.
Conducting routine systems checks and crunching numbers can be beneficial for FBA sellers no matter what point they are at in their enterprise. For those starting out, an in depth look at the state of their business can help them pinpoint and set up the necessary systems and processes that can not only increase profitability but also sustain it. Established sellers, on the other hand, can determine how to effectively modify their systems and work processes to plug cash flow leaks that reduce their bottom line after a thorough inspection of their existing business models.
If you are looking to improve the efficiency of your operations in the quickest time possible, ask yourself the following questions and take a closer look at these aspects of your FBA business:
How Much Should I Earn Every Month? -Your Monthly Gross Sales and Profit Goals
The ability of your business to survive or thrive depends on the sales and profits it can generate. For your business to continuously grow and meet its developmental targets, you must know what level of profit is needed to sustain it.
The first thing you have to know is the point where you break-even. To determine your required minimum monthly gross sales amount, there are several figures that you have to look at and take note of. First, is your total monthly business expenses. These include your direct and indirect costs, FBA fees and your miscellaneous expenses. Second is the Average ROI of your inventory investments, and last is your Inventory Turnover rate.
Although there are online calculators that can give you a rough estimate of what your monthly gross sales goal should be, it is ideal to acquire the services of a bookkeeper or accountant for sound business advice. Run your numbers by a financial services professional, know your current break-even point, and set realistic sales and profit targets in tune with your current and future business goals.
Am I Moving My Products at a Profitable Rate? – The Strength of Your Inventory
The success of your FBA business depends largely on the strength of your inventory. When you make the correct sourcing decisions, you move your products much faster, achieve a better turnover rate, incur less costs and bank your profit more quickly.
The Inventory Health report you can download from Amazon can give you critical insight on the strengths and weaknesses of your sourcing game. The report allows you to see your fastest selling items, the ones that don’t move as quickly, and inventory that has gone stale. To access this report, go to Seller Central and hover over “Reports”. Then, click “Fulfillment”. On the left side of the page that opens, click “Show More” in the section with the heading “Inventory”. Click on “Inventory Health”, and you will have the option of downloading this report or viewing it online.
The information from this report allows you to see how your inventory investments have been performing, and brings to light things that severely impact your bottom line:
-Additional expenses (storage fees) incurred from slow-moving inventory – From January to September, Amazon charges you the amount of $0.64 per cubic foot your inventory takes up in its fulfillment centers monthly. This rate increases to $2.35 from October to December (Rates presented are for standard sized inventory, and this may vary depending on size tier of product/s).
Therefore, when looking at profit margins for inventory aged 90 days and over, these storage fees must be taken into consideration. Moreover, inventory aged 120 days and over are subject to Amazon’s long term storage fees. For these items, your margin must be able to cover this additional expense after paying FBA fees.
-Flaws in Your Sourcing Game – items in your stale inventory are good indicators of flaws in your sourcing methods. Careful analysis of these items in your inventory can reveal the weaknesses of your sourcing methods, e.g. neglecting to check sales rank and price history, entering highly-saturated market segments, failing to expand categories to sell in, ignoring seasonal trends, etc…Whatever the flaws in your sourcing method are, analyzing the common denominators of underperforming items in your inventory is a good way to correct them in the quickest time possible.
How Do I Move Underperforming Items in My Inventory? Troubleshooting Stale Inventory
While it is tempting to just liquidate stale inventory and move forward, utilizing the often overlooked Detail Page Sales and Traffic by Child Item report can help you identify problems with the listings of the slow-moving items in your inventory.
Found under Business Reports, this assessment tool from Amazon helps you remedy listing problems of slow moving inventory in two ways:
1. The Buy Box Percentage column of this report will tell you the best pricing adjustments you can make for your slow moving items. If you have stale items that never seem to get the buy box, find out who your main competitors are and what price ranges they are working with. Moreover, work on your overall competitiveness to be able to continuously vie for the buy box and employ a highly reactive repricing strategy. On the other hand, if your slow moving items are featured in the buy box often but still have low sales, you and your competitors are probably selling at prices much higher than prices at markets outside of Amazon. Check other marketplaces and adjust your prices appropriately.
2. The Unit Session Percentage column of this report gives you an idea of how much traffic a listing gets. The figure that appears in this column is obtained by dividing the number of units sold by the number of views for a specific time period and expressing the quotient as a percentage.
If the product page of your item has a good number of views but low sales figures, it often means that there are elements in the product page which are either attracting the wrong people or driving buyers away. Check the product page for errors in the title, image, product description , bullet points and keywords and fix them right away. In some cases, customers simply choose to not purchase the item from you. Review your prices and compare your seller rating and feedback with your competitors. On the other hand, if your item has a low number of page views, one thing that you can do is lower your price significantly until its sales rank improves.
These are just some of the numbers, data and reports that you can utilize to improve the efficiency of your FBA business. If you have other tips and suggestions, share and discuss them in the comments!
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