Part 1: Selling on Amazon
Those few words can strike fear into the hearts of retailers. It’s big, it’s daunting, it’s...
Selling opportunities on Amazon continue to grow. As of 2021, the website has 200 million Prime subscribers, making it an obvious marketplace choice for any online business.
Many sellers utilize Amazon’s FBA service, which enables them to sell products without keeping inventory on hand. Amazon stocks the products in their warehouses and fulfills orders in-house. This can drastically reduce extra burdens placed on the seller so they can focus their attention on building their business.
Running an Amazon FBA business is not just a plug-and-play formula, though. It requires attention to the constantly evolving landscape of ecommerce. The idea of an entirely online store is still a relatively new phenomenon, and like anything else in the digital space, changes occur regularly, especially in a post-pandemic world and especially for leading companies like Amazon.
It’s worth noting that these changes aren’t in place to frustrate Amazon sellers, though that may be a necessary byproduct. Aspects of these changes will make it harder to sell on Amazon, but it will also reduce the amount of scam sellers or illegitimate businesses. Sellers who consistently abide by Amazon’s policies and prove themselves as valuable businesses will get rewarded in the end.
We want to help you navigate the most recent changes, so below, you’ll find 5 tips for running your Amazon FBA in 2021 and beyond.
Amazon adapts well. It’s part of the reason they have stayed so successful over the years. They stay on top of trends, keep an eye out for issues, and adjust their policies accordingly. Amazon sellers, by default, have to adapt to these changes, too, and one of the most recent changes has to do with alterations to the Inventory Performance Indicator (IPI) policies.
The IPI score is a key indicator for a sellers’ ability to get products from the warehouses to the customer. Amazon has kept the algorithm for calculating the number close to their chest, but essentially, it measures your business’s inventory management skills on a scale of 0-1000, considering things like your ability to balance inventory levels, addressing listing issues that cause your product to be unavailable, and keeping items in stock.
The point of the IPI is to show Amazon that your business actually moves products out of their fulfillment centers and into the hands of customers at a reasonable pace. Amazon has no interest in being a long-term fulfillment company, so it rewards sellers that manage inventory well and gives consequences to those that don’t.
In 2021, 450 became the magic IPI number for sellers to reach, dropping 50 points from 2020’s Q4 threshold of 500. Now, 450 indicates well-performing inventory, while anything above 550 indicates top performing inventory management. Sellers who fall under the 450 line will be subject to storage volume limits on certain items.
Amazon also made adjustments to their FBA fees that started on June 1.
Most of the fee changes are subtle. According to their website, the increase in fulfillment fees averages out at 2-3%. And the adjustments aren’t all bad news. Some are responses to moves Amazon made to help third-party sellers.
The organization increased its fulfillment and logistics network by 50%, providing sellers with more resources. Additionally, Amazon absorbed some of the fees in 2020 and the early parts of 2021, which is why the fee changes did not roll out until the middle part of this year (June 1 to be exact).
These benefits don’t come freely, of course, and the Amazon Seller Central provides comparison charts and graphs that show the fee changes from year-to-year in the following categories.
One of the biggest advantages FBA sellers have compared to other third-party sellers is the higher probability of getting the Buy Box.
The Buy Box, if you don’t know, is the default seller of a product sold by multiple online businesses. It’s a huge advantage because few customers will click through a list of sellers. They typically just go with the one Amazon shows first. In fact, 83% of Amazon sales come from the Buy Box seller.
To make things a bit more even, Amazon started rotating which sellers show up on the Buy Box, but there are ways to enhance your share of the Buy Box. Amazon looks at features like shipping speed, price, whether something is Prime, and fulfillment choice to rank the highest-performing seller for that product. Being an FBA seller gives you a natural leg up on the competition because Amazon gives you an automatic, perfect score for that field. It also qualifies the product as a Prime product, which adds value, too.
Inventory management will play a big part since out-of-stock items don’t make the cut. Lower-rated stores or those with consistent, negative feedback have a harder time getting there as well. Remember, Amazon makes its money through convenience and consistent high-quality, seamless experiences. The more the seller can demonstrate that they regularly meet these standards, the more they will increase their share of the Buy Box.
In an effort to ensure each seller meets Amazon’s standards, the company has heightened its expectations on brand registries. Non-trademarked brands will have a harder time selling on Amazon from here on out, making brand registration a critical part of future success.
Once a seller has trademarked their brand, they can also register with the Amazon Brand Registry for added perks. Registered brands have access to a host of special benefits, including expanded protection from counterfeiters or listing hackers that try to steal your sales. The program also gives sellers certain marketing and analytics perks like text and image control on listings, sponsored ads, and enhanced content.
There are other advantages to branding beyond Amazon’s perks, too. Building a brand means that you have identified a target audience, developed a consistent brand voice and aesthetic, and can give your buyers a sense of what they expect from the seller. More and more consumers want consistent experiences in their ecommerce shopping, and developing a strong brand is a great way to meet this need.
Despite the abundance of opportunity for Amazon FBA businesses, the channel does have its limitations when leaned on too heavily.
More and more people have recognized the potential for profits, making the marketplace more competitive for everyone in 2021 and beyond. Likewise, even though Amazon gives independent sellers a lot of autonomy, they still maintain ultimate control. Consider the temporary hold the company put on non-essential items during the start of the pandemic. Many Amazon FBA sellers were left without the ability to ship or sell products. They were at the mercy of Amazon.
Amazon sellers don’t need to slam on the brakes or cancel their FBA services, though. They just need to learn to adjust to the changing landscape, and multichannel selling offers them a great opportunity for that.
Multichannel sellers utilize the Amazon FBA platform while embracing complementary selling strategies as well. This diversification allows the online business to pull income from various sources and be less dependent on a specific marketplace. It’s that whole “don’t put your eggs in one basket” idea. Expanding into other channels will make you less reliant on Amazon alone. It doesn’t mean you lose out of Amazon FBA sales. It just means FBA becomes a (very strong and potentially profitable) basket amongst many. Utilizing multiple channels helps sellers stay ahead of potential challenges as Amazon’s competition and regulations grow in 2021 and beyond.
Amazon itself recognizes the value of this and has introduced their Multichannel Fulfillment service (MCF). With this option, sellers can utilize Amazon’s fulfillment resources with sales from different platforms. Amazon MCF integrates with ecommerce applications like Shopify and Woocommerce, or users can create custom integrations to access the efficiency and convenience of Amazon’s fulfillment services across all their channels.
Amazon FBA offers great potential to online businesses and third-party sellers. The convenience and value brought by partnering with Amazon services cannot be understated. Still, sellers need to be aware of the constantly changing digital landscape, and the FBA program has evolved in 2021.
Staying on top of the small changes to policies and fees will help online businesses adapt. Improving IPI scores will reduce fees and make your business operate more smoothly. Knowing and adapting to the fee changes will enable you to adjust prices or make other necessary changes.
Likewise, Amazon FBA sellers have unique opportunities to maximize potential profits in 2021 and beyond. The company rewards legitimate sellers by giving them a greater share of the Buy Box. They’re cracking down on organizations without trademarks and increasing the need for brand registration. Finally, as the Amazon marketplace continues to grow, online businesses can embrace multichannel selling as a means to expand their success beyond Amazon FBA. Sellers who respond to these changes will find more success in the long run.
The pandemic changed just about everything in our world, and online selling was no exception. Nonetheless, the potential for profits still exists in 2021 for those willing to make the necessary changes.
Over 15 years of experience in ecommerce in various positions, tackling with various problems of ecommerce retailers everyday, co-founded StoreAutomator as an advanced listing software for brands, retailers and agencies to solve the daily struggles of companies' listing and managing product data in multiple platforms.