2022 was a roller coaster! Consumer product brands saw profit margins cut. China-based sellers reached a peak on Amazon.com. This kept retail prices low despite inflation. Private equity firms spent billions on buying hundreds of brands. Meanwhile, aggregators misjudged the market. This led to layoffs and former brand owners worrying about payments. If you’re a brand aiming for long-term gain, I commend you. I have valuable info to share. My business partner prefers I keep it secret!
So read up before this gets taken down.
After surveying hundreds of Amazon sellers, we’ve identified 5 major mistakes being made by Amazon agencies, which have a significant adverse impact on top line revenue and net profits.
- Automated Advertising Management Software
AI, also known as machine learning, has become the latest buzzword used to promote advertising automation tools, like Sellics, Quartile, Helium10, and Teikametrics. After years of converting brands off of these tools we’ve proven that they are fundamentally inferior for the following reasons; (1) Most of these tools are using fixed knowledge based algorithms, not self learning algorithms, (2) They don’t have the ability to handle products with seasonality, (3) They are unable to judge significance and negate or bid down on search terms and ASINs instead of altering the product listing content to improve conversion rates, (4) Relevancy can only be determined by engagement data, resulting in advertising spend on non relevant search terms and ASINs that could have been negated upfront, and (5) Amazon launched their own automated bidding feature rendering the only true benefit of these automated advertising management softwares redundant.
For these reasons, brands using these tools are overspending. - Performance Based Revenue Recovery Services
Amazon is notorious for not refunding sellers for lost and damaged inventory, failed returns, and incorrect FBA rate fees. 3rd party revenue recovery service providers like Refunds Manager offer a 100% performance based model ranging from 15 – 25% of recovered funds. There are two issues with this.
The first issue is the ratio of compensation to time spent. A reading glasses brand we managed lost and damaged inventory worth $14,000 quarterly. They used a service charging 20%, totaling $2,800. After we took control and applied the process manually, we spent 5 hours at $60/hr. This approach cost $300 to recover the same $14,000.
These services usually bill monthly and pose a problem. Amazon reconciles lost and damaged inventory every 30-60 days. An agency might claim credit for refunds Amazon might have processed anyways. We have shifted over 20 brands away from such services, saving them significant amounts in fees. - Segmenting Advertising Campaigns by Brand & Non-Brand
The biggest red flag we see in seller accounts is when advertising campaigns aren’t segmented by brand and non-brand search terms and ASINs. For example, “Nike tennis shoes” would be brand and “tennis shoes” would be non-brand. Knowing your true cost of net new customer acquisition is crucial to minimize unnecessary advertising spend, avoid making decisions on poor data, and being able to properly scale the Amazon advertising campaigns.
One time a brand’s top performing advertising campaign was spending $5,000/month on 3 non relevant search terms with 0 conversions. Due to the advertising campaign being 90%+ brand, their agency did not check and optimize the advertising campaign accordingly. Luckily, we quickly identified this in our audit. We have now been working with that brand for almost 3 years. - Amazon’s Advertising Recommendations
There’s a famous saying you’ve probably heard of, “If something is free, then you are the product”. You don’t want to implement Amazon’s advertising campaign recommendations because they are designed to make Amazon more money. They will also dilute the advertising data by placing brand search terms in non-brand ad groups and vice versa.
The bid decreases are a trojan horse for the bid increases and new search terms. Most of the bid decreases are not significant enough to decrease your cost per clicks (CPCs). Overall, if you care about profitability then it’s best to ignore the recommendations. - Catalog Issues
First and foremost, catalog issues have become increasingly more difficult to solve. This has been caused by Amazon’s inability to retain talent, poor training, outsourcing to international countries, removing capabilities from their support team, and not allowing phone communications to critical departments like Brand Registry.
We frequently hear about brands being told by specialists and agencies that product reviews can’t be aggregated, products can’t be parent-child, stranded inventory can’t be fixed, content can’t be updated, and product restrictions can’t be removed. The brass tax is that these claims are false. We solve these types of complex catalog issues every week.
If you are doing any one of the items listed above, it’s not your fault. This information is not widely known and most agencies focus more on sales rather than research and staying ahead of the shifts in the marketplace. It’s easier to not challenge new technologies and to simply say things are not possible.
So, what are you going to do with this information?
There are 3 options:
- Option 1: Do absolutely nothing and push it off for down the road
Yes, I know, it’s silly having this option, but you won’t believe how many brands are hard headed and against change. I’m not saying they’ll go out of business, but they will slowly decline and fail to maximize their revenue and net profits. - Option 2: Continue trying to fight against the grain
Talent is not cheap, especially nowadays so I don’t blame you if you choose to stick it out alone or with your current team. Restructuring an organization is not something an owner or department head enjoys doing. - Option 3: Partner With Pidapi
Contact us for a free audit. Two things can come of this. You’ll either be notified that we identified a substantial amount of opportunities to increase your revenue and net profits or we will notify you that we did not.
In this world, there are two types of people. Those who continue to push their problems off and settle for mediocrity, and those who identify how their business can improve and take action. The majority of business owners will say they want to make changes to increase profit margins, but we both know very few actually make it happen.
It’s a classic tale of the woeful and the willful.
Market shifts are something most people will ignore until it’s too late. The few who are paying attention will adjust strategies for the benefit of their employees and their family.
Since you’ve read this far, I think I know which type of person you are.
If I’m right and you’re still with me, reach out and let’s discuss how a partnership with Pidapi will increase your revenue and net profits.
