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Amazon Strategies For Success During Covid-19
By Chuck Mullins
Resilience and adaptability are fundamental traits for any entrepreneur, and now, that is especially the case. In an already quickly changing world, the onset of Coronavirus has brought tests and challenges that are transforming markets and redefining businesses. The way in which you respond to these unfamiliar circumstances will largely determine the future trajectory of your business.
This article will share valuable strategies for navigating the current business climate while minimizing loss and uncovering hidden opportunities. By leveraging our team’s vast experience drawn from owning, operating, buying and selling hundreds of online businesses, you’ll be better equipped to steer your company in the right direction.
IN THIS ARTICLE:
It’s an excellent time to form partnerships with Amazon affiliate content sites!
On April 21st, Amazon affiliates saw a dramatic reduction in their commission rates, with many categories being diminished by more than 50% and some lost as much as 80% (commissions for Health & Personal Care products went from 5% down to 1%). Needless to say, these commission changes have devastated Amazon affiliates’ revenues.
How to make up for lost revenue
In order to make up lost affiliate revenue, many content sites would love to form direct partnerships with Amazon sellers
What could be better for a struggling content site than the opportunity to receive compensation directly from the sellers they support? By connecting with Amazon affiliate content sites that promote similar (or competing) products, you’ll have the opportunity to work out an arrangement that can benefit you both.
For example, let’s say you sell a product in the Pet category which pays a 3% commission to affiliates. If you can work with an affiliate content site and offer an additional 5, 10, or 20% commision on sales by promoting your product, you’ve just given them an opportunity to multiply their earnings significantly. What affiliate wouldn’t want to take you up on that offer?
Let’s compare the possible returns from an affiliate site partnership to a traditional Amazon ad campaign. Many Amazon sellers have an advertising ACoS of about 30%. That means they’re spending about 30% of a product’s selling price on ads in order to drive each sale.
Now, if you’re able to offer 15% of each sale to an affiliate, you’ve just doubled your return on your marketing budget. Of course, each business will need to consider the effectiveness of each method when determining their own marketing strategy.
Once you come to an agreement with a new affiliate partner, you can pay them based on screenshots they send, earnings reports, or a fixed rate that you agree to. This can be a high-leverage way to increase your sales with minimal investment and effort.
If you are a content site owner and have been hurt by the recent Amazon commission changes, why not reach out to product owners and see if they’d be interested in working with you directly as an affiliate? The key with this is that you’ll need to justify why they should spend the extra money if you are already promoting them. You’ll most likely need to explain to them how you’ll be able to provide additional traffic and sales.
It’s always a good idea to eliminate excess spending, but if your revenue has taken a hit, this step might be especially important right now
Look through your bank and credit card statements to identify any expenses that aren’t currently driving your business forward. For example, maybe there are a few monthly software subscriptions that you don’t really need. Or, perhaps there are some less expensive alternatives that will satisfy the same need. Depending on your previous spending habits, you might be able to substantially reduce your overhead just by going through your records and cutting costs that don’t make sense for your business.
Many businesses are hurting right now. If you have the cash, maybe it makes sense to reach out to some of the services you use and ask if they are running any sort of coronavirus special if you pay for a year in advance. This could save you a bunch of money while helping out that business owner who may be having a tough time.
Sometimes, challenges can prompt you to reexamine your business and the opportunities it faces. Just because your existing revenue model has worked well for you in the past, it doesn’t mean that it’s the best path forward into the future.
Reevaluating your business can help you to identify growth opportunities
Back in 2000, I was making most of my money through ad revenue. However, when the dotcom tech bubble burst, all of his income suddenly dried up overnight. I knew he had to come up with a new strategy to replace his lost ad revenue and observed that some other sites had been successfully running a membership model. I partnered with 2 other site owners and decided to test that model. This quick pivot generated 4 times as much revenue as he had been making through his ad model in the first month and went on to grow to a 45x increase within a couple of years.
Just by looking for new opportunities, I was able to turn a catastrophic loss of monthly revenue into a 4x increase in the first month of testing the new model.
In my situation, what seemed like a fatal blow to his business led to a complete transformation of his revenue model which multiplied my income. This example illustrates an important lesson about adversity and change: When things are going smoothly, it’s easy to overlook hidden potential. However, when the environment suddenly changes, entrepreneurs must look critically at the new opportunities that exist in their market.
Obviously, each business will face a different set of decisions when it comes to pivoting and growth. For Ecommerce sellers, this might mean exploring new product lines or targeting different price points.
With consumer confidence down, some premium brands may want to offer products at a lower price point to capture value-conscious shoppers
This is just one way that Ecommerce businesses might want to pivot and adapt to the current market conditions. Additional changes could include introducing new product lines, cutting others, and repositioning existing offers based on market demand.
In addition to considering entirely new opportunities, it’s also wise to look at what’s working and pursue those activities.
If Amazon is driving significant sales for your business, double down on your efforts. If you’re struggling on Amazon, perhaps build your brand through other channels
Amazon is ripe with opportunity right now. If you’re experiencing success on that platform, it might be a good idea to concentrate your efforts and expand your existing product lines. On the other hand, if the nature of your product doesn’t work well with Amazon, you may want to consider building your brand through other channels. Many online businesses thrive using instagram, building email lists, and cultivating a loyal audience that buys through their website.
Supply chain disruptions were one of the first major threats to businesses resulting from Covid-19. With many companies reliant on the production, transportation, and storage of physical products, the sudden pandemic sent thousands of businesses scrambling to respond to shutdowns and delays.
There are three primary ways in which supply chains were impacted:
- Chinese suppliers were forced to shut down production for many products.
- Shipping services experienced lengthy delays.
- Amazon stopped accepting inventory for many products, as well as experienced setbacks in their ability to fulfill orders in a timely manner.
Let’s dig deeper into each of these.
As the first country impacted by Coronavirus, many Chinese factories were forced to shut their doors in response to the disease. Although most have resumed operation, this temporary closure resulted in significant delays for countless orders and shipments. The disruption impacted a wide range of products, but some were affected more than others.
Complex products that include components from multiple factories were generally impacted more than simple products containing fewer components
Unsurprisingly, products that require components from many different Chinese producers generally experienced more significant production interruptions. With more possible failure points in a complex product’s supply chain, the rate of issues increased dramatically.
For example, electronic devices and equipment that contain many individual components generally suffered more. Simple products, such as those created solely through injection molding, experienced fewer disruptions on average.
Also, since some Chinese provinces were more impacted than others, the location of a business’s suppliers also determined the extent to which a given supply chain was disrupted. Factories closer to the epicenter, such as those in Wuhan, Hubei province, experienced more significant closures and delays than those in many other provinces within China.
The production of medical supplies has been prioritized over non-medical equipment
Factories that can manufacture medical supplies and equipment have been dedicating their manpower and materials to the production of those products. This has left a shortage of resources for many non-medical products.
In addition to disruptions in the production process, many companies have experienced issues in delivering their products to their customers.
Shipping services have experienced lengthy delays, especially for air freight
Just as some factories were forced to send their employees home to prevent the spread of Coronavirus, the same is true for many shipping services. The reduced capacity of shipping companies has resulted in lengthy delays as well as increased rates. While reduced oil prices have lessened some of shipping carriers’ costs, air freight rates have stayed elevated in the first week of May.
Amazon’s fulfillment disruptions have impacted numerous sellers
On March 17th, Amazon announced that the company would temporarily stop processing incoming FBA shipments for products outside of specific categories. This was part of their effort to prioritize the delivery of ‘medical staples,’ ‘household staples,’ and other products deemed essential for everyday life. Since many sellers hold minimal inventory at Amazon to eliminate long term storage fees, this policy created significant inventory shortages for some businesses.
In mid-March, some shipments were expected to take up to a month to deliver, further reducing some businesses’ ability to successfully sell on Amazon.
In response to these disruptions, Ecommerce sellers will greatly benefit by considering a number of steps to improve supply chains:
- Review contracts or renegotiate with your suppliers.
- Find new suppliers to fill the void if your current suppliers aren’t available.
- Find shipping carriers that can satisfy your shipping requirements (including fast sea freight).
- Use third-party logistics companies (3PLs) to satisfy inventory storage and fulfillment needs.
- Moderate sales volume by increasing prices or reducing ad spend.
Now is a great time to review contracts or renegotiate with your suppliers
Some contracts entitle buyers to compensation for missed shipments or delays. If your business has suffered as a result of disruptions in your supply chain, you may want to look at your legal documents to see if there’s any recourse for damages that have been caused.
Also, suppliers know that many businesses are struggling right now, making it a good time to approach your vendors to renegotiate production costs or payment terms. If they understand that your market has taken a hit, they may be open to offering a better deal in order to ensure their continued partnership with you. Remember, it’s in their interest to help you succeed as that is the best way for them to keep selling you inventory.
While a lot of suppliers have returned to business-as-usual, you may want to consider finding new or additional ones. This is especially true if your current suppliers are either unable to meet your demand for the products they produce, or if your shipping costs and timelines have dramatically increased based on their location. Of course, it’s easier to replace a supplier for some products than it is for others, so each business will need to evaluate their own production processes to assess their needs.
In addition to replacing your current suppliers, there are some easier, less energy intensive changes you can make to improve your existing supply chain. One of these is to rethink your shipping strategy.
Typically, most Ecommerce businesses consider two general shipping methods: air freight and sea freight. Obviously, these two choices represent a tradeoff between speed and cost — air freight is faster and more expensive while sea freight is slower and less expensive.
My entrepreneurs aren’t aware that there’s another choice called fast sea freight. As the name implies, fast sea freight is a sea shipping option that delivers inventory orders quicker than traditional sea shipments.
Fast sea freight strikes a balance between speed and cost savings.
According to Amazon FBA Source, the general shipping delivery times for the three options are:
- Air freight: 7-12 day
- Slow sea freight: 25-35 day
- Fast sea freight: 15-25 days
Since many air freight shipments are currently experiencing some delays, if you’re using air freight you may want to consider fast sea freight as a possible alternative. If you’d like more tips for implementing an effective shipping strategy during Coronavirus, this article has some great advice.
In addition to looking at your shipping method, you may also want to consider changes to your order fulfillment strategy.
As of the first week in May, many businesses are experiencing improved fulfillment timelines compared to the last couple of months. However, if you’re still out of luck, it might be wise to explore the possibility of working with a 3PL for your fulfillment needs.
If you’re encountering difficulty with Amazon fulfilling your orders, consider working with a 3PL
It’s important to note that there are several factors to consider when deciding between using a 3PL and Amazon, including fulfillment and storage costs, delivery timelines, and being prime eligible, among other things. As of this writing, Amazon was still advising customers of delayed shipping times on many prime orders. This often allows sellers to advertising a quicker delivery time than amazon fulfilled prime when using a 3PL or seller fulfilled prime.
If these three strategies aren’t sufficient for improving your supply chain in the short term, you may want to take some steps to reduce your sales volume.
Increasing your prices or decreasing ad spend can help you reduce sales volume and improve your margins
Business intuition usually tells us that reducing sales volume isn’t a good thing. However, when your supply chain is troubled, it can actually help increase your bottom line.
If your daily sales volume has you on track to run out of inventory before it’s replenished, it’s probably a good idea to tap the breaks in order to make the most of what remains. There are two primary ways to do this.
- Reduce your ad spend
- Increase your prices
Not only will decreasing your ad spend reduce your sales volume, but it may also increase your margins since a larger percentage of your sales will be coming from organic traffic. This will allow you to generate more profit on your remaining inventory.
Secondly, increasing your prices will curb demand while also increasing your margins on each sale. This is another easy way to moderate your sales volume, but it’s very important to make sure this decision isn’t perceived as price gouging. For example, if you’re selling medical masks or other essential supplies, this strategy could backfire.
There’s a difference between trying to curb demand to maintain inventory and intentionally scraping as much profit as possible out of desperate consumers. Remember that perception is reality, and if the powers that be think you are price gouging, your intentions are irrelevant.
It’s important to look critically at how your own supply chain has been affected and implement the strategies that will work best for your business.
We’ve talked a lot about improving different aspects of your business, but there’s one other very important element we haven’t mentioned yet: you. In order to be the best business owner possible, I recommend investing in yourself by learning about the various skills that drive your company forward.
Gaining a basic understanding of all the components in your business allows you to be a more effective leader
Even if your primary role is to be the leading visionary who puts all the pieces together, it’s very valuable for you to have a grasp on the jobs that exist within your company. Knowing what each activity entails won’t just allow you to set clearer guidelines and expectations when it comes to giving directions, but it will also enable you to manage your workforce in the most effective way possible.
I have a background in software engineering, so it’s easy for me to communicate with programmers and understand what’s going on. Based on my experience, it tends to be obvious when tasks aren’t going as they should be. If a programmer tells me that a task will take two days when it should only take two hours, I can call BS.
You don’t need to be the master of all trades, but having a basic understanding of the responsibilities within your business makes you a more capable visionary. Maybe this means taking a marketing course, learning about programming, or studying ad campaigns. Just dedicate some time to learn the skills that matter for your company
While Covid-19 is truly unique in many regards, its impact on businesses reveal important lessons that entrepreneurs would be wise to take forward. In summary, here are three actionable steps that we encourage all business owners to consider:
- Have enough inventory on hand to withstand unexpected disruptions in your supply chains.
- Be aware of high-leverage growth opportunities, including partnerships with affiliate content sites.
- Eliminate unnecessary expenses.
- Be ready and willing to pivot if the environment requires it.
- Invest in yourself.
Following these steps will go a long way to ensuring the growth and sustainability of your business. As we move past the immediate shock of the current pandemic, businesses and entrepreneurs should continue implementing these strategies and refining the practices that work best for themselves.
At Quiet Light Brokerage, our team of qualified brokers is always happy to speak with you about the state of your business and offer a free valuation. Please feel free to reach out to us with an email or phone call so we can schedule a meeting