3 Pro Strategies for Setting Amazon Selling Goals
- December 7, 2015 | Marcus DeHart
I confess: setting goals is not at the top of my list of "favorite things to do today." I’m a laid back individual who would rather float down a meandering river than plot a course and tackle a cross-country adventure. However, I understand and respect the Amazon seller community and realize that, without goals and rigor, I'll be out of the ecommerce business tomorrow. For the serious seller on Amazon, however, floating down the river just doesn’t cut it. Margins are too thin and competition is too high to take anything but a businesslike approach.
The key to success in a competitive environment like Amazon is being able to measure results. Good business models set goals that will enable you to measure your success. And good goals are always SMART (Specific, Measurable, Attainable, Realistic, and Timely). What you decide to measure can take some serious thought, as there are many levers online sellers can pull. Here are three metrics to consider when setting Amazon seller goals:
The first lesson I learned with selling on Amazon was that the more stuff you sell, the more you make. In 2008, I sent a few dozen test products in to Amazon’s fulfillment centers and sat back to see what would happen. Within a week or two I had sold maybe half a dozen. With a profit of about $2.00 per unit, I had made about $12.00. I was clearly underwhelmed.
As I researched the competition, I discovered sellers who were turning over large volumes of inventory at low prices. At first I couldn’t fathom why they would settle for small margins. But by doing the math, I was able to figure out that selling 1,000 units with a profit of $1.00 per unit will earn you more money than only selling 100 units with a profit of $2.00 per unit.
Goals for selling high volumes can be both specific and measurable. It’s one of the easier metrics to track. Of course the goal you set will require that you first know what your profit per unit will be. Then determine how much profit you want to make over a set period of time and how many units you’ll need to sell in order to reach your profit. Then keep an eye on your sales volume and you’ll be able track your success.
Cycle measures how many units you sell over a set time period. It might appear to be the same as volume, but there are subtle differences. It’s a way to evaluate the health of your inventory. In “The Perpetual Cycle of Stale Inventory” I provide some tips on how to manage inventory to avoid letting it eat into your profits by sitting in a warehouse gathering dust. Getting the right number of units in to Amazon’s fulfillment centers so that they sell before they become stale is the challenge.
If you can forecast how many units you’ll sell in a week or a month, you can optimize your shipments so you're sending just the right amount (and maybe a smidgen more) to sell before you send the next shipment. Different types of products will have different cycles. For instance toilet paper, which shoppers purchase on a regular basis, could have a much shorter cycle than toilet plungers. So unless your inventory is homogenous, you’ll need to set different goals for different products or groups of products.
Your margin can be assessed at multiple levels. You can look for unit margin, gross margin, and adjusted gross margin. Each is an indication of how much money you have left after your products are sold, expressed as a percentage of your wholesale cost. Adjusted gross margin will give you a big picture of your businesses performance, while unit margin is on the other end of the spectrum, showing how profitable each product is.
I recommend setting a goal for adjusted gross margin as the best approach, but don’t overlook unit margin. If you’re struggling to reach your adjusted gross margin, your unit margins will help you identify which products are contributing to reaching your goals and which are driving your metrics down.
Don’t Forget Secondary Metrics
The savvy business won’t look at just one metric. You might select one of the metrics above as your primary metric, but you should be aware of how the other metrics are performing, as they will help you identify causes for issues that might be keeping you from reaching your goals.
Secondary metrics can also include overhead such as shipping costs, packing supplies, utilities, and payroll. It’s important to keep on eye on these expenses to make sure they aren’t increasing as your primary metrics approach their target goals.
Adjust for Growth
Once you’ve captured all the metrics you want to track to goal, set up a dashboard that you can review on a regular basis to identify any trends or adjustments you might need to make to stay on course. Over time as you more consistently reach your goals, start nudging your targets up.
The more data you have, the more accurately you’ll be able to identify processes that need to be improved, products that need to be discontinued, and expenses that need to be trimmed. Set your goals, track consistently, and correct your course along the way to sell successfully on Amazon.