6 Components of a Business Plan to Start Selling on Amazon
2021 is set to be a big year for Amazon. With persistent social distancing and lockdown restrictions, the high-street has suffered and ecommerce has boomed. Amazon’s profits have continually come in higher than expected, and brands are rightfully looking at the platform as a way to build online traffic and sales.
For brands unfamiliar with ecommerce, Amazon offers ready-made access to an online platform — along with fulfilment and logistical services. For brands already well-versed in online sales, Amazon provides access to new customers and interesting advertising opportunities that no brand can afford to leave untouched in 2021.
But getting started on Amazon isn’t always easy, even for a digital native retailer. To build a business plan for Amazon, you will need to develop Amazon-specific ways of understanding your competitors, customers, and products. Only then can you create a strategy that makes sense for your business.
This article is about explaining the basics of success on Amazon. This advice is tailored to larger businesses (brick-and-mortar, or other ecommerce brands) making their way onto Amazon. This advice will also be useful for independent resellers and dropship operations — although more specific advice can be found elsewhere.
With that context out of the way, let’s look at the six key components you will need to build your business plan to sell on Amazon in 2021.
1. Amazon expertise and planning
Amazon is a unique platform, with unique reporting functions, listing requirements and taxonomy, ad types and more. The number one thing to think about when starting on Amazon is your in-house platform expertise. If you don’t have someone who already has a good grasp of Amazon’s specifics, you should hire one — or make it someone’s job to dig into those details (maybe that’s you, and maybe that’s why you’re reading this blog).
Pro tip: Getting started slowly is advisable. Simply list one or two of your products on Amazon and see how it goes. If you upload your entire product portfolio, you could very easily create a logistical nightmare that is challenging to resolve, or double down on products for which there is little market opportunity.
You need to ask yourself questions like:
- How do I know what to sell in the first place? Look at search volumes and competitors selling similar products in order to judge the size and appetite of the market, as well as the level of competition you are likely to face.
- How will I procure products? We are going to come back to logistics. However, you need a clear understanding of your supply chain. For resellers, that means understanding the quality and reliability of suppliers. For private labels, that means having the structures in place needed to match an uptick in demand caused by a move onto Amazon.
2020 was a perfect case study in why taking supply chain management seriously is so crucial. Even now, in 2021, ports are filled up, air freight costs are skyrocketing, and people are running out of space to store inventory as Amazon has put limits on their warehouses. Basically, supply chain management and logistics can make or break your business. With this context in mind, there are three important unique characteristics of Amazon to think about from the start.
Amazon Brand Analytics (ABA) and Brand Registry
Amazon’s main reporting tool is known as Amazon Brand Analytics (ABA). It provides powerful insights into customer shopping behavior, demographics and advertising — and it’s a critical tool to understand and use. However, it’s only available to “brand registered” Amazon Sellers and Vendors, and is one of many reasons that becoming brand registered with Amazon is important. The primary requirement for brand registry is holding an active trademark — however, you can see a full list of requirements here.
Suggested reading: For a detailed breakdown on how to make the most of ABA, check out our free ebook — Mastering Amazon Brand Analytics.
The Buy Box and private labels vs resellers
If you’ve ever purchased something from Amazon, you’ve likely encountered the Buy Box, but probably didn’t even notice it — which is part of what makes it so important.
The Buy Box is the column on the right-hand side of a listing page that invites you to add the item to your basket. However, what you may not have noticed is that underneath that column are listings by other Sellers offering the same product.
If multiple Sellers are selling the same product, Amazon only lists that product once in the search results, and only directly takes customers to one product page. Generally, that’s the cheapest version of that product. However, factors like ratings, delivery time and sales velocity matter.
More than 75% of non-media sales on Amazon come from the Buy Box. But it’s only important for resellers, or brands competing against their own re-sellers. If you’re a private label, selling unique products on Amazon, the Buy Box is not a real factor — you are always going to win it for your product listing. This is part of why private labels can take different Amazon pricing strategies than resellers.
Product by product competition
When selling online, your competition becomes far more product-focused than brand focused. This is because customers are looking at your products within the context of search results — placing that product directly next to the most relevant competition for that search term. This disintegrates far more predictable branded competition, and forces merchants to think on an ASIN level.
Pro tip: ASIN (Amazon Standard Identification Number) is effectively Amazon’s version of a SKU, and is a good example of an Amazon-specific term you should know before you start selling on Amazon.
Fundamentally, Amazon is built on its search engine, and the goal of its search engine is to sell products. Amazon's search/product cataloging approach aims to ensure your products end up at the most appropriate location for Amazon consumers. You need to play by Amazon's rules and list your products in line with Amazon's guidelines.
2. A solid fulfilment and procurement strategy
Fulfilment and procurement are going to operate differently on Amazon than elsewhere — particularly compared to brick and mortar operations. You need to ensure ready access to products, and make sure you remove listings if you run out of stock.
Logistics is one reason that starting slow can be useful — put one or two of your products on Amazon to experiment with the outcomes. However, Amazon does seek to make this process as easy as possible, and knowing your options can simplify getting started.
FBM vs FBA vs third-party fulfillment
Fulfilment by Amazon (FBA) is a ready-made fulfilment service. Inventory is sent to an Amazon warehouse, and Amazon manages the entire order fulfilment process for you. This takes the guesswork out of ecommerce logistics, and can be critical because quick fulfilment times are important to both customer satisfaction and winning the aforementioned Buy Box.
With that said, FBA isn’t always the most cost-effective choice. Havier products (particularly dense products) do not do as well with FBA because Amazon charges by weight. This makes FBM (Fulfilment by Merchant) a more cost-effective solution in some (but certainly not all) circumstances. But, remember, it may be worthwhile taking a hit to margin to avoid building the logistical capabilities necessary for FBM.
Lastly, there third-party fulfilment services like Bezos.ai and Adstral Fulfilment that can give you increased flexibility within a systems that provides support similar to FBA. This is a great strategy for diversifying your fulfillment capabilities, but each provider needs to be investigated specifically.
Pro tip: Inventory management is particularly important for FBA Sellers. If you have too much inventory, Amazon will charge you more to store it; if you have too little inventory, you will drop down the organic rankings as if you’re out of stock. There are strict requirements on how much inventory you need, and how early it needs to arrive at the Amazon warehouse, especially during peak times — factors Amazon uses to calculate your IPI (Inventory Performance Management) score.
Suggested reading: For information about every fulfilment option, check out our blog — FBA vs FBM: What the Right Choice for Your Business?
3. Advertising approach: PPC and Display
Amazon's advertising portfolio has increased dramatically. In fact, Amazon ad revenues are projected to hit $40bn by 2023. This shouldn’t be surprising. Amazon ads outperform Google Shopping ads — converting at more than three times the rate.
Amazon PPC ads provide a way for brands to target customers and competitors alike. In addition to Amazon DSP, which provides programmatic ads both on- and off-Amazon, there are three basic types of Amazon PPC ads:
- Sponsored Product Ads: These target ASINs or search terms, and appear in search results as sponsored product listings. This is the most common type of PPC ad on Amazon. They are great for top-of-funnel and middle-of-funnel advertising. Check out our blog on Sponsored Product Ads to learn more.
- Sponsored Brand Ads: Sponsored Brand ads appear at the top of search results pages, and either list multiple products or simply advertise your brand. Sponsored Brand ads are purpose-built for brand awareness and top-of-funnel advertising. Check out our blog on Sponsored Brand Ads to learn more.
- Sponsored Display Ads: Sponsored Display ads operate like simplified programmatic advertising, retargeting audiences based on behavior. They are both an essential brand-building tool and retargeting option. Check out our blog on Sponsored Display Ads to learn more.
You need a PPC strategy that covers all three types of ads, and aligns each ad type with business goals surrounding specific products. For example, you can:
- Increase sales on Amazon with Performance Advertising.
- Build trust and emotional connections with consumers with Brand Advertising — video ads, Sponsored Display ads, audio ads.
- Build brand awareness as part of a full-funnel marketing strategy with Consideration advertising — Stores, Sponsored Brands, and Posts.
Any business plan will need a clear picture of how you will hit specific ad-related goals — e.g. ad sales, RoAS or ACoS. Nozzle can help by identifying potentially wasted ad spend and missed revenue opportunities. Just as importantly, we can help continually optimize your strategy based on AI-generated metrics such as Customer Lifetime Value (CLV).
Pro tip: You shouldn’t over-invest in advertising to start with. Run a few tests and experiment before executing a full campaign launch.
Suggested reading: 5 Pillars of a Complete Amazon PPC Strategy.
4. An organic listing strategy
Search is the main way that potential customers will find your product pages. You need to make sure your product listing is relevant and continuously refined and updated. Ranking on Amazon will be an important success factor. The higher you rank, the more you sell.
You need to factor in monitoring, analyzing and upgrading your product pages to improve their search visibility, click-through rate (CTR) and conversion rate (CR). This process includes keyword discovery, optimizing listing text and increasing the number of reviews.
Product listings and reviews
Central to your approach to Amazon SEO is to optimize your product listings, so they appear at the top of the Amazon search results. That starts with good product copy and quality images. You should also take care to encourage reviews and get a high star ranking. Adding A+ content to your product detail pages can also result in higher conversion rates.
Fulfilment and pricing
As we have already addressed, both fulfilment and pricing strategies have an impact on your ability to win the Buy Box. As a result, they both also impact your organic listing strategy. Fundamentally, you will rank higher if you have competitive delivery times and pricing. Take these choices seriously, and consider altering either strategy if you are failing to generate organic traffic.
Suggested reading: Effective Amazon Pricing Strategies for Sellers.
5. The right tools (analytics tools and others)
There are many tools available to Amazon Sellers, and it's easy to get carried away. Given that Amazon already offers a wide range of tools to Sellers, it's worth spending some time considering what you really need. Tool types include:
- Competitor benchmarking tools
- Listing automation tools
- Customer analytics tools
- Feedback and review tools
- Finance tools
- PPC tools
Full disclosure: We are an Amazon analytics software provider. Our product, Nozzle, combines AI and Amazon data feeds to provide contextual information about your competition, customers and trends — helping you jump from data analysis, straight to data-driven action.
The right analytics tool can deliver an important competitive advantage, helping you better understand your customers, products and competition. However, it is only one component to a complete strategy. Check out our blog on the essential types of Amazon Seller tools if you want to learn more.
6. Integrating Amazon with wider ecommerce and traditional sales
As you start listing products on Amazon, you need to ensure that customer and product data is captured and integrated into your wider business strategy. You don’t want Amazon to become a silo. You also need to consider advertising and marketing factors regarding your wider online operations. For example:
- Will you drive social and Google traffic to your Amazon listing?
- Why would you do that if you have a direct-to-customer offering?
It’s important to remember that when selling on Amazon, you don't own the customer. The customer buys from Amazon, you never own customer marketing data — unless it’s provided to you by Amazon. So, you need to consider your off-Amazon channel strategy very carefully.
Realistically, the more you can direct customers to your own website, the better. But it can come at the cost of sales. People like buying from Amazon because it’s really easy. Users are already logged into Amazon, they appreciate not having to re-enter card details, and find comfort in the familiarity of the platform — not to mention the delivery and security perks of the service. Remember, there are now more than 100 million Prime subscribers in the US alone.
Fundamentally, Amazon is going to play an increasing role in online shopping. Every business should have a clear vision of the role Amazon plays in its future. There are pros and cons to working with Amazon. A lot depends on where your business is coming from. By planning ahead, tracking results, and considering your options, it’s possible to strike a balance between selling on Amazon and your own website — without losing control or data, and simply increasing sales.
It's all about the data
Data underpins everything sold on Amazon. It is ultimately the only way that Sellers and Vendors can produce winning business plans. Partnering with data specialists is a great way to make the right choices when addressing this unique ecosystem and platform.
Nozzle is helping brands align with the specifics of Amazon and leverage customer and advertising data to make targeted decisions. We can provide PPC self-service tools and managed solutions and analytics software able to provide customer analysis above and beyond your competition.