Using Data Analytics to Grow Your Amazon Business
Gaining competitive advantage means doing what your competition isn’t. How can your Amazon business trailblaze its own path to growth instead of following the pack? It comes down to insights from your data—which you can use to inform your Amazon product catalog, marketing, inventory and more. But what data should you analyze? To find out how growing companies are successfully optimizing their Amazon business, we talked with three amazing Daasity clients: Marketplace Valet, 5.11 Tactical, and Carpe. All three brands are actively using data and Amazon analytics to create strategies to grow their (and their clients’) Amazon businesses. You can use their experience to help guide your thinking around how you can develop your own Amazon analytics program to get the insights you need.
Make data core to your business
Effectively using Amazon metrics to grow your Amazon business involves making data a core part of your company’s ethos—leveraging it to ask questions, catch issues, and explore potential opportunities. Data should be the basis of all decision-making, strategy, marketing, site optimization, and more. All three companies we talked to make data part of their daily, weekly, and monthly routines. For example:
- Daily: Look at high-level data for the Amazon business overall and by country (if relevant), including revenue, inventory, and sales of top 10 products (this is similar in concept to the daily Daasity six-pack metrics).
- Weekly: Dig into the details, including average order value (AOV), average unit price, and gross margin. Compare these metrics year-over-year, month-over-month and week-over-week for the same time period. Also, at the product level, look at your top SKUs (e.g., top 100) to see how they’re performing WOW and YOY.
- Monthly: Review high-level performance, compare actuals against your forecast and adjust strategy. Update your forecasts based on performance and identify the areas that need improvement for next month.
6 key areas to focus your Amazon analytics
You have an extraordinary amount of Amazon data. How do you know where to start with your analytics? Marketplace Valet, 5.11 Tactical, and Carpe identified six areas for data analysis they believe have the most impact on a brand’s Amazon business.
- Know your true profitability
Although you’re great at moving product off the (virtual) shelves, Marketplace Valet, a turnkey fulfillment and logistics vendor, cautions that you might not be as profitable as you could be. It’s critical to know how much you’re actually taking home after fulfillment costs, shipping costs, and Amazon fees.
Marketplace Valet performs “profitability diagnostics” that helps them understand which products and channels are contributing to (or detracting from) their clients’ overall profitability. Knowing each product’s contribution margin allows brands to focus on promoting more profitable products and possibly sunsetting unprofitable products by channel.
Antiperspirant brand Carpe agrees that not enough brands track contribution margins. Doing so has opened up a lot of insights for them. For example, it’s important for them to know which SKUs are profitable, not only on Amazon, but on all of their channels, such as Shopify. Products may be more profitable on one channel than another. This informs what they sell where.
- Understand Customer Value and Customer Acquisition Costs
You have to spend on marketing and advertising to get new customers to buy. The question is, how much? First, determine how much money you have left after you fulfill an order. If the customer acquisition cost (CAC) is higher than the order’s contribution margin, then you’re in the red. Sometimes that’s okay, according to Carpe, because you know—based on the calculation of a customer’s lifetime value–that you’ll make back the cost on that customer’s future purchases.
Knowing your most valuable customers, and on average how much revenue they bring in over time, gives you the data you need to determine how much you can spend to acquire additional high-value customers. Having a clear picture of your budget helps ensure you run a sustainable, profitable business.
How do you know which future customers will have high LTV? Carpe recommends analyzing LTV by first-purchase and repurchase SKUs. This will allow you to better understand which products high-LTV customers are buying, and what is driving LTV.
Also, to get a clearer picture of your true customer acquisition costs, Carpe recommends segmenting new versus repeat customers. Are you making money each month on new customers, or is your CAC too high? If you don’t factor out your repeat customers, your CAC will look lower than it actually is, which can be very dangerous for your business.
We want to emphasize this point, because it’s incredibly important. If your CAC appears to be lower than it actually is, you may think you have a green light to increase budget toward customer acquisition and end up spending so much that you’re actually losing money—and you may not notice until you’ve lost quite a bit.
- Get a holistic, multichannel view
If Amazon isn’t your only channel (and it likely isn’t), you’ll want to compare performance of each of your channels so you can be more strategic in managing your overall marketing, product catalog, and inventory. Making decisions using siloed data is the number one problem for most brands, according to apparel brand 5.11 Tactical. When different departments or agencies look at different data, it can cause misalignment of goals and strategies.
Pulling in data from multiple channels into one platform makes it much easier for everyone to see and compare overall revenue, expenses, profit, and even drill down to the contribution margin of SKUs by channel. You might be surprised at how different the contribution margin is for the same product on Amazon versus on Shopify—and what that means for your marketing strategy. For example, if you’re more profitable on Shopify rather than Amazon, you may want to see whether you can drive more traffic and conversions to your site.
This multichannel view also enables a brand to quickly see trends like channel shifting, according to 5.11 Tactical, and get at the reasons why. Is Amazon offering free two-day shipping for your product? If this shipping offer is really boosting sales on Amazon, perhaps you should offer free two-day shipping on your Shopify site as well.
In addition to comparing performance, Marketplace Valet recommends using this multichannel view to get insights into how to replicate success from one marketplace (e.g., Amazon US) in other channels (e.g., international marketplaces). Multichannel can expand beyond eCommerce to retail channels as brick-and-mortar stores open back up. Could you test an offline pop-up shop or a joint collaboration with another brand in a physical location?
- Understand bundle dynamics
Bundles are a key tactic for increasing average order value (AOV). Amazon treats bundles as a single SKU. Therefore, you don’t get insights into what combinations of products sell best. Instead, look at what individual products are purchased together for insights into what your best-selling cross-sell products are—they’re not always what you think, according to Marketplace Valet. You can then use this information to inform your Virtual Bundles on Amazon.
5. Optimize your Amazon product catalog and inventory
Carpe recommends approaching Amazon not as a retail outlet, but as an eCommerce channel to be optimized. Selling a product on Amazon just because you can is not a good strategy. 5.11 Tactical advises learning from the data about what sells best to optimize your Amazon product catalog.
For example, how much inventory should you send to Amazon to store? One way 5.11 Tactical recommends using data to determine Amazon inventory is to start with 100 units of a product and see how fast it sells through. This will give you a realistic estimate of the sales velocity you can expect when you load in more inventory.
5.11 Tactical also recommends sending inventory to Amazon 60-90 days ahead of when it’s needed because it can take time for inventory to go from your brand’s warehouse to the Fulfilled By Amazon (FBA) warehouse. And, the more inventory Amazon has in their fulfillment centers, the better chance your product will be offered for 1-day or 2-day shipping, which will boost conversions.
Taking a multichannel perspective, use data to forecast which products and how much inventory you’ll want to send to each of your channels, including Amazon, to meet your overall revenue goals. For example, 5.11 Tactical says they try to optimize selling products with the highest revenue and contribution margin on Amazon. When they hit their goals, they can invest more in marketing for other channels to drive more business, in order to maximize profitability for the overall business.
6. Optimize for marketing
Since you pay to sell on Amazon, 5.11 Tactical recommends taking full advantage of what the marketplace offers in terms of marketing. A first good step, they say, is to invest in great SEO to get your products to rank high organically in Amazon search. Even if consumers don’t purchase, ranking high in search is good for building brand recognition, as Amazon is now one of the first places consumers begin researching products.
Second, ideally, you should make it a goal to get your product(s) to rank on Amazon’s Best Sellers List for specific categories. Amazon’s algorithm promotes products on the Best Sellers List, and this means free marketing, SEO, and advertising for you on these products. It gets better, though: being on Amazon’s Best Sellers List has a halo effect for your whole brand. So, even one highly successful product on Amazon will pay dividends.
You can even create a product specifically to get a higher rank, based on the type(s) of products that sell better on Amazon vs. Shopify. For example, 5.11 Tactical analyzed data to create a product in a price point with features similar to what was selling in the Top 10 Best Sellers List—and that product got close to #1.
When it comes to paid advertising, Amazon allows merchants to get more granular than even Google. You can use data to identify which products convert higher with higher profitability to determine which keywords to target on Amazon to most effectively benefit your overall revenue.
Set your team up for success
The more effort it takes to pull together data from different systems and reports, the less often you’ll want to do it, and your monitoring and analysis will lapse, to the detriment of your Amazon business.
Consolidating all of your data sources into a single data analytics dashboard like Daasity can give your business a new lease on life—and give you back your time for actually using important metrics to optimize and grow your Amazon business.
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