“Our management team has decided to close our eBay account as we want to focus on our Amazon business more and do not have the resources to optimize eBay as we would have liked.”
This remarkably short-sighted quote is from a top 1000 internet retailer that only sells on Amazon’s marketplace with Fulfillment By Amazon (“FBA”) as their only fulfillment method. The objective of this article is to make it clear why sales mix diversification is the key to long-term online retail success and to provide you with actionable insights for achieving a diversified sales mix and ultimately creating a defensible eCommerce business built for the long-term.
The average seller’s sales mix looks a lot like this:
What happens when a customer complaint causes a temporary suspension of your Amazon selling privileges? Or when Amazon decides to stock your best sellers or their direct replacements on their own account? How about when other sellers offer direct replacements of your best sellers at a lower price? Finally, what happens when the brands you represent decide they want to sell direct to Amazon or on their own Amazon marketplace account?
Marketplaces are can be amazingly powerful platforms to grow your online retail business, but they need to be respected and leveraged properly. Using marketplaces to your advantage, you can quickly run branding and product line experiments, raise brand awareness, and build leverage for volume discounts with your suppliers to improve margins and be more price competitive. At the end of the day, however, you don’t own the customer and you are an active participant in the accelerating commoditization of consumer products. You might also be addicted, and you might feel it’s too late to reverse course but it’s not.
Your sales mix can and should look more like this (actual seller):
Or this (actual seller):
Ideally, closer to this:
You’re probably wondering; how am I supposed to do that?
If you want to be successful on non-Amazon channels, you need to be able to fulfill orders cost effectively without using FBA Multi-channel Fulfillment. Walmart, for example, will not approve sellers whose only fulfillment method is FBA. The reason is simple; they do not want their customers receiving Amazon-branded packaging, and Amazon Logistics parcels are not readily trackable. Non-Amazon channels consider Amazon Logistics tracking invalid, which makes it difficult to maintain service level performance required to win the buy box or rank highly in search results.
We recommend focusing on your core strengths – merchandising, product development, branding and customer service – and contracting with a 3rd Party Logistics (“3PL”) fulfillment provider that meets the following service level standards:
To understand reasonable pricing, calculate what your costs would be to ship x number of orders from your own warehouse versus shipping from a given 3PL. Factor in warehouse, labor (assign a proper value to your time if you are the owner and you are shipping), electricity, packing supplies, your actual carrier rates, insurance, etc. Use a spreadsheet for this work to truly understand the costs of each fulfillment method and how that will affect your profitability and selling ability.
Few things excite online sellers more than having their own growing customer base. Here’s a quick playbook to make this happen:
Come up with a retail experience that’s focused and memorable. Make sure your website design, content and functionality differentiates your brand and infuses it with life. In one sentence, what is your value proposition to the world and why should people choose to buy from you?
Select a shopping cart, we recommend either BigCommerce or Shopify. Engage an established ecommerce web design firm that is specialized with the shopping cart you have selected.
Implement customer acquisition strategies and don’t be afraid to experiment. By measuring customer acquisition costs (CAC) and Customer Lifetime Value (CLV), you will be able to prioritize profitable investment in growth.
Customer Acquisition Cost is the amount of money it costs to acquire each incremental customer. For example, if you spend $1,000 on Facebook ads which results in 10 sales, your CAC is $100.
Customer Lifetime Value is the amount of profit each customer will contribute over time. For example, if each new customer will make 2 purchases from you in their lifetime and your average gross profit per order is $10. That’s $20 lifetime value. Your goal should be to optimize customer lifetime value and not acquire customers for more than their lifetime value.
Google Shopping: A cornerstone of your growth strategy should be Google Shopping. Each month there are 43 billion total visits to Google in the United States — while not all of these searches have purchase intent, this channel can be cost-effectively implemented and will prove to be increasingly valuable as Google continues to invest in its eCommerce initiatives.
If you think about Google Shopping as if it’s a marketplace, spending 15% of your revenue on ads is nearly the same as paying 15% commission to Amazon. We call this Effective Commission, also known as Advertising Cost of Sale. The key is to implement a Google Shopping campaign that hits your target effective commission consistently. Your effective commission will vary from day to day since you’re paying Google up front for traffic that may or may not convert. Your conversion rate plays a major role in your success on any channel. So, for example, if 2 out of every 100 visitors makes a purchase, your conversion rate is 2%. This is slightly above average. If you optimize your page load times, landing page copy, product images and have high demand products and customer reviews that inspire confidence, you can increase your conversion towards 10%.
Offer remarkable customer service. This starts with reliable, above expectation fulfillment timeframes, and continues with consistently helpful and pleasant customer service specialists. Think about your business as if it’s a franchise, you want each customer to expect and receive a consistently high level of service. Service goes a long way towards maximizing CLV.
People who shop your website are your customers. Get back in touch with them in a relevant manner and don’t let the relationship go stale, do so frequently – as often as once per week, as infrequently as once per month.
It’s important to have content that’s optimized for each channel. If you reuse titles and descriptions, Google will prioritize indexation of the most popular website – typically Amazon – and decrease the Page Rank of the other channels where the same exact text is used. More importantly, customer personas vary from channel to channel.
Amazon shoppers value low prices but are willing to sacrifice for convenience. They trust product reviews and willing to try new brands that are highly reviewed. Walmart and eBay shoppers are deal hunters and are typically looking for a specific brand that they trust.
Study, interview and understand your customer then tailor your communications to each specific channel.
Most sellers spend most of their time on Amazon because that’s where they’re generating revenue. This is a positive feedback loop where nearly all resources become focused on one channel while other, high value channels become neglected. To counter this natural tendency, pay attention to the amount of time you and your team are spending on each channel, track it in a spreadsheet and keep your team aware and accountable. If you want to grow your own webstore, it won’t happen magically by itself. You need to pour time and love into it.
The most successful multichannel retailers spend as much time on their own and non-Amazon channels as possible and avoid the temptation to over invest in Amazon marketplace management.
Growing your multichannel business is not easy, but it sure is rewarding. Knowing that a suspension from one marketplace channel won’t sink your business is extremely liberating and will at the very least help you sleep more soundly at night. Getting to the point where marketplace sales can be the icing on the cake is the holy grail. Following these recommendations will, without doubt, get you started on your way to a diversified, defensible retail business.
This post was originally published as a guest post on TaxJar's Blog.
The Zentail multichannel software platform is the #1 way to manage and optimize your selling on Amazon, eBay, Walmart Marketplace, Jet.com, Google Shopping, Shopify, Bigcommerce and a growing selection of channels. Centrally manage product information, pricing, listings, inventory, orders, business analytics and reordering from one beautiful interface.