Business management guru Peter Drucker famously said, “What gets measured gets managed." Although this is a truncation of the actual quote, the principle is particularly pertinent for businesses selling on Amazon.
That’s easier said than done when it comes to Amazon. Amazon is a data-driven company and it wants its sellers to be data-driven as well. As such, it provides an almost blinding amount of data and analytics tools. B2B sellers, especially manufacturers, may find themselves confused, as Amazon provides a significantly larger amount of data and sales information than most traditional resale partners like retailers and distributors. Even though the abundance of data can be overwhelming, make no mistake: it is absolutely crucial for businesses to lean on this data and focus on the right metrics for success.
In fact, Amazon's data and analytics tools can serve as a window into understanding the preferences and needs of end buyers. This is both an opportunity and a challenge for companies not accustomed to handling and interpreting such detailed data. Amazon provides data on sales, traffic, order value; category performance, and many other metrics, particularly if you’re using Amazon's Seller Central (3P) as your selling approach.
The question then becomes: What should you measure?
In our experience in growing Amazon programs for B2B manufacturers on Amazon, some exceeding $20 million/year in revenue, we've found a handful of metrics that jump out as indicators of success on the channel. These metrics tie to five key growth levers necessary for success on Amazon: Content, Assortment, Advertising, Channel Control, and Operational Execution. Let’s take a closer look at each of these levers and the relevant metrics you should be tracking, analyzing, and reacting to on a regular basis.
If you’ve ever shopped Amazon, you probably have an idea that content serves as a virtual salesperson, making it foundational for success on Amazon. If you want to know if your content is working, the top metric to measure is conversion rate, i.e. the rate at which visitors turn into buyers. The industry average on Amazon is around 10 - 25 percent, but it’s as high as 74 percent for Amazon Prime users.
The truth is that you will most likely see higher conversion rates when you have what Amazon considers A+ content, including professionally shot images, videos, detailed product descriptions, spec sheets and other technical data, etc.
Keep in mind that conversion rates are often correlated to product pricing, with higher priced items often having lower conversion rates. In our experience, a 15 percent conversion rate for B2B sales is a good baseline for products under $50, while more expensive products tend to have a 3 – 5 percent conversion rate. It’s important to set a realistic conversion rate as a goal and track your progress towards it, particularly paying attention to pre- and post-content enhancements to evaluate your content’s effectiveness.
A secondary metric to track is traffic to your products. You should be getting at least 100 views per month in order to reliably measure your conversion rate. Anything less than that will skew the figures.
The breadth of assortment is a key driver of success on Amazon. The primary metric to focus on is the percentage of your overall assortment that is actively being sold on Amazon. Basically, having a wide range of products increases the chances of sales and enhances search visibility. Too often, B2B firms won’t put enough products on Amazon, particularly if they’re testing it out as a platform. This ends up working against them, causing lower visibility and poor conversion rates, and often resulting in B2B companies abandoning their Amazon programs prior to ever giving them a chance to succeed. Buyers need to be able to find your products on the platform in order to buy them, and a lower assortment breadth prevents that from happening. The most successful Enceiba clients are offering at least 60 - 70 percent of their total product line on Amazon.
Paid advertising is a powerful tool on Amazon, given its status as a massive search engine. The main metric to track here is Amazon Cost of Sale (ACOS), which represents how effectively your ad spend generates revenue. It is similar to the Return on Ad Spend (ROAS) metric you are likely tracking for other forms of paid media.
An ideal ACOS at scale falls between 12 and 20 percent, and will depend on product margins, what can you comfortably spend, and how aggressive you want to be to drive greater sales velocity, which will have a longer term impact on organic search, views, etc. Monitoring this metric ensures that advertising efforts contribute positively to overall growth and account health.
Keep in mind that advertising can help overall growth and account health, lifting overall revenue from the channel that may not be captured directly by ACOS. That’s why measuring the overall percentage of ad spend to total sales is a good secondary metric; we like to see that at scale 3 -5 percent of total sales from the Amazon channel.
Channel control measures how much control a brand has over its resale channels, and a key metric to indicate that is the Buy Box win rate percentage. In case you’re not familiar with it, the Buy Box is that box on the right side of a product detail page where buyers add the product to their shopping cart or make the purchase using the “Buy Now” button. Typically, Amazon’s algorithms take into account a variety of factors such as price, fulfillment, and seller rating to determine which seller wins the Buy Box.
Winning the Buy Box indicates a high level of control over resellers, and a rate above 90 percent is considered excellent; 95 percent is ideal. If you have too many resellers, or you don’t even know who is reselling your products, then it’s likely you will have steep competition to win the Buy Box. Generally, we prefer to see less than 10 resellers on Amazon selling, depending on the business goals.
There are a host of approaches you can take to gain and maintain channel control. Check out our article, Eliminating Channel Conflict to get a sense of what it takes to master this aspect of selling on Amazon.
Operational execution encompasses various aspects, from timely communication with customers to fulfillment and returns. A critical metric to track here is the Seller Health Rate, representing how customers rate your performance. An account health rating, provided by Amazon, gauges how well you meet the platform's operational standards.
Your account health rating will largely depend on whether you are fulfilling orders yourself via the Fulfilled by Merchant (FBM) program or using the Fulfilled by Amazon (FBA) program, where Amazon handles every aspect of fulfillment on your behalf. Clearly, it’s easier to have a good account health rating if Amazon is managing it, but there might be reasons why you want to fulfill orders yourself. Not sure which way to go? Check out our article on deciding if you should use FBA.
Navigating Success on Amazon
For B2B manufacturers, success on Amazon involves a strategic focus on these key metrics across the five growth levers. Regularly monitoring and adjusting strategies based on these metrics can lead to improved performance, increased sales, and enhanced customer satisfaction. The path to success on Amazon is data-driven, and by understanding and prioritizing the right metrics, businesses can navigate the complexities of the platform and thrive in the competitive e-commerce landscape.
Are you swimming in Amazon data and you’re not sure what to do with it? We can help! Contact us to chat about the program and how it can benefit your business.