How to Protect Profitability on Amazon

Amazon’s earnings reports earlier this year confirmed what many B2B manufacturers already feel on the ground: the platform is thriving, but sellers are under pressure. With a nine percent increase in net sales year-over-year and a striking 31 percent year-over-year increase in net income, Amazon’s pivot toward bottom-line efficiency is paying off. For them. 

That same pivot, which started about the time when Andy Jassy took the reins from Jeff Bezos, is reshaping the landscape for vendors and sellers, especially those in the B2B space. Over the past two years, Amazon has traded a growth-at-all-costs mindset for a leaner, more profit-driven model. The company is flattening its organizational structure, replacing layers of management with AI-driven systems, and implementing hiring freezes in retail and other business units, all while ramping up investment in automation and artificial intelligence. 

For B2B manufacturers selling on Amazon, this evolution has come with a cost. Third-party (3P) sellers face rising fees, such as increases in advertising and promotional fees, while first-party (1P) vendors are being nudged into paid support programs and facing tougher pricing negotiations. In addition, both 1P and 3P sellers face a 12 percent increase in cost-per-click (CPC) advertising rates. Amazon’s internal drive for profitability has translated into external pressure on suppliers and sellers, who are expected to absorb these costs without passing them on to customers.

The result? A profitability squeeze. Sellers are caught between higher platform costs and price ceilings dictated by customer expectations. And while this dynamic isn’t new, it’s intensifying. Although Amazon’s strategic shift began about two years ago,  its full impact is now rippling through the seller ecosystem.

So what’s a seller to do?

Know Your Numbers

Profitability on Amazon starts with visibility into your costs. For B2B manufacturers, that means treating Amazon not as a line item, but as its own distinct business unit. If you haven’t already, you should develop a dedicated P&L for your Amazon channel, one that captures every cost, not just the ones Amazon invoices you for.

You can essentially break down these costs into three categories: 

• Amazon Fees: referral fees, storage fees, Fulfillment by Amazon (FBA), shipping into Amazon’s distribution system, account subscriptions, labeling services, and advertising. 

• Operational Overhead: salaries for your Ecommerce team and/or agency retainers if you outsource Amazon channel management, chargebacks, co-op marketing (if taking the 1P approach), packaging and labeling, and other related expenses. 

• Hidden Costs: time spent troubleshooting, managing catalog errors, navigating Amazon’s support maze. 

Some of these costs are fixed and non-negotiable. You can’t haggle with Amazon over referral fees or storage rates. But others are within your control. Advertising spend, for instance, should be tightly managed as a percentage of sales, not left to balloon unchecked. Fulfillment costs can be optimized by consolidating shipments or improving prep processes. Even labeling might be a margin leak you can plug with better internal systems rather than paying Amazon to do it for you.

The most important thing is to fully load your P&L. With it, you can set clear targets, monitor performance, and adjust in real time. Don’t only track what Amazon charges you; track the full cost to run the channel. That includes the people, processes, and tools behind the scenes. Whether handled entirely internally or outsourced to a B2B Amazon expert like Enceiba, there will be a cost associated with managing the channel. 

But be warned: it’s easy to overspend or miss signs your channel is not profitable when the channel is not led by experienced management. Despite often commanding higher salaries or costs, a professional with years of experience overseeing Amazon channels can save you significant expenses—and headaches—down the road. 

Perhaps most importantly to protect your profitability on Amazon is to remember that you control what you sell. Product mix is one of the biggest levers for profitability. If your margins are thin, reassess your catalog.  A high-volume SKU with poor margins can quietly erode your bottom line. And the more products you sell on the channel, the more likely it’ll be profitable. 

Can Amazon Be Your Most Profitable Channel?

Despite increasing fees, shifting policies, and operational complexity, Amazon has the potential to be one of the most—if not the most—profitable channel for B2B manufacturers. When managed strategically, it can outperform every other channel in your mix, including traditional distribution channels and even your own Ecommerce site.

Why? Because Amazon brings an enormous buyer base that you simply can’t find anywhere else. With Amazon, you’re not paying to build traffic from scratch, as compared to your own site, which could require as much as 25 percent of sales in advertising and marketing spend. Amazon, when optimized, can deliver results at just five percent of sales in ad costs. 

Amazon’s infrastructure, reach, and buyer trust are already built. Their ecosystem is ready for B2B manufacturers to plug into; all that’s needed is a well-thought out, strategic approach. When done right, Amazon can drive volume and profits.

So yes, the landscape is evolving. But for manufacturers who adapt, Amazon can actually be a strategic advantage.

Check out our latest whitepaper, Making the Business Case for Amazon Business, for guidance and ideas on how to strategize a profitable Amazon program.

Are you looking for help turning your Amazon presence into a highly profitable powerhouse? If so, Enceiba is here to help! Contact one of our top Amazon consultants today to discuss your business and how you can best leverage Amazon in today’s shifting business environment.