On Amazon Creating your own brand and selling products, i.e.Private Label, is an exciting opportunity for many entrepreneurs. But it's not just about finding a product; it's also about understanding the right strategy, profit planning and marketing processes. This guide covers 4 key topics for Amazon beginners in a simple, explained and illustrated way.
1. Net Profit Margin, ACOS and ROI - Getting Profitability Right
- Net profit margin is the actual profit you keep per item you sell. It's your Amazon selling price minus the cost of the product, Amazon commissions, shipping and other costs.
Example:
- Product purchase price: 5 USD
- Amazon commission 3 USD
- Shipping and other costs: 1 USD
- Total cost: USD 9
- Sale price USD 12
- Net profit: 12 - 9 = 3 USD
- Profit margin: 3 / 12 = %25
- Another important concept at the point for private label: ACOS (Advertising Cost of Sales)
ACOS shows the ratio of ad spend to sales from advertising.
Example:
- Advertising spend: USD 30
- Sales revenue generated by this ad: 100 USD
- ACOS: 30 / 100 = 30%
This means that you are spending 30% of the sales you get from advertising. If your net profit margin is 25% and your advertising ACOS is 30%, these ads are not making a profit, or even a loss. In an ideal scenario, ACOS should be lower than your net profit margin.
- Return on Investment (ROI) shows how much you earn against your total investment.
ROI = (Total Net Profit / Total Investment) x 100
Example:
- Investment for 100 products: USD 900 (product + Amazon expenses)
- Net total profit: USD 300
- ROI = (300 / 900) x 100 = 33
So every $1 investment earns you 33 cents.
2. Product Differentiation and Competitive Advantage
Selling a product that is readily available on Amazon and makes no difference will cause a price war.
This means low profits, high advertising costs and an unsustainable business model.
To make a difference:
- Be technically different (more durable, more functional).
- Be visually appealing (colorful design, special packaging).
- Offer a tailor-made solution for the target group (child-specific, ergonomic for the elderly, etc.).
- The differentiated product gets higher conversions with less advertising and can be sold at a higher price.
3. Advertising and Launch Expenses + Inventory Planning
Amazon Private Label ads and to be visible in the process Launch inevitable. The most important issue to be considered in this process is to work with a rational budget.
For advertising to be effective, your stock must also be sufficient. Insufficient stock:
- Reduces product visibility,
- Negatively affects Amazon ranking.
- Excess inventory puts a strain on your cash flow.
- Prepare a scenario-based launch plan:
- Set a specific advertising budget for the launch.
- Plan at least 100-300 stocks at the same time.
- Follow Amazon's FBA warehousing and distribution system.
4. Product Images and Stock Availability
The first thing the customer pays attention to in the decision process is the photo of the product. Descriptions remain in the second plan. Therefore, your visuals:
- High resolution,
- It's a professional shot with a white background,
- Containing the moments of use of the product,
- Supported by infographics,
- It should be prepared in such a way that the customer can establish an emotional connection.
Today, Amazon does not support sample shipping or low-in-stock logic.
The more readily available and approachable your product looks, the more the algorithm will favor you.
CONCLUSION
To be successful when starting an Amazon Private Label business, you need not only to make sales, but also to strategically address elements such as profit planning, product differentiation, advertising budget and visual presentation in a holistic manner.
These 4 items:
- Calculate your net profit margin, ACOS and ROI.
- Differentiate your product technically and aesthetically.
- Plan your advertising expenditures realistically and don't forget inventory management.
- Make the first sale easier by perfecting visuals.
Success at Amazon is on the side of the planned and calculated.
