Amazon Tactics for Distributors
200 of your SKUs are hugely, net-profitable, but, another 200 are hugely unprofitable. Amazon knows SKU profitability and exploits traditional competitors’ informational blindness. Want to get smarter, too? Here’s how:
Get Profit-Equation Data
Amazon knows the following “profit equation” for every SKU (customer, etc.):
GM$s – CTS$s = P$s
Gross Margin Dollars (GM$s) summed for all of an SKUs’ annual picks
Cost–to-Serve Dollars (CTS$s) for all of those picks
Profit (or loss) Dollars (P$s) for all of those picks.
This Profit Equation (with no reference to Gross Margin Percentage, by the way) helps to see why:
- Your most profitable 200+ items are typically:
- Very popular commodities with lots of picks for lots of customers
- High-average, Sales-Dollar/pick
- But, sold at a seemingly “low-GM%” per pick, because customers shop big-spend items
- The average GM$s/pick is still, however, much higher than the average CTS$s/pick. Example:
- 500 picks @ $500 in sales/pick @ 20% GM equals $100 in GM$s/pick.
- Assume average CTS$s/pick is $10.
- Then, 500 x $100-GM/pick = $50,000 GM$s (less) 500 x $10 CTS (5000) = $45,000 in P$s
And, the most unprofitable 200+ items are typically:
- Very popular with lots of picks for lots of customers
- Have a low, average, sales-dollar/pick ($3.00 or less) @ 50% GM
- High GM%, because few shop price for small, add-on items
- But, at $10 CTS/pick the popular little-GM$/pick SKUs are all big losers.
You can’t buy one AA battery at any retail store, but distributors will hand-pick (and more) many small-dollar onesies for you. Upon first getting Profit-Equation Data, distributors discover – on average – that 70% of all line-item picks are unprofitable. Thank goodness for those 200 profitable, commodity items!
Your SKU, Whale Curve Strategies
Below is an excerpt from Lesson 5 of the Cost-to-Serve Math program we recently launched. In this lesson, you’ll learn:
- What an SKU Whale-Curve is (Google: “whale curve analysis” for more info)
- What an SKU Whale-Curve tells you (you have 200+ huge SKU winners and losers)
- What to do about them before Amazon takes advantage of your legacy: mark-ups; packaging; and Service-Model-Cost blindness.