Key Metrics Top Amazon Sellers Are Monitoring
- November 6, 2015 | Marcus DeHart
It’s pretty exciting to see those first sales come trickling in on Amazon. It’s at that point that any online retailer begins to believe that selling on Amazon can work for them.
But longtime successful sellers know that it’s only the beginning and there’s a lot of work left to do. It’s important to keep track of those daily order notifications so you know what’s selling, but there’s more to it than just getting the sales and fulfilling orders.
Amazon provides a generous amount of data to help you make good choices and run a successful business. There’s a simple triad of metrics that successful sellers will watch with an eagle eye to keep their business running efficiently.
Your performance metrics are like the skin of your business. The skin both protects and senses the environment. Amazon prides itself in being the Earth's most customer-centric company. For you, that means there’s a high bar to meet if you want to continue selling on Amazon. Customer feedback and ratings play a big part in that, but so do your Perfect Order Percentage, Order Defect Rate, Pre-fulfillment Cancellation Rate, Late Ship Rate, Percentage of Orders Refunded, and Valid Tracking Rate.
I know it can look like a lot of hoops to jump through, but the truth is that the sellers who manage to excel at these metrics are more successful because their customers are happy. And happy customers are more likely to be repeat customers and more likely to recommend your products to other buyers.
Logistics are like the skeleton and muscles of the retail business. They provide structure and strength to keep your business going. In "Drive Higher FBA Sales with the Inventory Planning Dashboard," I introduced the new dashboard available to FBA sellers to get a big picture of their inventory. If you’re not using FBA, then I hope you have your own dashboard of metrics to help you manage your inventory.
Amazon’s dashboard is a great template to start with. Many of their metrics focus on how long it takes to sell your units. If a unit sells quickly, you need a schedule for replenishing regularly. If a unit’s turnaround is infrequent, then pricing might be a problem. The longer a unit sits on a shelf, the more it will eat into your overall profit. Which brings us to the third set of metrics.
Sales flow through your business like blood through the body carrying the much-needed nutrients to the different parts. Amazon metrics can only show you a portion of the metrics you need to know the health of your business. In "Navigating Your Fulfillment by Amazon Payments Report," I walk you through a settlement report and show you how to identify your earnings, fees, and other considerations.
But something’s missing from these reports. Amazon doesn’t know your wholesale cost for each unit. And they don’t know your costs for running your business. You have overhead, such as employee wages, warehouse rental, utilities, shipping, advertising, and insurance. Your adjusted gross margin takes all of these expenses and factors them into your overall sales. From a discrete unit profit, you can calculate over time the percentage of income that actually stays in your pocket. This number is critical in monitoring and managing the growth of your business. From it you can make decisions for pricing, hiring, expansion, and more.
Success by the Numbers
While some entrepreneurs seem to have a sixth sense about running a successful business, knowing your key metrics will get you a lot further than relying solely on instinct. The numbers not only tell you whether your business is healthy or in need of a booster shot, they pinpoint the cause and enable you to respond quickly to opportunities to grow and sustain your business.