There are endless articles, podcasts, training courses, and other information sources available to eCommerce brands sharing best practices for building an Amazon business. These best practices, tips, and strategies are constantly evolving and at an ever-faster pace. What works today is unlikely to be effective next year or even next month!
So rather than write about what is working today, this article will focus on the enduring principles that never change and will always be the foundation of a successful eCommerce business. Once you understand these fundamental principles, strategies for achieving them will become much more apparent.
- Create a great product
- Generate broad visibility for your product
- Build a scalable CaC to NSV ratio
Create a Great Product
The days of selling generic products and generating significant profits are long behind us. Online shopping, whether on the marketplaces or independent websites has become so saturated and competitive, there is little opportunity to build a financially viable business selling undifferentiated products.
So if you start with the understanding that your product needs to be unique and provide some value to users that others don’t, you’re on the right track. Designing a unique product doesn’t necessarily mean it has to be patented (although that helps).
Unique may also mean a product that supports a social good cause, has an attractive or functional design, or has some other proprietary features.
Creating a truly unique and valuable product is like hiring a team of salespeople but without the expense. Great products eventually start to sell themselves through rave reviews, word of mouth, and earned press.
On the other hand, generic or poorly designed products need to be constantly propped up. Aggressively pursuing positive reviews, pleading with users to remove negative reviews and managing returns are an anchor that always weighs on low quality and generic products.
Designing a new product may seem like a daunting task, and you may be tempted to pursue the route of reselling cheap generic products from Alibaba, but in reality it’s easier than it seems.
If you’ve narrowed it down to a specific product category or even a specific product that you’re interested in developing, start by reading the negative reviews posted about similar products. You’ll quickly notice that many of the same complaints appear. This is a great starting point.
A product’s value is its ability to solve a problem. And while that may sound overly complicated for a basic, everyday item, think about the coffee cup example. A coffee cup needs to have a handle to prevent burns.
If you’re taking your coffee to go, it’s best if it has insulation to keep it warm longer, and a top to prevent spills. Read through the comments on a popular coffee cup on Amazon and you’ll see designing a coffee cup with a better lid might be just what customers want. That’s providing value!
Image Source: Amazon.com
Generate Broad Visibility
The “build it and they will come mentality” is unfortunately not a winning strategy. All products need visibility to get traction, and that visibility is never free. Whether selling on a marketplace or your own website, traffic (aka visibility) is purchased through advertising, influencers, affiliates, or one of many other pay-to-play models.
The best practices for generating visibility for a product or brand line are constantly changing, but you should always be closely monitoring ROI on advertising or other promotional channels.
While setting up a system to reliable track and attribute results may be burdensome to initially set up, they allow you to quickly focus your efforts and expenditure on the best performing channels.
Since most small businesses have tight budgets, particularly during the startup phase, it is critically important to establish a scalable ROI (more on that in the next section)
Moreover, if you do a great job creating a high-quality product that provides value to users, this step becomes much, much easier. Great products convert at higher rates, making more advertising channels viable.
Once you reach critical sales velocity, your high-quality product will start generating referrals and maybe even earned media, which further accelerates sales at no additional cost.
Build a scalable CaC to Net Sale Value ratio
By now you’ve successfully developed a great product. The unique value of your product is successfully conveyed through your advertising campaigns. Your product is naturally generating lots of positive reviews, there are few returns and users are sharing your product with friends and family. You’re off to a great start, but now it’s time to put things into overdrive.
CaC (Customer Acquisition Cost) is simply the amount you spend to acquire a new customer. If you spend $100 in advertising to acquire 10 new customers, your customer acquisition cost is $10. By implementing a reliable attribution system as described in the previous section, you can determine your CaC with relatively high confidence.
Continuing with the above example:
Product landed cost is $20 (includes cost of goods + shipping to your warehouse).
Customer Acquisition Cost $10
______________________
Total cost to make a sale: $30
Now let’s say your product sells for $50 and it costs you $30 in manufacturing, material, and advertising cost to get to that sale. Congratulations, you netted a profit of $20!
So you’ve spent $10 to generate a sale with a net profit of $20. Now it’s time to scale those numbers. Presumably, you could spend $1,000 in advertising to generate $2,000 in net profit.
Or what if you could spend $1,000,000 in advertising to generate $2,000,000 in net profit! At some level of customer acquisition investment the ROI starts to deteriorate, so there is some limit to this, but nevertheless, it is critical to establish a scalable ROI.
Conclusion
These three fundamental principles are interrelated and make the next subsequent phase of business development easier to achieve. Starting with a great product is a must, and finding an opportunity to provide new and unique value is as easy as reading common complaints about existing products.
Generating visibility and traction for a product always comes at some cost, but you greatly decrease this cost by designing a product that solves a common problem. Moreover, this investment will be temporary if your products achieve a market fit, which only happens if your product is unique and valuable.
You can quickly scale your profits if you closely monitor your customer acquisition cost and know your net sale proceeds. If it costs less in ad spend than you net on each sale, you’re on the verge of big profits.
Start by doubling or tripling your ad spend. If the ratio of CAC: NSV holds steady, increase your ad spend by 100X and you’ll 100X your net profit!
Remember best practices and viable ad strategies are constantly changing, but shoppers will always be seeking great products and it’s your job to create them and make sure those shoppers can find you!
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About the Author:
Brendon Fields is the founder of Rebaid.com a promotions platform that helps small and medium size businesses launch new products, liquidate excess inventory and facilitate connections with relevant influencers. Brendon has been an Amazon seller since 2013 and owned multiple eCommerce native brands with combined revenues exceeding $20MM.
