I don’t do monthly income posts that often anymore, even though I know many of you look forward to them and they work as a great motivator for people who are just starting out selling on Amazon UK. The reason for that is:
- During the year, sales do not fluctuate very much for the business I have covered in the past on this blog, so doing monthly posts would be quite repetitive and wouldn’t bring much value to my blog readers.
- The time I can spend on writing these posts is very limited. So, if I have to choose to either write a monthly sales update OR share an interesting business concept, insight or strategy, I would rather do the latter.
Taking all this into consideration, I don’t plan to post monthly income posts anymore. But if you’re interested in such content, please check out my blog’s archive page, where you will find links to more than 20 such posts that have been published in the past. In them, I have documented how my business went from £0 to £320,000 in the first 18 months of trading.
Anyway, April 2020 was a unique month for my business, and we all know why. COVID-19 has changed the way we live, work, communicate and shop. There has been a sudden increase in demand on Amazon as online sales went through the roof! At the same time, Amazon restricted in-bound shipment creation for more than three weeks, which further helped my sales to grow as many of my competitors simply went out of stock.
Let’s take a closer look at my sales results, net profit and the strategic changes I made to my business to MAXIMISE this opportunity on Amazon.
How I made £7,711.99 NET Profit
on Amazon UK in April 2020!
This has been the single best month for my business in a long time—apart from Q4, that is. In the 30 days before Christmas 2019, I made more than £90,000 in sales, which was a SUPERB result and personal record for me (so far).
But in April, especially at the end of it, it felt awesome to see 200+ units a day being sold, with NET profits of £500+ per day. If only that would happen every day, all the time… 🙂
My total sales for the month was £27,465.54, but what’s more important is that my NET profit was £7,711.99 and my business operated at a 33% profit margin.
All that WITHOUT spending ANYTHING on PPC advertising! And that is the most important point here. It’s not that difficult to generate such a high level of sales on Amazon if you spend money on PPC. But to generate 3500 sales just from ORGANIC search traffic—that’s something I’m proud of. And it was not a coincidence.
Two weeks ago, I explained my strategy in a separate blog post. But to sum it up, when the COVID-19 crisis started, I decided to go ALL IN and do two things:
- Lower the price for my product by 20%
- Stop all PPC advertising
The idea behind this was to use this increased organic demand to boost sales velocity and conversion rates, and as a result, improve my overall organic rankings.
I paused all PPC campaigns because I didn’t want PPC traffic to affect the results of this experiment. Long story short, this worked out perfectly, just as I expected.
- My conversion rate has increased from an average of 16% (on all variations) to 23%
- I have achieved multiple (dozens) Amazon Choice badges
- My overall organic rankings have improved SIGNIFICANTLY!
And yes, I could make A LOT more money by continuing to run PPC ads, but I’m so glad I didn’t do that because:
- Due to the massive increase in demand, I also started to struggle with stock levels just from organic sales. I’m constantly running out of some variations, even now. With PPC turned on, the situation would be much worse, and I would be out of stock much sooner, for much longer.
- My NET profit number would be not that much higher as my current prices do not allow for massive spend on PPC ads.
Again, what matters most is NET profit, right? To make almost £8000 in profit in a single month, selling just one product, with no PPC—that’s a very good result in my opinion.
The main reason I wanted to do this post is NOT to brag about my results. No. The lesson to be learned here is about the pricing of your products. You absolutely MUST test the pricing for your product before you know which price point works best for you.
For over two years, I was selling my product for £9.99, and I did get some very good results (more than £500k in sales is a good indicator, I guess). But, as it turns out, I can actually make more money by selling the product for less, like my current price of £7.99.
How to make MORE Profit
on Amazon by SELLING your
Product at a LOWER PRICE!
Now, you may be thinking, “But Andrew, how does it work? How can you make more money by lowering the price of your product?”
It’s quite simple. With a lower price, you:
- Pay less in Amazon fees
- Have a higher conversion rate
- Get higher organic rankings/more traffic due to a better conversion rate and sales velocity
If we look at my numbers before the COVID-19 crisis:
- Product price: £9.99
- NET profit after all the fees, VAT, etc.: £4 (or 40% margin)
- Conversion rate: 16%
Now, after changing the price:
- Product price: £7.99
- NET profit after all the fees, VAT, etc.: £3.30 (or 33% margin)
- Conversion rate: 23%
How is it I can lower the price by £2, but my net profit goes down by just 70p? Because when you lower the price of the product, you pay less in VAT and you pay less in Amazon seller fees. Sometimes, you can pay A LOT less if, for example, you can “move” your product to the Small & Light program!
So, it’s not like you lose 20% of your profit when you lower your price by 20%. Your cut in the margin will be smaller in some cases—like mine, which is A LOT smaller! I only took a 7% cut in my net margin! This will obviously depend on the product you sell, the Amazon fees in that category, etc., but I hope you get the point here.
The next thing that is SUPER IMPORTANT to understand is the conversion rate. After the price change, my average conversion rate went from 16% to 23%. What does this mean?
If we take 100 visitors to my listing, it means that:
- At a 16% conversion rate, I would sell 16 items and make a profit of £64 (16 x £4)
- At a 23% conversion rate, I would sell 23 items and make a profit of £75.90 (23 x £3.30)
So, while lowering the price, I’m actually making MORE profit from every 100 visitors that land on my product page. That’s how powerful these simple calculations can be, and you absolutely MUST know these numbers in your business so you can make the necessary changes and measure the results.
And that’s not even the most important thing. Conversion rate plays a HUGE role in Amazon’s search algorithm. It’s basically THE most important thing. Amazon’s algorithm constantly measures the conversion rate for your product and for all the keywords people use to search for it. It then compares your conversion rate with your competitors and basically decides which product should show up higher in the search results. It should be the one with the higher conversion rate, right?
Exactly! People essentially vote with their purchases. If a listing has a higher conversion rate for the exact same keyword, it means that the offer is better, so Amazon will show that offer higher in the search. Obviously, there are other elements they take into account, such as the use of Prime/FBA, reviews/ratings, returns, etc., but the conversion rate is the most important one.
So, in the long term, by lowering the price, you improve your conversion rate. It’s logical that more people will buy your item if it’s listed at a lower price. As your conversion rate increases, your organic rankings increase and Amazon shows your listing higher in the search results.
The higher you get in the search results, the more people see your listing, buy from you, and as a result, your sales velocity increases, which FURTHER BOOSTS YOUR RANKINGS!
And that’s how it works. It’s a never-ending cycle! If everyone in your niche charges £10 and you go down on price to, say, just £1, AND your offer/product is just as good/better than your competitors’, it would only make sense that Amazon would show your listing as the top listing in the search results, right?
The key here, obviously, is to not go so low that you don’t make enough profit. You have to experiment with the pricing and find the right spot. Before COVID-19, I wasn’t doing this, and I now see that it was a massive mistake. I should have lowered the price a long time ago as it would have made a huge, positive impact on my business over the last two years.
There’s one more benefit of lowering your prices: your reviews and ratings increase/improve.
My reviews were already good when I was selling the product for £9.99. They stood at around 4.5 on average across all variations. But since I lowered the price to £7.99, they have improved even more! I get more and more reviews that say what a good bargain this item is, what a great price, etc. And, again, that only further helps with my rankings and conversion rates! A potential customer takes a quick glance at the reviews and when they see that most people say how good this item is and what a bargain it is, it’s a no-brainer! They buy it!
With that being said, sometimes, if you rely heavily on PPC traffic, it may actually be a good idea to increase your price and margin. Then, you can spend more on ads, outbid your competitors, get more traffic and earn more profit at the end of the day. It won’t work well with organic rankings, but if you don’t care about that, increasing your price may be the right move for your business.
I wanted to achieve the opposite. I wanted to move away from PPC as much as possible in this niche, as when you sell such cheap items—when you make just £3 to £4 profit per unit sold—it’s extremely difficult to maintain profitable PPC campaigns at a decent level of traffic. Clicks are getting more and more expensive, and in the long term, you’re basically just moving stock and paying Amazon fees but not making much profit.
If you ask me, the worst thing you can do is be in the middle of the market. That’s how I actually feel about my own results so far. In my niche, there are people who sell a similar item for £5/£6/£7, and then there are people who sell it at £12/£13. I was selling at £9.99, which put me in the middle. As a result, I could not use PPC as much as I would have liked to because my margin was not big enough. I also couldn’t rank well organically as my price was a bit too high and my conversion rate too low.
So, I do think it’s best to pick one route. Either have a higher profit margin and aggressively use PPC for traffic/sales generation OR have a lower-end price point and make most of your sales from organic traffic.
This is obviously a simplified approach, and you’ll often use both tactics together, especially in the product launch phase. But I hope that this post and my experience will help some sellers to take a hard look at their data and make the necessary changes.
That’s it for today! As always, if you have questions about anything covered in this post, please leave them in the comments section below. I personally reply to all comments within 24 hours, Monday to Friday.
And if you’re new to selling on Amazon, take a look at my Amazon Sharks video training course. It will teach you how to start a successful Amazon FBA business from scratch! Join the 800+ people who are already following my course and building profitable businesses!
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And how does this strategy work for new listing? Either you set the target price by day one for example £7.99 or you set any price higher than target and after gradually decrease? Thanks
I wouldn’t set it higher in the beginning and then decrease, no. If you do it that way, your conversion rate will also decrease, which will negatively affect rankings.
I recommend that you start out with the price you plan selling the item for and don’t change it without a reason too often as Amazon doesn’t like when you change your price frequently (again, with this, the conversion rate also fluctuates, and for the search algorithm, it takes time to re-position your listing).
Our April sales were also at a record high. We were unable to send stock to Amazon for a few weeks and when that opened up we were restricted in how much we could send.
We put the price up on one product to dampen demand and to avoid going out of stock but this didn’t have any effect and demand continued to increase.
It looks like we will be out of stock on two products in the next month and the third product has been out of stock for a while and should arrive in the next two months. All in all a great period for sales.
Yeah, many sellers are in a similar position… Have you considered going with the FBM?
I don’t know why, but it seems that I did get some Amazon love in all this situation as they did not put any restrictions on my shipments at all! :-)))