The Elements of a Successful Amazon Business

Success is easier to attain when you have a clear understanding of what it looks like. Most FBA business owners know profitability is important, but there are several other key elements that are also essential to consider when seeking to build a successful Amazon business.

Knowing what drives the success of your Amazon business allows you to make smart decisions that lead to growth and sustainability. Not to mention, if you ever decide to sell your FBA business, these variables will ultimately determine how much your Amazon business is worth.

In this article, we discuss the core elements that contribute to your FBA business’s success so you can answer the fundamental question: How can I sell my Amazon business? We also share actionable insights to help you improve your business’s value. 

Related Article:
What You Need to Know to Start an Amazon FBA Business

How to Measure Success for an Amazon Business

Before diving into the specific variables that determine your Amazon business’s success, it’s important to understand the general elements by which all online businesses are valued. In general, value and success go hand in hand.

There are four general areas that determine the success of all online businesses: growth, risk, transferability, and documentation. While transferability and documentation are more relevant if you’re selling your business to a potential buyer, it’s a smart idea to think about each of these elements, even if you don’t intend to sell anything soon. At Quiet Light, we refer to these as The Four Pillars of Value.

“Knowing what drives the success of your Amazon business allows you to make smart decisions that lead to growth and sustainability.”

What are your growth trends?

Growth is an important part of building a successful business. All else being equal, a high growth rate indicates your business has a proven Amazon business model and smooth operations. 

For most FBA businesses, the main growth metric to pay attention to is SDE growth. SDE stands for seller’s discretionary earnings and is the total annual profit a business generates after adding back discretionary expenses, owner’s benefits, taxes, depreciation, amortization, and any one-time expenses. 

Typically, you want to have consistent, double-digit growth in your FBA business. Younger businesses should generally be on the higher end of that range, while more mature brands might be satisfied with a more modest growth rate. If you’re not fully content with your business’s growth metrics, there are many activities you can focus on to improve your trends. 

“There are four general areas that determine the success of all online businesses: growth, risk, transferability, and documentation.”

Amazon business growth strategies

There are several areas an Amazon seller can focus on to increase growth. Some of these include:

• Launching more products
• Improving advertising ROI
• Expanding to new marketing channels

One of the primary ways FBA businesses seek to grow is by launching more products. Once you’ve launched your first successful product, it’s a smart idea to replicate that success with additional products.

There are different approaches to launching new products. Some owners choose to build out a product line that serves the same segment of the Amazon marketplace. If you’re able to build a loyal customer base and audience, this approach can allow you to use that to accelerate the success of any new products you launch. 

Other Amazon FBA business owners choose to diversify their product lines and sell in several different categories. While this approach doesn’t lend itself to building a brand, it does enable you to experiment with a vast variety of products and markets. In either case, effective Amazon product research is key. 

“One of the primary ways FBA businesses seek to grow is by launching more products.”

Advertising is another key area in which you can seek to accelerate growth as an Amazon FBA seller. In many cases, increasing your Amazon advertising budget can lead to an equivalent increase in sales. Additionally, many FBA businesses have significant room for optimizing their advertising efforts. In such a situation, an online business may be able to quickly increase its average conversion rate and profitability simply by adjusting its advertising campaigns. 

While many FBA businesses rely primarily on Amazon SEO and advertising, there are numerous other traffic acquisition strategies that can fuel the growth of your FBA brand. For example, Facebook advertising, Amazon associate partnerships, and content marketing are all effective ways to gain more customers and drive more revenue as an Amazon seller.

How much risk is in your FBA business?

Risk is another key factor that impacts the success of your FBA business. Businesses that have high risks are generally not as sustainable as those with low risk exposure. If you want your business to have a long and profitable life span, it’s important to pay close attention to your business’s risks. 

Tips to minimize risk in your Amazon business

One common area of risk for FBA brands is a lack of revenue diversification. If, for example, your business relies on just one SKU for 90 percent of its revenue, then it’s exposed to significant risk. If something happens to that SKU, your business will essentially collapse. 

The solution to this problem is to launch more products. If your business can provide a variety of successful products, then it will be significantly less vulnerable to risk. Even if your best product listing gets shut down, you’ll still have several others generating reliable revenue.

“If your business can provide a variety of successful products, then it will be significantly less vulnerable to risk.”

As an FBA seller, competition is another risk factor you should pay attention to. Specifically, you should look to see whether your brand is gaining or losing market share over time. If you’re gaining, that’s a great sign. If you’re losing market share, on the other hand, then you should probably refine your strategy.

Supply chain instability is yet another risk many sellers know all too well. If your supply chains have experienced significant disruptions, that could dramatically hinder your business’s success. To minimize the damage caused by such incidents, it’s a wise idea to take proactive steps to diversify where you’re getting products from and minimize other single points of failure.

Transferability and documentation

While transferability and documentation can seem less concrete, they are nonetheless important to think about when evaluating your business’s success—and certainly its value. 

Transferability refers to how easily your business could be transferred to a new Amazon seller. As the term suggests, documentation refers to how organized and well-documented your business is. As mentioned, these two pillars are very important when you’re selling your Amazon seller account. Even if you don’t plan to sell your business anytime soon, paying attention to them early on can help you identify opportunities and improve operational efficiencies. Not surprisingly, transferability and documentation are often closely connected in FBA businesses. 

Financial documentation is essential when it comes to having full visibility into your business’s performance. Without seeing your financials on a monthly accrual basis, it’s difficult to identify weaknesses, opportunities, and key trends. Therefore, every FBA business should seek to implement automated bookkeeping practices in order to make informed decisions and increase profitability.

Additionally, it’s generally a smart idea to create standard operating procedures that detail how your business should be operated. For example, how are inventory orders placed, advertising campaigns managed, or customer service inquiries handled? By implementing SOPs that detail these responsibilities, you’ll be able to hand off many of the day-to-day tasks and instead focus on high-leverage growth activities. 

“Financial documentation is essential when it comes to having full visibility into your business’s performance.”

How to Minimize Costs in Your Amazon Business to Increase Profit

One of the keys to running a successful FBA business is reducing your costs. By keeping your expenses low, it’s easier to improve profitability and offer competitive pricing. There are a few areas to pay attention to when seeking to minimize your costs. 

Reducing your advertising costs

It’s important to keep a close eye on your advertising ROI in order to constantly refine and optimize it. 

Of course, your advertising costs as a percentage of total sales are generally going to be higher when you’re first launching a product compared to when it’s matured. In the beginning, it’s a constant game of product research, testing, gathering data, and optimizing. 

Many FBA owners tweak their ad campaigns until they’re “good enough.” Generally, that threshold is defined by meeting a profit margin that feels acceptable. Once that margin is met, sellers often stop paying attention to their ads. 

Instead of simply taking the “set it and forget it” approach, you should always be seeking to optimize your ad campaigns as much as possible. Doing so can drastically reduce your total advertising costs as a percentage of total sales. In turn, your profit margin will increase, leading to greater earnings and value for your business.

“Instead of simply taking the ‘set it and forget it’ approach, you should always be seeking to optimize your ad campaigns as much as possible.”

Examining your supply chains

Another key area to examine is your supply chains. If you look closely, there are often ways to reduce your supply chain costs to increase profitability further.

When you’re first developing a product and building a supply chain, it’s normal to move quickly in order to get to market as soon as possible. While such an approach might be reasonable in the beginning, it’s important to go back later to refine and optimize.

In many cases, it’s possible to renegotiate with your suppliers, especially if you’re ordering large quantities. Additionally, it’s generally worth exploring a variety of different shipping options. Perhaps you’ll be able to find a different carrier that can offer a reduced shipping cost.

“If you look closely, there are often ways to reduce your supply chain costs to increase profitability further.”

If you want to do a deeper overhaul of your supply chain, consider looking for alternative suppliers. For a lot of private label products, there can be significant benefits to moving your supply chain to a different region. For example, as a business owner, it’s often possible to save on shipping by having heavy or oversized products produced in Mexico or Latin America as opposed to China.   

Avoiding excessive FBA fees

It’s not uncommon for Amazon to mistakenly charge sellers excessive FBA fees. Often, this happens when Amazon inaccurately records your products’ measurements and weights. Since a lot of sellers don’t think to consider that possibility, it’s not unusual for excessive FBA fees to go completely unnoticed.

Instead of blindly trusting Amazon fees, you should always do your own calculations to ensure Amazon isn’t making mistakes. When mistakes are made, you can submit a reimbursement claim to get back the overcharges for Amazon fulfillment errors. If you don’t want to do this process yourself, you can always hire a company such as Getida that specializes in Amazon Seller Central account audits and reimbursements. 

“It’s not uncommon for Amazon to mistakenly charge sellers excessive FBA fees.”

Looking at the numbers

While there are some common ways FBA business can seek to reduce costs, each Amazon store is different. Therefore, it’s essential to take an individualized approach when examining your particular FBA brand.

The best way to reduce costs is to start by looking at the numbers. Try to find expenses that are disproportionately high relative to other products or your competitors.

For example, let’s say you have a product that has a low cost of goods sold (COGS) but a high average cost of sale (ACoS) for advertising. In such a situation, you probably want to look for ways to reduce your ACoS in order to increase profitability. On the other hand, if you have the opposite situation, you should examine your COGS more closely.

“The best way to reduce costs is to start by looking at the numbers.”

Once you identify an area of your business that may have excessive costs, try to dig deeper. If your COGS is high, is it due to excessive production costs, shipping costs, tariffs, or a combination of factors? The more information you can gather, the easier it is to look for solutions to reduce those costs. The key is to be relentlessly thorough in examining your financials and use that information to inform strategic cost-saving solutions. Ideally, you should have this approach from the beginning to keep your start-up costs low when launching your business. 

Performance Indicators for Amazon Businesses

There are a lot of metrics to keep track of for online selling. In order to gauge the performance of your FBA business, it’s important to keep an eye on the indicators that matter the most for your business’s success. 

Before getting overwhelmed by the following list of KPIs, know that not all of these apply to all FBA businesses. In other words, the metrics that matter most for your particular business will vary based on a number of factors, including whether you sell through FBA vs. FBM. 

Some KPIs that apply to Amazon businesses include:

• Order Defect Rate
• Invoice Defect Rate
• Pre-Fulfillment Cancellation Rate
• Late Dispatch Rate
• Fulfillment Performance
• Inventory Performance Index
• Negative Feedback Rate
• Credit Card Chargeback Rate
• A-Z Guarantee Claim Rate 
• Excess Inventory Percentage
• Stranded Inventory Percentage
• FBA Sell-Through Rate
• FBA In-Stock Rate
• Negative Experience Rate
• Customer Experience Health
• Buyer-Seller Contact Response Time
• Unit Session Percentage Rate
• Sales Rank
• Seller Rating
• Customer Inquiries
• Customer Reviews
• A-Z Guarantee Claims
• Chargebacks
• Order Cancellations
• Shipping Time
• Message Response Time
• Feedback Rating
• Order Defect Rate

For a more in-depth explanation of each of these KPIs, check out our article about key Amazon performance metrics.

“In order to gauge the performance of your FBA business, it’s important to keep an eye on the indicators that matter the most for your business’s success.”

Tips for Growing a Successful Business on Amazon

There are a lot of specific strategies for growing a successful Amazon business, and the vast majority of them reflect a single, broad principle that applies to all business models. Set up an effective process for gathering and analyzing information, and then use that information to make informed decisions that lead to growth and stability.

If you apply this principle to all aspects of your business, it will become significantly easier to establish a four-year plan to grow a profitable FBA brand. By doing so, you can build a valuable asset that will provide income for years to come. And if you decide to sell later on down the road, you’ll be well positioned to receive maximum value at exit.