Successful Amazon sellers know that they can’t rest on their laurels. While sales may be going well today, there’s always a competitor around the corner, or the risk of getting cut off from a brand.
As a result, top-performing sellers are always sourcing new products and building strong relationships with their suppliers. Moreover, they’re organized, analytical, and data-driven about how their company spends its time. Every potential new relationship is tracked, and buyers are held accountable for bringing on new brands.
As the company grows, it’s critical to keep close tabs on metrics, while also keeping an eye on the larger strategy. Although it may seem difficult to know where to start, we’ve provided a starting point for organizing and keeping track of sourcing as your Amazon FBA business grows. We’ve broken down some important tactics you can use to adapt to the ever-evolving retail industry, and strategically place yourself ahead of the competition by managing data and supplier relationships.
Fulfillment by Amazon (FBA) is Your 3PL
3PL, which stands for third-party logistics providers, is a company that fully manages all logistical operations. When Amazon is your third-party logistics provider, this enables you to outsource all of your fulfillment needs and divert your focus towards high value activities like sourcing. This can be a scalable game changer, allowing you to leverage all of your logistical resources.
Amazon has 300 million customers, which includes 40 million Prime users, giving you an expansive customer reach through FBA. Allowing Amazon to be your 3PL enables you to focus your resources on advancing your product sourcing strategy.
The Evolving Supply Chain
You’ve probably realized by now that the face of retail has changed drastically.
The traditional retail model was compromised of brands selling directly to brick and mortar retailers, who would then sell to customers.
Today, this model of selling has been trumped by fulfillment services, as well as brand and reseller partnerships. In order to develop a winning sourcing strategy you need to align your supply chain with this new type of model.
The Fulfillment Models
More modern supply chains have recently popped-up using FBA as the “middle man” to get their product to the customer’s door. Direct to consumer brands that have FBA services have a very minimalistic supply chain.
Recently, we’ve seen an increase in brands switching away from the traditional retail model, to the fulfillment model. As a reseller stuck in the traditional model, this type of selling can make it difficult to gain a competitive advantage.
As ecommerce becomes more competitive, brands and resellers have strategically teamed up to create exclusive partnerships.
When this type of partnership is combined with FBA services, other supply chain models don’t seem to have as much of an edge. Resellers can maximize their potential through sourcing exclusive deals and taking fulfillment logistics off their plate, creating a win-win situation.
It’s very important to understand the evolution of commerce in order to successfully deploy your strategy.
The question is: How do you create a strategy to win?
The Window of Opportunity is Getting Smaller
The typical Amazon product lifecycle has become very short, which is a result of increased competition and transparency within ecommerce.
The Innovation S-Curve does a great job of modeling the average lifecycle of a product on Amazon. In the Launch Phase a product’s performance starts to pick up, then quickly gains traction in the Growth Phase. Soon after the initial launch, their performance will plateau in the Maturity Phase.
We’ve seen a lot of clients have successful product launches on Amazon, only to have their growth quickly stunted by new products within that category. We often hear about products that were ranked #1 in a particular category 6 months ago, and now have dropped dramatically in the rankings. This is partially due to the extremely transparent marketplace that Amazon has created, making it easier for the competition to quickly catch on to newly sourced products.
What does this mean for sourcing?
The S-Curve is great for consumers but horrible for retailers. In this case, a process must be built to allow your buyers to continuously source new products to replace the decaying ones. When it comes down to your overall strategy, you must evolve faster than your competition through the discovery of new investments.
The Sourcing Strategy You Should Employ
Your goal for sourcing should be centered around developing a competitive advantage over other sellers on Amazon. We’ve observed that successful Amazon sellers measure and track just about everything when it comes down to sourcing. Tracking and measuring will help you calculate your capital requirements and diversify your investment risks.
Approach your sourcing strategy in a way that mirrors how trading in the stock market works. Once you’re in the mindset that you’re an Amazon retailer trading in the “stock market” of sourcing, you’ll need tools to help guide your investment decision making. Tracking and measuring your investments’ performance will enable you to make decisions that support your gross margin goals.
Build and Manage Your Sourcing Pipeline
You may be asking yourself, “How do I source the best products?” This can be done through your most valuable asset: supply chain relationships. If you’re handling a high volume of suppliers, you’re better able to manage and prioritize sourcing activities if you use a data-driven and analytical approach.
A tool that’s extremely useful for tracking your sourcing efforts is a Customer Relationship Management (CRM) System. Some of our clients who aren’t using a CRM system don’t have a structured process of tracking investments and supplier ROI. By keeping an eye on these metrics, you’re able to gain visibility on which brands are good targets and which are a poor fit.
If you’re doing well on Amazon but aren’t utilizing any tools, think about how much more effective your strategy could be when armed with organization, accountability, and data.
Some common CRM systems/management tools include:
- Highrise – A contact management system
- Google Drive – Great for starting out
How to Manage Sourcing with a CRM System
Once you’re ready to start using a CRM system, you can begin to create your own records based on your supplier interactions. We’ve compiled a few ways to organize your entries (in Salesforce terms):
Track sourcing relationships as “leads”
These include qualified contacts that you’ve obtained through trade shows or even regional sales manager efforts.
Track active negotiations as “opportunities”
If you’re working with a specific account and negotiating payment terms, you could categorize it as an opportunity in Salesforce. This is a great way to track all of your efforts through each stage of the sourcing pipeline. Measuring the ratio of leads to opportunities is one metric to keep track of to determine how effective your team is at following up with “leads.”
Track trade shows and other lead acquisition activities as “lead sources”
If you go to a trade show, such as MAGIC in Las Vegas, it’s beneficial to keep track of the efforts or ROI that originate from that lead source.
We’ve had clients who have gone to trade shows year after year, and weren’t able to accurately quantify the value they were getting as a result of not tracking lead sources. Trade shows can be very expensive, so knowing if they’re worth your time and resources will further help you optimize your sourcing strategy.
Once you’ve obtained these “leads” through your “lead sources,” the next step is to begin managing these relationships. Within your CRM system you can set up and schedule tasks to communicate with your suppliers. Building strong relationships will enable you to obtain better terms and early/exclusive access to inventory.
In addition, not only can you use a CRM system to track external relationships, but it can be utilized for managing the performance of your own buying team. This can be especially useful for rewarding buyers that sign on high performing brands.
Develop a Lead Scoring Rubric
One of the hardest parts of sourcing is finding the right suppliers. Instead of leaving good supplier selection up to chance, create a rubric that scores them. By rating them on specific areas that are important to your sourcing objectives, you’ll be able to formulate a model on your ideal supplier. Keep in mind that each business will have their own parameters that are critical in a good supplier.
This model will help you understand which brands have a better chance of being successful while building a database full of potential sourcing deals. Lining up options will minimize your risk and enhance your growth, giving you a competitive edge.
Here’s an example of a lead scoring rubric:
|Potential for Exclusivity||✔|
|Sustainability of Brand||✔|
Other ideas that you can incoporate into your lead scoring rubric:
- Logistical capabilities
- What is the expectancy that they’ll sell to Amazon down the road?
- Lead time
“Moneyball” for FBA Sourcing
Have you seen the movie Moneyball, or read the book by Michael Lewis? For those who haven’t, Moneyball demonstrates how sabermetrics, “the empirical analysis of baseball,” can build a winning model for selecting undervalued players. If you’ve read the book or watched the movie, think about how you can apply this methodology to supplier selection.
The heading on the book cover “The Art of Winning an Unfair Game,” can be translated directly over to retail, where many sellers would agree it can be difficult to win. The key is to use data to constantly optimize your selection process so that you can beat the unfair game of ecommerce.
How to Win Big at Trade Shows
Trade shows enable you to interact in a way that you can’t remotely. By attending trade shows, you’re already beating many competitors to new opportunities. Many sellers don’t realize that human interaction can go a long way.
Here are a few ways to get the most out of trade shows:
- Research brand leads that fit your sourcing objectives in advance. Parameters to look out for include Amazon rank, price, and competitors within the product’s category. This allows you to target the most valuable brands ahead of time, so you can have a game plan for when you first arrive at the trade show.
- Not only are trade shows great for making new relationships, but they give sellers the ability to strengthen their current supplier relationships. By visiting them in person, you might be able to gain exclusive access to inventory that brands aren’t offering to other resellers.
- Trade shows are also a great place to scope out products that haven’t penetrated the Amazon market yet. Get ahead of the “S-Curve” by discovering new inventory before your competitors. Not only can you get an overview of new products, but you can also get a good grasp on industry trends or market shifts, such as what brands are frontrunners or who the underdogs are.
- We strongly encourage that you try to negotiate exclusive selling deals with current and potential suppliers. Giving your trade show team incentives to win these kinds of deals will really benefit your long-term sourcing strategy.
We’ve compiled a list of upcoming trade shows that our webinar attendees plan on visiting.
Sellers who are able to expand outside of their normal business practices have a greater chance at creating more successful opportunities for portfolio growth. Trade shows are an underutilized resource.
4 Ways to Pitch Your Value
When approaching potential suppliers or negotiating with current ones, you may find yourself asking, “How can I show them my value?”
Use these 4 value-added approaches to get the deals you want:
Brands always need more cash to grow their business. By offering attractive terms, such as prepayment, you can potentially help position your company as a key account. If you have capital to deploy, you will be seen as a valuable partner to work with.
- Sales performance
- Customer geography
- Product reviews
- Sales rank
- Seller coverage
Offering to provide this information to suppliers shows that you aren’t a risky investment. Many of our clients use the above data, which they were able to collect through our software, to demonstrate what kind of value they can bring.
3. Minimum Advertised Price (MAP) Compliance
A successful MAP policy can sometimes be a top objective for many brands. Offering to proactively resell within MAP guidelines can help build valuable trust with your brands. Brands with a strong focus on MAP will appreciate your acknowledgement and consideration.
While many brands perceive Amazon as an unpredictable marketplace, you can set yourself apart from the pack by being very transparent. By pitching transparency to potential brands, you can plan out a strategic roadmap for your partnership.
Benefits of Being an Exclusive Seller
Although achieving the status of an exclusive seller can be difficult, it can bring about a handful of benefits:
- You’re able to monopolize the Buy Box with 100% ownership
- Reduce your volatility and risk through aligning interests with your brand relationships
- More accurately predict required inventory quantities
- Invest in larger quantities and create economies of scale, which will drive down your overall costs.
- Obtaining exclusive U.S. distribution rights from international markets that haven’t penetrated the U.S. markets.
As the Amazon landscape becomes more and more competitive, we’ve seen these kinds of partnerships pop up to capture an advantage over other sellers in their category.
When these steps are combined, you’ll be armed and ready to tackle new suppliers and strengthen existing relationships. We hope these tactics help you advance your sourcing strategy and further your efforts as an FBA seller.
Your business is only as strong as your sourcing, so give yourself a sturdy foundation by utilizing these important tips:
- Use strategic sourcing to gain a competitive advantage
- Master the new retail supply chain model
- Adjust to the short Amazon product lifecycle
- Utilize a CRM system
- Develop a model or checklist of your ideal supplier
- Take advantage of trade shows
- Aim to be an exclusive seller
Remember: always be sourcing!