When Amazon announced plans to increase fees for marketplace platform services on January 18th, 2022, mid-Q4, no less, there was a collective sigh of resignation throughout the seller community. However, this news gives resourceful sellers and marketplace managers a reason to seek new tools, like Quartile's new Margin-Based Optimization and Targeting feature, to help improve their businesses' long-term profitability and health.
There's no doubt that the squeeze is on for Amazon sellers. Containers that used to cost $6k to ship now cost upwards of $20k, supply chain issues are wreaking havoc with inventory, and the "five-year leap" driven by the pandemic shutdowns has now proven to be a momentary glimpse into the future. That preview into the future gave online retailers an idea of what 40% of retail sales via e-commerce might look like from a demand POV and invaluable insight into the logistics challenges it will surface. Now add Amazon's announced fee increases, scheduled to take place on January 18th, 2022, which will increase some costs by up to 10%, according to some estimates. Our clients are already looking ahead to absorbing these changes.
We have to admit this latest move makes sense from an Amazon perspective. They're witnessing a growth market, realizing many sellers are making very healthy margins, and betting that a five to ten percent hit won't drive too many away. They are probably right. In fact, by building new efficiencies into their businesses, today's sellers have unprecedented control of their bottom line and legitimate potential for significant improvement. Advertising campaigns on Amazon, long known to be necessary to maintain best seller rank and organic sales, are about far more than just setting a PPC keyword budget and watching the sales rack up. With multiple placement types, off Amazon traffic, DSP, Attribution, hourly API updates, we count trillions of varying attributes that can swing sellers from being in a hole to sitting on a mountain of profit.
Balancing Margin and Scale for Growth
Quartile developed tools designed to work toward the margin targets over several years. Using tools like Quartile, sellers can allow the system to optimize ad spending for profitability over time. The goal? Find the right balance between margin and scale. At any one time, there is an ideal state between how much margin a seller can achieve and the resulting percentage of scale for their products. Set margin too high and scale becomes a scarce resource; set it too low, and now you are operating like a non-profit.
In the past, the sheer number of levers and calculations needed to pull led to something like intuition-driven test-and-learn, which would quickly hit the limits of human cognition. The level of marketplace control enabled by AI is not just unprecedented; it is a marketer's dream. The tool drives margins down by capitalizing on Amazon's unique cost structures and an advertiser's business priorities, including new programs like Amazon Attribution, which involves its sellers for sales-driven traffic brought in through ads on other platforms such as Google and Facebook.
In the early days of Amazon Ads, low CPC's allowed sellers to be less precise and still see success. They could spend heavily on relevant keywords to their ASIN, knowingly or unknowingly producing a lot of wastage, and still enjoy healthy margins. Options for opportunity cost analysis were minimal, and fortunately, not that essential. Now that the average CPC has nearly tripled since April 2020, those clicks that do not convert can eat into margins fast.
Ultimately, these Amazon fee increases going into effect in January are compelling informed sellers to adopt a new, more exact, margin-focused mindset for their businesses. This mindset requires precision and agility: Quartile's Margin-Based Optimization & Targeting has those two things in spades. If there was ever a time to get more expert command of the margins, it's now. ACoS has long served as a proxy for margin. With Quartile's Margin-Based Optimization & Targeting, sellers can rely on our platform to manage margin while identifying opportunities for vertical or horizontal growth.