You’re running a sizable Amazon business. You’ve been around the block. And so you monitor the metrics that indicate your business is on track — sales growth, obviously, as well as gross margin on sales. You may also track the Amazon shopper conversion rate for your bestselling products and the average cost of sales from your Amazon Sponsored Products ad spend.
You’ve got your go-to indicators. But are you missing one that may be significantly shaping your bottom-line results?
Amazon’s many errors
You’re probably fully aware that Amazon makes errors — and many of them — in managing your FBA inventory for which you can get a refund. You know this because you receive a flow of email notices from Amazon about refunds they’ve automatically issued for damaged and lost inventory. And because you may have a member of your team using the Shipment Reconciliation tool in Seller Central to reconcile your shipments to the fulfillment centers, flagging those that go missing or the units that get miscounted, thereby securing another flow of refunds.
You may also be relying on a service provider or a software application to identify and go after still other refunds Amazon owes for its errors, such as for incorrectly charging a fulfillment fee or mishandling a customer return.
Amazon can make 25 different errors in managing FBA inventory
A competitive differentiator
You get it: Part of running an Amazon business is maintaining an auditing function to recover losses. It’s not a sexy aspect of your business, certainly not among those you’d present to a would-be investor. But could it be? Are you securing refunds for the full range of errors Amazon makes and the full potential for each refund type? Is it possible that, just as you monitor your inventory turn rate, you should be monitoring the refunds you receive from Amazon as a percentage of sales or “RPS”? Could this RPS indicator become a competitive differentiator for your Amazon business?
Determining your RPS
So, what is your RPS? And of those refunds you’re receiving, what ratio is Amazon automatically issuing — what you get for showing up — versus what your team or service provider are actively securing? A simple way to find out is to complete the RPS Calculator provided by Valence at valenceservices.com/rps. You input some facts, upload an Amazon report and, in short order, Valence returns with your RPS indicator.
Benchmarking your potential RPS
Once you know your RPS, how do you know whether it’s on par with what an Amazon business like yours should achieve? An Amazon business’s RPS can range from 1% to 4%. That’s $10,000 to $40,000 for every $1M in sales. Yes, a big swing. What determines whether you should be at the bottom or top end that range? Several factors. See the RPS Benchmarking table for Valence’s analysis of some contributing factors.
|No or limited previous refund management activity||Up to 4%|
|Average sale less than $25||3%|
|Average sale greater than $50||2%|
|Packaging / products prone to damage (tearable, glass)||3%|
|Products and packing not prone to damage||2%|
|Wide product assortment (>1,000 SKUs)||3%|
|Narrow product assortment (<100 SKUs)||2%|
Doing the math
Of course, these are just benchmarks. Your Amazon business is a snowflake and may have unique aspects that set your potential RPS at higher or lower than the 2.5% average. What matters is that you ensure you’ve got the right know-how on your team, or with your service provider, to maximize your actual RPS. Do the math: If you’re running an Amazon business achieving $5M a year in sales and are now trending toward an RPS of 1%, but with a potential for 2.5%, you’re leaving up to $75,000 on the table in deferred refunds and missing out on more than $6,000 per month in ongoing refunds.
GM, inventory turns, ACoS and now RPS. There are many indicators to track and manage in growing your Amazon business and maximizing your bottom-line results. There is a path to making RPS one of those sexier aspects of your business and it may not entail significant effort to achieve. Find it, pursue it. Start by determining where you stand: valenceservices.com/rps.
At Valence (pronounced “VAY-lence”), our passion is developing software and processes to produce better bottom-line results for our clients, Amazon sellers. Our team has been involved with selling on Amazon since 1999 and participating in the Fulfillment By Amazon (FBA) program since 2009. We understand the thrill and challenges of operating a business that’s attached to the Amazon rocketship.
Through our flagship service, Seller Central Refunds Management, we secure the full range of refunds from Amazon for its errors in managing a seller’s FBA inventory and handling customer returns. If you’re a retailer or brand selling on Amazon, or if you manage Amazon for clients, let us put our know-how and tools to work for you.
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