How well do you stay on top of the numbers for your business?
There are a number of key ingredients when it comes to running a business successfully, but one you will always see the most successful businesses staying on top of are the vital metrics which build the picture of the health of their business.
FBA businesses are no different; you can’t just go in and hope for the best while ignoring the vital statistics of your business. Fortunately, there are a number of tools to help you monitor, including those provided by Amazon.
Here are some of the key metrics you really need to be staying on top of:
Well obviously, without sales you don’t have a business! As with any business selling merchandise, you will find it much easier to monitor these while you have a more limited range of products; it’s when you start to build your range that it becomes more likely you’ll lose track.
Keep this in mind as you grow. You don’t want to have stock languishing on your shelves which simply isn’t moving, so make sure monitoring your numbers is a regular habit.
Your Amazon Payments Report is the place to be checking for a breakdown of your earnings. You’ll find a quick summary as well as a breakdown per transaction. Take a closer look at individual products and work out what your average earnings are per month for those.
Note: If you charge a shipping fee with any items, this will appear as a separate line item on your report. Amazon is going to collect this back from you if you use FBA because it is their cost.
You can’t build a good picture of how well you’re doing with sales without taking note of fees. Many people seem to outright ignore these, taking the view that they’re part of doing business anyway, however that is really not a good practice.
Shane Stinemetz wrote a piece recently on mastering FBA fees where he states that all Amazon sellers should be experts on their fees. It is a lie we tell ourselves that we’re not going to be able to reduce those fees in some way. Amazon fees tend to be the largest cost for FBA sellers.
For each product you sell, you need to be able to work out whether it’s worth your while once fees are taken out. Stinemetz looks at two examples from his products, one regular and one oversized. He found that once he broke down the fees and costs and looked at overall margin, even though the oversized product sold more, the regular-sized product was more worthwhile because it didn’t cost as much in fees.
Work this out for each individual product. Source: Fetcher
#3. Best Seller Rank
Your best seller ranking (or lack thereof) is a result of how well you are doing with sales. As we discussed recently, it is calculated and updated hourly based on sales numbers.
Best seller rank is calculated in each category and is relative to other product sales in your category. You might expect to see a lift in ranking if you do particularly well on Cyber Monday for example, but if every other seller does too, those sales might not have the impact you’d like.
Keep an eye on your best seller rank for each product you sell over time. When has it been impacted positively or negatively and what was going on at the time?
Amazon is big on customer-centricity, so it makes sense that they measure sellers on a range of customer-service based performance metrics. They want to ensure that any third party sellers are held to the same standards they expect in their own company and will penalize or suspend sellers who don’t meet them.
#4. Order Defect Rate
An “order defect” occurs whenever an order receives an A-Z guarantee claim, negative feedback or a chargeback claim. Defect rate is calculated by dividing the number of defect orders out of the total number of orders for a given time period. Amazon likes you to aim for less than 1%, otherwise you may receive a warning notice or suspension.
Note: This is another reason to stay on top of resolving any customer issues. If a customer withdraws their claim or a claim is denied, this won’t impact your order defect rate.
#5. Perfect Order Percentage
This is the percentage of orders which are perfectly accepted, processed and fulfilled. Of course as an FBA seller, you can’t control the fulfillment and shipping part, but you can ensure that you’ve done the right things in terms of setting up the expectations of the customer and ensuring you have products in-stock.
As Feedvisor discusses, perfect order percentage is; “a conglomerate of a seller’s customer feedback, chargebacks, cancellations, late shipments, refunds, A-Z guarantee claims, and buyer-initiated messages. Besides being a definitive performance standard, POP can also serve the purpose of helping sellers pinpoint problems and improve their own ranking.”
Sometimes negative feedback and returns can be a result of poorly executed product descriptions, so make sure yours are crystal clear. Keep products in-stock and avoid cancelling orders because of stock-outs.
#6. Late Ship Rate
Here’s one Amazon takes care of for you if you’re FBA. Late ship rate is the number of orders confirmed after the expected ship date and only affects seller-fulfilled orders.
#7. Pre-Fulfillment Cancellation Rate
This is the number of orders cancelled by the seller prior to shipping confirmation. It’s worked out with this equation:
Pre-fulfillment Cancel Rate = (CancelledOrders)/(TotalOrders)
Amazon takes this very seriously. If you have a product listed and the customer is able to order it, then you should have it in stock and ready to ship. Inventory management practices play a vital role here, for which we will look at some metrics further down.
Keep your pre-fulfillment cancellation rate below 2.5% to stay out of Amazon’s bad books.
#8. Customer Service Dissatisfaction Rate
From Amazon: “CSDR measures customer satisfaction with your responses to buyer messages. When you respond to a buyer through the Buyer-Seller Messaging Service, we include a survey immediately below your response asking: Did this solve your problem? Buyers can select Yes or No, and the CSDR is the percentage of No votes divided by the total number of responses.”
Simple enough, though there have been some complaints voiced in the forums where the seller sells a product which cannot be returned under Amazon’s own policies (e.g. condoms) and the buyer hits the “no” button because their request to return was rejected. This would be something to take up with Amazon on a case-by-case basis if dissatisfaction rate becomes an issue.
Amazon policy states that the goal is to have dissatisfaction rate below 25%.
#9. Valid Tracking Rate
This is another one which is taken care of for you if you use FBA. Seller-fulfilled orders must meet a target of at least 95% of orders having a valid tracking number attached. It’s part of Amazon’s commitment to customer service levels.
#10. Return Dissatisfaction Rate
“RDR measures the customers’ satisfaction with how their returns are processed. It’s calculated as a percentage of valid return requests that were not answered within 48 hours, were incorrectly rejected, or received negative customer feedback.” (Amazon)
Fortunately, with FBA handling your returns, this is another metric for seller-fulfilled orders.
If you want to be among the most successful FBA sellers, then you need to be monitoring and staying on top of the key metrics for your business.
While there are other metrics, we could have gone into here (logistics and financial measures included), for the sake of brevity we’ve got 10 here which every seller can begin with.
Look out for a “part two” coming up where we delve into more metrics you need to be on top of, including those logistic and financial measures.