Originally Published in Entrepreneur Magazine, May 19, 2016
Image Credit: REUTERS | Rick Wilking
Since the founding of the Amazon marketplace, Amazon sellers have had to develop sophisticated skills to thrive in a marketplace packed with two million competitors whose analytical, sourcing and operational skills vary widely. What might have worked in 2010 to secure medium-term advantage, generating superior profits, usually does not work today. Only a few Amazon sellers will succeed long-term — this new breed of internet entrepreneur has a distinct composition unlike any group seen earlier. A successful Amazon seller has had to develop specific skills that ensure the seller can find and capitalize on short-term advantages, while adjusting quickly when advantages evaporate. Identified from our work with thousands of Amazon sellers, we share the four major DNA traits of the successful Amazon seller.
1. The data scientist.
Elite Amazon sellers have developed mechanisms to scour vast product information to gain a competitive edge. No longer relying on the old-fashioned approach of randomly identifying new products at trade shows, these sellers use crawling/scraping tools to pull product data from Amazon, assessing sales levels, competition levels, price changes over time, and feature limitations that can open doors to introductions of superior new product launches. Collection and synthesis of these publicly available data help sellers simplify their approach for identifying products to source or to improve their own product catalogs.
These same sellers also collect historical sales data to build sales forecasting models, so they understand seasonal trends and historical stock levels of their suppliers, and purchase large quantities well before peak seasons. Their accounts tend to maintain enough inventory to ensure strong sales throughout the holiday season, while less sophisticated competitors experience the hidden costs of stock-outs in late November or early December.
2. The expert negotiator.
We often see the consistently successful sellers utilize a supply-side advantage. Even for sellers lacking forecasting tools, their businesses can still perform extremely well when they have well-managed, unique supplier relationships. To find the best product deals, these sellers use impressive social skills across their extensive professional networks. They know how to drive a tough bargain position with suppliers, while maintaining a tight relationship.
3. The operational engineer.
Outsiders to Amazon are often surprised to learn that Amazon sellers use advanced, data-driven software tools to automate processes within their organization. These software tools typically include inventory management software to replenish inventory, re-pricing software to adjust product pricing enough to win Amazon’s buy box, feedback software to solicit product reviews from customers, and listing software to manage product content.
Advanced sellers look for opportunities to replace repetitive tasks with software, thereby accelerating efficiency and increasing their profit margin. Not only do they incorporate repeatable processes and software to run complex parts of their business but they also use software to generate data that feeds the foundation of their primary business analysis.
The best sellers go granular, recognizing each product in their catalogs has its own competition, customer dynamics, and pricing evolution. These sellers analyze each productï¿½s sales velocity, return rates, and fully-costed profitability. They regularly update these data to eliminate unprofitable product quickly, while replenishing appropriate levels of profitable items.
4. The philosopher.
All too many new Amazon sellers build a seemingly thriving business: sales have become strong, sometimes insanely strong, while product is moving so quickly that purchase orders are placed without any hesitation. Then, suddenly, sales stop — Amazon itself may have begun buying the product directly from the manufacturer, or the supplier may have cut-off resellers to sell directly to Amazon customers, or new competitors may have added price pressure on these items. Overnight, these initially successful sellers are left with hundreds or thousands of units to liquidate, often at a substantial loss.
The successful Amazon sellers focus on current products, while also maintaining a longer-term view for additional opportunities and anticipated marketplace developments. Whether innately obtained or learned at the school hard knocks, successful sellers seek balance: they diversify across categories, suppliers and brands. If one product makes up a large percentage of their business, they seek to diversify that success by adding more products rather than rely on a few best sellers. This way, a competitive surprise has less negative effect on the seller’s overall business.
In combination, these four interlocking skills embody the successful Amazon sellers who identify and secure the right products, streamline their operations and remain flexible to the ever-changing Amazon marketplace.