This Case Study is related to a Failed Launch of Amazon FBA. The launch was successful initially, but market dynamics changed, which made the launch fail. Here you will learn how market dynamics can turn Success into Failure!
A client came to us and asked us to increase her sales. They Launched the product in February 2021 with 5000 units. Everything went exceptionally well, and they had earned $100k+ revenue in 1.5 months with less than 4% TACOS and secured 60%+ profit margins, but then they went out of stock for two months, and when they came back from OOS then they were not doing well as they were doing earlier. The client asked us to audit, identify the reason(s) for low sales, and increase the sales.
Product Basic Information:
Niche: Sports and outdoor
Primary Keyword SV at that time: 1.3Million (Top 10 KWs SV 2 Million+)
Price at that time: €47
Profit margin: 60%+
We started investigating and researching what had happened. OOS significantly impacts ranking, but we also had to look for other reasons. We Did extensive Niche analysis, Listing Audit, Extensive KW Research, Read Brand Analytics for four months of data, Alternate Purchase Buyer Behavior, SFR Analysis, Read PPC Data, and finally concluded. Here is what we found after the Audit and Data Analysis:
- PRODUCT SELECTION:
The product was affected by Covid 19. It’s an indoor exercise product, so with covid indoor activities increased, due to which demand all indoor products increased. That’s why in the tough Covid lockdown time, the product’s Main KW Search Volume boosted from 11000 to 1.3Million within 3 months. There were too few sellers; thus, demand was high, and supply was meager; as a result, sellers enjoyed higher margins despite low product quality.
They should have checked the product stats and considered the Keyword history; otherwise, they could have better planned everything.
Over time, everything was settling typically, and thus demand for all such products also decreased. That is the big reason for lower sales. The rest of the factors, which affected sales, are based on this reason.
- NEW ENTRANTS
The Chinese jumped into the market by seeing the high demand and less supply. They started offering the same quality (even good) at lower prices. Due to this, their sales increased, and old sellers started getting low sales. They were doing aggressive marketing.
- COSTLY SOURCING
When the client went out of stock, they rushed to place an order with the supplier. They put the charge on an urgent basis and upgraded the packaging, due to which the FBA fee increased. And as the client’s margins were good and they saw the high demand for the product, they did Airship, which cost them around €12/pack. Due to all these additional costs, Profit Margin shrunk further.
There was low competition, so bids were lower than €0.5; thus, clients enjoyed good conversion on lower Acos. But when they came in stock after 2 months of OOS, due to competition, the average bids went above €1.5 because new sellers were bidding aggressively. Due to 2 months of OOS, the PPC data also got deleted (Search Data is available for 65 days), so we could not read the detailed data of search terms, etc.
Due to Listing Quality, the conversion could have been better; the orders-to-click ratio was 25, we worked on the listing optimization and managed to bring it to 15-16, but due to higher prices, it still needs improvement.
Our profit margin was €9, and the average CPC was €1.5 to €2, increasing due to high competition. Now you can imagine the ACOS. (let’s say the average order-to-click ratio is 15, and CPC is 1.75. so our normal ACOS was 80 to 100%.)
On the other hand, our conversion was terrible, and competition was high, due to which we were struggling for organic orders. So, our 70%+ sales were Sponsored.
Due to defects in the first and second inventory, we started getting negative feedback and returns, due to which our net profit went down further. There were negative reviews on the first page which had 50+ upvotes, which was directly affecting the conversion. Our listing bounce-back percentage was above 85% (which means less than 15% conversion).
When hijackers saw our amazing sales history, they did piggyback on our listing when we were OOS. When we came in stock, we tried all black, blue, and grey methods to remove the hijackers, but they would come to our listing in peak times. They were there with the meager price due to which buy box; they won the buy box. We were unable to meet their price due to expensive sourcing. We decreased the price, but our buy box was suppressed due to too many price fluctuations.
- CLIENT’S EXPECTATIONS
Why are we not making a profit? We previously made €100k+ in 1.5 months then why not this time??? Hamza conducted multiple sessions and made them understand all the things. They understood the situation and asked us to liquidate the inventory because it was not making us profit anymore and find us a product like this one.
We told them that it was a random case, standard product launch takes 3 to 6 months (or even more) to get stable. If you can wait for that much, we will go for a new product launch; otherwise, you can find any other service provider.
We Calculated all Plus and minus of the liquidation. Inventory cost was $40k, but they would hardly get $15 to 20k for this inventory + listing.
We stopped the client from liquidation and told them we would recover the investment by selling on amazon, but we expected realistic expectations.
Now we are recovering a monthly 3 to $4k investment.
Here I am sharing what we did and doing to recover the investment!
We identified the Break-Even Units per day. Does this mean we determined that we would start making a profit after selling how many units?
Here is what most people do. They follow their competitor’s sales velocity. If a competitor sells 100 units a day, then we also target 100 units daily.
The important thing is not sales velocity; the important thing is profit. Identify how many units you will start making a profit in. We identified that our break-even selling units were 20/day, and we were selling around 45 units per day. It means we don’t need to sell the extra 25 units if we are not making a profit from there while considering our 70%+ orders are sponsored. We focused more on Total ACos instead of Acos.
We started selling 20 units, and within a week, we achieved break-even. Now we have achieved 15% TACos and around 40% Acos.
CONVERSION VS PRICE WAR
Due to new sellers in the niche and the Downtrend of SV, everyone was selling cheap, due to which the Price war started in the niche. If we also go into the battle, we would have to decrease the price even below the break-even. So there were two ways:
1st, to reduce the cost, go into the price war and sell inventory at a loss.
2nd, to identify cheap sources and traffic that can give us sales on poor conversion.
We have chosen the second option and are determined to sell at the same price. We have found cheap sources of traffic and identified opportunities and gaps KWs.
Understand the concept here, our conversion ratio to clicks is 16, and our CPC is $2 for competing KWs. Now I can bid on competing KWs and will get an order after 16 clicks ( $2 x 16 = $32), OR I should find sources where I can get an order for the same clicks (16) but at a low cost, like $0.8. ( 0.8 x 16 = $12.8).
Our current CPC is between $0.4 to $0.8, while the conversion is still insufficient due to the highest price in the market. But due to low CPC, we are getting orders in profit or break even.
Always do research and read data from different perspectives. Data Reading tells you a lot of things about the product which you can’t see directly.
Hope you have learned some lessons from the case.