For many Amazon Sellers, Q4 is the most profitable time of the year. Yet, as most Sellers know, it’s also one of the most stressful.
There’s plenty of good – like a big jump in revenue and customers. But there are also numerous costs and challenges – like rising shipping/storage costs – that can turn a profitable Q4 into a disaster. The key, though, is careful planning and experience, which can help you avoid many end-of-year headaches.
Are you gearing up your Amazon Seller Account for Q4? Here is what new and experienced Sellers can expect – the good, the bad and the ugly – during the bustling holiday shopping season.
The Good: More Customers, Revenue
Many Amazon FBA businesses generate a significant share of their profits in Q4. For some, in fact, 50% or more of profits for the entire fiscal year are generated in the last three months of the year. Here are some reasons why Q4 is a cash cow on Amazon:
More Shoppers
Amazon traffic rises significantly during Q4. In 2019, for example, Amazon pageviews rose by 500 million from Q3 to Q4. For success, you’ll need to turn new visitors into customers. And brands can do that with product planning, Amazon advertising and branded content.
More Spending
The increase in Q4 traffic on Amazon translates to sales in a big way. Last year, Amazon’s revenue grew by nearly $20B from Q3 to Q4. Sales volume rises for nearly all products, even seasonal products.
Shopping Holidays
The fourth quarter includes some of the year’s best shopping days. That includes traditional days like Black Friday, as well as new digital shopping days like Cyber Monday and Amazon Prime Day. In 2019, Prime Day sales surpassed the previous Black Friday and Cyber Monday combined!
The Bad: Rising Costs & Chaos
Even with all of the incentives of selling on Amazon in Q4, there are downsides. Costs increase, as does the potential for disaster. Here are a few of the annoying things associated with Seller Central in Q4:
Shipping Costs
For brands, all shipping costs increase during the fourth quarter. That includes international and domestic shipping, as well as merchant-fulfilled shipping costs through UPS, FedEx or the U.S. Postal Service.
Storage Fees
Inventory management on Amazon is important no matter the time of year. But around the holidays, it can significantly impact profitability if it’s mismanaged. That’s because storage costs rise by nearly 400%, from $0.75/cubic foot to $2.40.
CPC Costs
Amazon advertising is a powerful tool for reaching potential customers. But it gets especially costly during the holiday shopping season. Cost-Per-Click ad costs on Amazon jump about 15% from Q3 to Q4, according to one recent estimate.
Inventory Shipments
Parcel, LTL and FTL inbound shipments to Amazon from Sellers slow down during Q4. That makes it very difficult to replenish out-of-stock items or introduce new products. That’s why it’s essential to have stock to Amazon by November 1.
More Chaos
More traffic and sales, although great, does increase the likelihood for a wide range of problems. Inventory management, for example, is one of the most significant, as products sell out too quickly or undersell (leading to excessive storage costs). Other issues like refunds, returns and shipping management can also be difficult to manage.
The Ugly: Inventory Issues
Planning for Q4 as an Amazon Seller is absolutely critical to success. Without proper planning, Sellers run into numerous problems, the worst of which can significantly disrupt sales. Here are a few ugly things about Seller Central in Q4:
Product Availability Inventory management is especially difficult during the fourth quarter. Slow-selling items result in exorbitant storage costs, while bestsellers may sell too quickly and can be difficult to replenish. This is where inventory forecasting is imperative. Accurate projections help brands avoid storage fees and out-of-stock items.
Inventory Management
Inventory planning for Q4 starts months in advance and ends in January. Typically, all of your products should arrive to an Amazon facility by Nov. 1. Then, in Q1, brands should reduce their inventory to match the decrease in sales.
Product Launches
Launching a new item is a nightmare in Q4. There are two main reasons: Rising ad costs, as well as Amazon prioritizing established products. The best solution is to launch a product in Q1-Q3. But if you’re launching a seasonal product and don’t have a choice, these issues can’t be avoided, only minimized. Without historical data, sales/inventory projections tend to be inaccurate and can be difficult to build momentum.
Cash Crunch
Buying and sending inventory months before it will sell can create cash-flow issues – no matter the size of the company. Inventory forecasting is an important tool though, helping brands to make the most strategic investments in inventory.
Keys to Q4 Success: Experience and Planning
Bottom line: Despite Q4’s negatives, there are numerous incentives, and they far outweigh the risks. A successful Q4 can be extremely lucrative for businesses. But it takes a few things to get right:
· Experience – The more sales data and experience you have selling a product, the easier Q4 is. That’s why many businesses work with Amazon Brand Managers to accurately project inventory, advertise products and maximize sales.
· Inventory Management – Get your inventory in as early as October 1, if possible, or November 1 at the latest. This is a simple step that can have a significant impact on the outcome of your quarter.
· Product Planning – In Q4, businesses should hedge towards certain products – e.g. bestsellers and/or products with higher profit margins. Sales data can help you determine which products are your best bets, and where you should focus your spending.
Need help preparing for Q4 on Amazon? We can help. Mile High Online is a full-service Amazon Brand Management agency. Let us help you take your brand to the next level on Amazon.