This Case Study is related to a Failed Launch of Amazon FBA. Launch was successful initially but then market dynamics changed which make the launch failure. Here you will know how market dynamics can turn a Success into Failure!
Background:
A client came to us and asked us to increase her sales. They Launched the product in February 2021 with 5000 units. Everything went extremely 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 2 months and when they came back from OOS then they were not doing well as they were doing earlier. The client asked us to do an audit, identify the reason(s) for low sales and increase the sales.
Product Basic Information:
Niche: Sports and outdoor
Market: Germany
Main Keyword SV at that time: 1.3Million (Top 10 KWs SV 2Million+)
Price at that time: €47
Profit margin: 60%+
We started investigation and Research that what actually happened? Yeah, OOS has a big impact on ranking, but we had to look for the other reasons too. We Did extensive Niche analysis, Listing Audit, Extensive KW Research (check my video on Extensive KW Research), Read Brand Analytics 4 months data, Alternate Purchase Buyer Behavior, SFR Analysis (check my video on Brand Analytics), Read PPC Data and finally reached to the conclusion. Here what we found after 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 for all indoor products increased. That’s why in the severe 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 extremely low as a result, sellers enjoyed higher margins despite low product quality.
They didn’t check the product stats and didn’t consider the Keyword history otherwise they could have better planned everything.
Over time, everything was settling normal, 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.
2. NEW ENTRANTS
By seeing the high demand and less supply, Chinese jumped into the market. They started offering the same quality (even good) at lower prices. Due to which their sales increased, and old sellers started getting low sales. They were doing aggressive marketing.
3. COSTLY SOURCING
When client went out of stock then they rushed on placing an order with the supplier. They placed the order on 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, so they did Airship which cost them around €12/pack. Due to all these additional costs Profit Margin got shrink further.
4. PPC
As there was low competition so bids were lower than €0.5, thus client enjoyed good conversion on lower ACos. But when they come in stock after 2 months of OOS, due to competition the normal bids went to above €1.5 because new sellers were bidding aggressively. Due to 2 months of OOS, the PPC data also got deleted (Search Data are available for 65 days) so we were unable to read the detailed data of search terms, etc.
5. CONVERSION:
Due to Listing Quality, the conversion was very bad, 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 remains bad.
Our profit margin was €9, and the average CPC was €1.5 to €2 and 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 bad, and competition was high due to which we were struggling for organic orders. So, our 70%+ sales were Sponsored.
6. RETURNS
Due to defects in the first inventory and seconds one, we started getting negative feedbacks and returns due to which our net profit went down further. There were negative reviews on the first page which were having 50+ upvotes, which was directly affecting the conversion. Our listing bounce back percentage was above 85% (which means less than 15% conversion).
7. HIJACKERS
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 extremely low price due to which buy box, they win the buy box. We were unable to meet their price due to expensive sourcing. Anyway, we decreased the price but due to too many price fluctuations, our buy box suppressed.
8. CLIENT’S EXPECTATIONS
Why are we not making profit? We previously made €100k+ in 1.5 months then why not this time??? Hamza conducted multiple sessions and made them understood all the things. They understood the thing and asked us to liquidate the inventory because it’s not making us profit anymore and find us a product like this one…
We told them that it was a random case, normal product launch takes 3 to 6 months (or even more) to get stabled. If you can wait for that much, then we will go for new product launch otherwise you can find any other service provider.
We Calculated all Plus and Minuses 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 that we will recover the investment by selling on amazon, but we expect realistic expectations.
Now we are recovering monthly 3 to $4k investment.
Conclusion:
Here I am sharing what we did and doing to recover the investment!
BREAK-EVEN SCIENCE:
We identified the Break-Even Units per day. Means we identified that after selling how many units we will start making a profit?
Here is what most of the people do? They follow their competitor’s sales velocity. Like competitor is selling 100 units a day, then we also target 100 units a day.
The important thing is not sales velocity, the important thing is profit. Identify, after how many units you will start making a profit. We identified that our break-even selling units are 20/day and we were selling around 45units per day. It means we didn’t need to sell the extra 25 units if we are not making 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 first time 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 choose to go into the war then we had to decrease price even below the break-even. So there were two ways:
1st to decrease the price, and go into the price war and sell inventory on loss.
2nd to identify cheap sources and traffic which can give us sales on even poor conversion.
We have chosen the second option, and determined to sell at the same price. We have found cheap sources of traffic, identified opportunities and gap 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 same clicks (16) but on 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 bad due to the highest price in the market. But due to low CPC, we are getting orders in profit or in break even.
Always do research and read data from different Perspective. Data Reading tell you a lot of things about the product which you can’t see directly.
Hope you have learned some lessons from the case.
Keep Learning!
