269. Why Your CPG Brand Might Be Losing Money on Amazon

0:01Ryan Eales:Welcome to Startup to Scale, a podcast by FoodBevy. I'm your host, Jordan Buckner. Join me as I talk to aspiring entrepreneurs, seasoned industry experts, and everyone in between as we unlock the keys to growing from startup to scale.

0:18Ryan Eales:For many CPG founders, Amazon feels like a necessary channel, but also one that's really confusing. You know, between rising ad costs, fees, inventory management, figuring out how reviews work. You know, it's easy to kind of start generating revenue, but are you actually making money and profitable on the channel? And that's why I really want to walk through today is figure out how to position your brand for success on Amazon and actually become profitable. So today's test, I invite Ryan Eels, who's the founder of Amazon Whisper, which is an agency that helps brands grow profitably on Amazon. Ryan has worked with countless CPG brands to improve their rankings, organize and optimize their listings, optimize advertising and increase their conversion rate.

1:01Ryan Eales:And so I really want to invite them on to drop in and talk about what separates profitable brands from unprofitable ones on Amazon. Ryan, welcome. Yeah, thank you, Jordan. Thanks for having me on. So to dive in things, you know, is it possible to run a profitable Amazon business, especially for food beverage brands today? So it's getting harder and harder, but it certainly is still profitable. It just very much depends how you're running it and what you're doing inside the account. But I know a lot of people think that Amazon's not profitable anymore. When you get off Amazon, a golden era has passed, which to some extent it has, but it definitely can still be profitable.

1:41That's for sure.

1:41Ryan Eales:So I'm curious, what are some of the barriers that are blocking brands from being successful on Amazon these days? Yeah, so the most common things that I see when I talk with different brands, CPG brands, food and beverage, and this is true whether they, like the founder, is running the account themselves or they have someone in-house, they're using an agency. a lot of the times they're making the same mistakes on the advertising as well as things like listing creative, listing SEO, and a very big killer for any Amazon listings is going to be the inventory side as well. If inventory management is not being handled properly, that can seriously hinder your listing performance.

2:23Ryan Eales:Yeah. So those are all big things, right? Because I remember when I was selling my brand on Amazon, we started to generate sales, but of course we're like, all right, no one knows about it. So you have to run ads to get in front of people, especially as a new brand that doesn't have existing awareness or search. And then the ad spend starts getting really high. You're shipping product in. And I think the thing I loved about Amazon is they actually were pretty good about giving you all the data. You got to see the cost from advertising, got to see the cost from like shipping. Some of the tools that were out there did not kind of show a holistic view of like the entire business because all the data is kind of in these disparate points and you end up spending lots of money in different ways.

3:02Ryan Eales:And so it really took time to like sit down looking at all the numbers to see if you're profitable or not and at what time and at one point. And so for existing brands who are selling on Amazon, do you have good ways of kind of getting a complete financial view of how profitable they are or not on Amazon, even as a starting point? Kind of what are all the different data pieces they need to collect? Yeah. Now, so for a brand, if you're a founder who's running your own brand, one of the easiest ways to check this yourself is going to be through software like a seller board. That's one of my personal favorites.

3:37It's pretty cheap and it's very easy to get set up. So that pulls everything in from the Amazon account and you can see what your advertising spend is, your sales, you can enter in your cost of goods and all of the other expenses as well. So that's a quick and easy way to get a view on what's going on. But from our side, we run what's called a profit roadmap. So what that is, is before we work with brands, we'll share it with them and we'll see what's going on inside the account. But then we'll dive a little bit deeper and do a diagnostic within the account. So we're looking at things like advertising and listing performance, click-through rate, conversion rate, what's happening on that side, subscribe and save, the inventory as well, keeping up with all of that.

4:20But it's something that you can very quickly get into the weeds on because there are, as you said, there's so many different data points within Amazon that you need to be looking at. And when you aren't working with that all the time, it can look like an impossible task to try and make sense of the chaos that Amazon can sometimes be.

4:39Ryan Eales:And I think that's what's difficult because I remember I essentially took three months off from like really pushing the rest of like our wholesale accounts and other things with my energy bar company, T-Squares. And so I'm going to devote these next three months where I'm spending 80 percent of my time on Amazon to learn how it works, what makes it successful and how to grow the business there. and then 20 % of everything else and realize like, right, it's basically a full-time job and plus more could be for multiple people if you're really dialed into the numbers, make sure the inventory is there, make sure that your advertising is continuously changing and optimized because it's not just to set it and forget it.

5:18Ryan Eales:And so I think that's where a lot of brands get in trouble as they set things up once, maybe spend a little bit of time, but it's easy to get distracted if they're running it themselves. Yeah, that's just it. And to your point, it really is a full-time job for not just one role, but there's many different roles that could quite easily have that full-time role on Amazon. When you've got advertising, you've got SEO, you've got all the creative, you've got the inventory management side, the cataloging compliance. Before you know it, it's like seven or eight or more full-time roles. It's just so much going on.

5:51But yeah, to set things up initially and forget it, it's a certain way to not be successful on Amazon. I see brands that do it all the time. They'll go on, they'll launch the products, they'll get the listing set up, they'll set some campaigns running, but then it's something that they just don't touch again for a few weeks, a few months, and they come back to it and they say, I've spent thousands of dollars on ads and I've made some sales, but you're running at like 150 % A-class. You're just losing money flat out. It's not something that can be said and forget. You have to constantly be inside tweaking different things, whether it's on the ads, the SEO, or just imagery to improve conversion rates, improve splitter rate and traffic.

6:35Ryan Eales:So let's talk a little bit about what are different Amazon strategies and goals. So I know there's lots of different CPG products. It's a little different, right? Like if you're selling a bag of gummy candy that's lightweight, small, but as a high price point, you might have a different strategy than someone selling a 12 count of an energy drink, which is heavy and expensive. And so talk with me just about some of the different types of strategies brands might have for Amazon that can help kind of set their goal of whether they need to be profitable or not. Yeah, yeah, absolutely. So as you said, every different sub-niche within CPG is completely different, has its own strategies.

7:15When you're looking at something like any chocolate products, it's going to be meltable. So you can't have it in Amazon FBA during the summer months in the US. Amazon actually requires you to pull that inventory out of the FBA and you've got to fulfill through your 3PL warehouse. So it can be done in small things like that on the inventory side that dictate what the overall strategy is. But then we see all the time people who are trying to launch like a new supplement brand or a good example, one brand I spoke with a couple of weeks back, they were selling a hydration pack. So similar to like a element that you're putting water mix SAP Hydration, they were losing a ton of money on ads because they were trying to go after the massive brand names that are everywhere, like an Element or like a Dreptra, those types of companies, Liquid IV.

8:06It's very difficult to compete with those brands because you're a brand new product that, to be honest, most people don't know about. And now you're trying to advertise on a very generic phrase, such as Hydration Packs. People may see you there if you're lucky because You're going to have to spend so much money on that to even get that placement. But if people see you, they're not going to click on the listing. They're not going to purchase your product. They're going to purchase from the big guys instead because they know them. They trust them. So that needs to play into the overall strategy as well.

8:36How do we position ourselves? What are the keywords that we're going after? And it's not a good idea to go straight to the top. We've got to start down at the bottom. We've got to cast a narrow net first and dominate that small neighborhood and then expand out to broader keywords and then expand out again. It's not something where you can just go from zero to a hundred in a couple of days.

8:59Ryan Eales:It takes time. So let's dive into that because I feel like that's one thing that has happened to Amazon over time, like with the increase of just every single type of product, you know, even those that are made here, not even to mention all like the cheap goods that are sold on like T-Moon and Shine and all that, they're also making it in the Amazon markets. There's a lot of products, there's a lot of competition. And so, you know, there's hundreds of pages of search results for any kind of product. Let's take the hydration mix, for example. How do you start thinking about those like keywords to bid on to get awareness?

9:32Ryan Eales:Or do you say, hey, look, maybe it's not a Amazon advertising strategy, then maybe you need to pull people off of Amazon and other social channels to Amazon to purchase. So let me kind of talk to me through like how you would think about that type of category, just as one example. Yeah, so a couple different things on that. The first one is I think how Amazon fits into your overall sales funnel. Like if you're just viewing Amazon as its own channel and you're not really doing much outside of it, you're not doing much in BSC, retail or influencer marketing, stuff like that, you may not have much brand awareness because no one is seeing your product to anywhere other than on Amazon when they search for those generic phrases.

10:17So if you're advertising on Amazon, best way is to always go after your brand name, but then people do need to know about your product. So that's one good way to start it. And if you're newer, you're starting out, you don't have that brand awareness, you can go after what's known as long-tail keyword phrases. So these are going to be keyword phrases where it's like four plus words together. So think of something like hydration stick pack for runners. That's a really good long tail keyword phrase. Now, there's not going to be as much competition on my phrase. There aren't going to be as many other listings putting on it through ads or placed there organically.

10:53So if you push hard on that phrase, you really target in on it, it's going to be a lot easier for you to win that number one placement. Get on the top of page one and get the sales from it. Now, you do that with one keyword. You find another 19 that are similar to it. And if you can really dominate those 20 to start with, then you can expand out a bit further. But it all comes down to that targeting. So that's on the keyword side of things. The next important thing is going to be with your main images. So even if you're getting advertised in the number one placement or just on page one for that keyword phrase, you still want to make sure that people are clicking on your list versus on the other competitors who are showing up there.

11:36So you need to make sure that your main image is good enough that it catches their attention. It stands out from the crowd. But also you're giving someone reason enough to want to click on your product versus the guys who are above or below you on either side. So you want to show something about what the main benefit of your product is, what sets you apart from everyone else so you can actually win that click.

12:01Ryan Eales:No, I think those are key. And I mean, it even gets to a point of now it's even more important to have a benefit and the reason to believe that stands out different from the competition of why they should choose you. Right. And it has to be strong enough for them to make that decision choice where they think not this product, but yes, this product. Right. And you have to there is not just they need to say yes to you. They need to say no to the other people or at least be willing to try you. And so having a strong differentiator is good. And I always tell people I love Amazon because it's one of the best channels to know how easy or difficult it will be to grow your entire business.

12:39Ryan Eales:Right. Like if you launch a product on Amazon and are facing stiff competition from other even emerging brands who have more money and they're spending and it's hard to get that traction, your differentiator is not resonating. There's no one searching the keywords for what your benefit is. It's going to be very expensive to grow your business in Amazon and without. But if you find a thing where, you know, you create a zero sugar hydration mix or something, because I know a lot of them have sugar, and that's a claim, a benefit that really resonates with people. People are searching for it and they're choosing you over the competition.

13:14Ryan Eales:then you know that you have a strong value proposition and it'll be successful on Amazon and in retail and in D2C because you are getting almost like, you know, as it is now, like most of the American households shop on Amazon, at least partially. And so you're getting a good representation of how easy or difficult it will be to build your business. Yeah, exactly. And I think a good example of that is one brand who had been with us for coming up in two years now. Started out as like a side gig project, making a traditional family hot sauce. And they didn't have plans back then to go into retail or anything like that.

13:52And started out on Amazon for a couple of months themselves and then got us involved. And we're now growing them in just under two years to being in the top 20 hot sauces on all of Amazon. So that's up against like the Texas Peets, the Melindas, the Yellowbirds of the world, the really big brands out there. They're in the top 20. And now they can see that there is a market for this product. And they've already used some of that Amazon data when they've gone and had conversations with smaller local retail stores. Be like, look, this is the kind of volume we're doing on Amazon for a different product.

14:25Ryan Eales:So there is a market here for people who want this product. So it can be a great testing ground. Yeah, I love that. I mean, I think the other thing that's really helpful in this space as well is to be able to then like, yeah, as you mentioned, like get that data, get that sales information that then they can can use. How important is it to, as you kind of mentioned earlier, having like multiple channels, how important is it to have Amazon products, even if you're not focused primarily there, like having the list is maybe you're going to decide you're not going to advertise on Amazon. but how important is it to have a product listing set up and the fulfillment so that you can ship product there yeah so really amazon it's kind of like that necessary evil that no one really wants to work with amazon but we kind of have to because if you're doing a lot on the dc side you're doing a ton of marketing there a lot of spending to better into google and doing a lot with the inferences there's going to be a lot of traffic coming to your dc site but not everyone who's going there is going to convert.

15:23Or if you're in retail, people are going to see your product, but then they're going to go home and they're going to be sitting in their living room. They're going to think of this product and what are they going to do? Where's the first place that any of us go to buy anything nowadays? We open up Amazon on our phones and we search for the product. So if your product is not on Amazon, when that person goes and searches for it, they're going to find good direct competitors who are there. So I know some people are concerned about Amazon cannibalizing on the DTC sales side of things. But I think it's a bad way to look at it.

15:58You rather need to realize those are sales that you probably weren't going to get anyway. Yes, there may be some overlap, but the person who didn't buy on DTC, they're going to Amazon, they're going to buy something on Amazon. And if it's not your product, it's going to be the competitors. So you still have to be showing up there. Otherwise, your competitors are just going to get more of the sales.

16:19Ryan Eales:Yeah, the other thing is that I still strongly believe Amazon has some of the best conversion revenue optimization in the world in terms of you can find a product on Amazon and buy it within five seconds, probably even less, three seconds. Right. And in the world of reels and TikTok videos, people are looking to make instant decisions. And so someone might see your product on TikTok or other social channels and they're like, oh, this is interesting. Let me check it on Amazon. And if you have a strong offer and a strong deal and a clear kind of value proposition, they can buy it immediately. Right.

16:57Ryan Eales:For someone to have to go to your website, then kind of choose the product on there, go to the cart, then the checkout and then put in all their information. Each of those steps are friction and they might get to a point and say, oh, wait, let me go back to TikTok and look up something. And then they get distracted by another video and literally never come back to your D2C site versus if someone goes on the Amazon, they can buy it in three seconds. And so I think that's a real psychological level you have to really understand is to make sure your products are on Amazon, have a competitive offer.

17:27Ryan Eales:So you're getting those people to buy into your product and generate that initial trial. Yeah. Yeah. That's just it. I mean, you've got to show up. And Amazon, what, they do tens of billions of dollars of revenue from third-party sales on the platform. They have optimized the entire platform like crazy to make it easier for people to spend money on it. So you're getting your products listed on Amazon. Really, your responsibility is very small just to have ads running and properly advertised on the different keywords, stuff like that. You're organic rank, you're creative. but Amazon has already done so much of the work to make that entire checkout process as simple as possible.

18:06I mean, one click buy and the product will show up tomorrow or later today. And that's the trust as well, right? Like people know Amazon and they know that if they buy a product from Amazon, if they don't like it, they can just return it. And there aren't going to be any questions asked, which is one of those things. It happens on Amazon. You have to just deal with it. You have to work it into your projections and all your different calculations, probability, stuff like that. But that's why people go to Amazon because they trust that they know if they order now, they're going to get it probably later today.

18:39And if they don't like it, they can send it back tomorrow. There's really no farts around it.

18:43Ryan Eales:I love that. So we talked a little bit about strategy and setting that up so that it's core for your business. We talked about some of these executional things around like advertising, optimization within there. One question, you know, I want to ask you is that a lot of brands have a bad experience with Amazon agencies who sell them on like a vision of what their brand could be. But a lot of times it might not live up to that. And so I want to ask you, one, what should brands be looking for in choosing a good Amazon agency? And then what expectations should a brand have in working with an agency in terms of like, OK, this is actually working for me or this is not?

19:22Yeah, great question. So the number one thing I'd say to watch out for is don't go for an agency who's going to charge you a commission on the ad spend. It's a broken model. Incentives are not aligned. If you want to be more profitable, you shouldn't be paying the guys more money for spending more of your money because they're not incentivized to put more cash into your pockets. And I mean, it's really the same with a lot of other agencies you work with. You want to make sure that they're good at communicating. They're not hiding information from you. So they're an open book in what they're doing inside the account.

19:55Because the fact is, well, there are different strategies and things that you can do inside the account to grow sales. A lot of the time, it's just doing the basics, getting the basics right and getting them right consistently. That's what really allows an account on Amazon to scale over time. It's nothing fancy. It's just getting the basics right. So if they tell you that there's some secret formula that they've got figured out that only that they know, that no one else knows, and they're going to scale account by 100 % in a couple of months, I can almost guarantee you they're not going to get anywhere close to that.

20:31So look for them to be an open book. They're not part in the secrets. They're willing to talk about things like that. But also they need to be invested in your product and really have the commitment to understanding your product. because a lot of the times if the agency you're working with they're not taking the time to understand what the product is what the different features the benefits are why would someone use those then they're not going to do a very good job at marketing your product because at the end of the day that's what it is you hire now as an agency to market your product on amazon same as someone internally would be marketing your product on meta google tiktok everywhere else

21:06Ryan Eales:so the same principles are and then what are the limits of what an agency can do for a brand. And I guess from the viewpoint of if you're a new brand who's just starting out with unproven demand, an agency might not be able to generate$100 ,000 in sales a month, right? Like there's going to be some a longer time to really understand what's possible. But I'd love to kind of get your perspective on like when you work with especially newer clients to Amazon or someone who's a little bit smaller, you know, what can you help them do? And what can you not help them do yeah so quite a few brands do expect to launch an amazon and be millionaires overnight right it's it doesn't work like that as you know with anything in business very few businesses are a success overnight everything takes time and the same is true with amazon and it's just the way things go sometimes you'll launch a product and it will land it will do really well and it will scale quickly but then other times you can launch a product and it can be pretty stagnant for a long time and then suddenly nine months down the road things start picking up and finally it takes off so during those first few months on Amazon it's a lot of just testing seeing what is working what isn't working is there really a market for that especially when you're a new brand right and you don't have that like proven market track record on other platforms you know this performs well on Meta and Redditor's inside so it's put it on Amazon there's already some traffic there we can just capture it.

22:33So it's a lot of testing. But then when you are a more established brand and you get set up on Amazon, it is a lot easier to make big improvements. And to go back to the profitability side, because that's really what matters at the end of the day. It's all about how much money are we actually making off of Amazon. You don't want to always be paying that at last. So if you are already selling on Amazon, you're already doing some decent volume, it's pretty easy actually to optimize and improve your profit margins now you can dive a bit deeper and look at things like what category are we in or adjust pricing around or different deals or coupons subscribe and say the tax rate stuff like that but then you can also just look at the basics within the advertising like are we negating keywords how are we actually structuring the campaigns are we targeting the correct keywords and the correct product those basic things that and you learn about wasted ad spend, that can improve parkability.

23:26So there's a couple of different ways that you have to look at it. There's never just one size fits all. Everyone's in the same bucket on Amazon.