E152: Amazon News, Inventory Performance Index, Boost, and More
Amazon is the 800-pound gorilla in ecommerce and when they announce something new, it's bound to make the waves. But just in case Amazon news missed your inbox, Dave and I are here to recap them for you.
This will be a recurring episode in the podcast with Dave and I regularly updating you with big and exciting announcements from Amazon. This series is going to be chock-full of value even if you're not selling on Amazon, as it seems that almost everything Amazon does tends to affect all of ecommerce.
In this episode Dave and I talk about the following updates:
- 2018 Boost with FBA event on June 20th in New Orleans
- Inventory Performance Index and how to optimize your inventory
- Amazon App Store
- Amazon remarketing data
- Amazon media group
- New Amazon video ads
In conjunction with Amazon updates, we're also excited to announce new stuff from EcomCrew.
As part of our commitment to add new content every month, we will be releasing a course on Facebook Messenger in July. Sign up for an EcomCrew Premium membership to get access to this when it launches, plus access to ALL of our content–all of our courses, talks, webinars, spreadsheets, contacts, etc.
If you're not sure about joining us yet but you need help with your business, just go to AMA (Ask Me Anything), ask us whatever question you have and I (or Dave) will answer your question and give you advice for free.
Ask Me Anything
What is Amazon’s Inventory Performance Index & How Is It Calculated?
Thanks for listening to this episode! If you have any questions or comments, feel free to leave them below. Happy selling!
Full Audio Transcript
Mike: This is Mike, and welcome to episode number 152 of the EcomCrew Podcast, so glad to have you with us today. You can go to EcomCrew.com/152 to get to the show notes for this episode. And today Dave and I are going to be going over new developments on Amazon.com. We got six things to cover with you, new things that have happened over the last month that we think that will be really important for you to be knowing about in your e-commerce businesses.
Even if you don't sell on Amazon, I think it's important to listen to this stuff just to see some of the things that are happening in the Amazon world. So right after this break, we're going to get started. Again I'm glad to have Dave back on the show with me today. I'm looking forward to digging into this. We’ll talk to you soon.
Dave: This is Dave.
Mike: And this is Mike, and welcome to this edition of the EcomCrew Podcast. Dave man, it's becoming a regular thing. It's great to have you back on the show man.
Dave: Yeah it’s been good actually. I enjoy getting on here and kind of talking about what's going on in our businesses, and what's going on in e-commerce in general.
Mike: All this promise of once I get back on Pacific Coast time, I’ll be on the podcast more is starting to come to fruition.
Dave: I know, I know. Now we get out of battling with internet every day it seems. It doesn't matter what country we’re in.
Mike: Oh man, it's like a plague that follows me around. But we do have upgraded internet coming. So hopefully that might help on this end. But let's dig into today's topic. We wanted to do like a regular segment. We'll see how regular this becomes. But I do think that it's important to talk about industry updates, especially specifically with Amazon. Amazon is kind of the 800 pound gorilla that seems to be the common thread to probably 80 or 85% of our listeners.
So if you don't sell on Amazon, this might not be the podcast for you. But even if you don't, there's still some industry updates and things you might be interested in here. So let's start getting into them. The first one I want to talk about was Amazon boost. And the reason I threw this up front is because it's the most topical as far as timing goes. It's going to be on June 20 in New Orleans. And I'm actually curious, I don't think that you went last year, did you Dave?
Dave: No I didn't go. Did you go actually?
Mike: I didn't, same problem as this year like they first of all it's crazy to me that an event like this they schedule as about as far as advanced as they do for Prime Day. It's like they still haven't picked a date for Prime Day as at this point. And Amazon boost was scheduled — it couldn't have been more than six or eight weeks in advance.
Dave: Yeah I mean I got the notice I think in April about boost. And I mean we know it's going to happen again this year. But again, like you mentioned, they didn't notify anybody until maybe two months in advance.
Mike: Yeah happening again this year when and where? Just because I think they even have it in the same place. So it's something that I would have gone to last year and would go through this year even with the feedback of it's not really worth going from a lot of people that went last year. But it's another time and place where a bunch of sellers get together. And to me, that's the point of all this stuff. I just got back from the Million Dollar Seller group in Cancun. There was 60 to 70 people there. And the entire thing was just about hanging out with other sellers and a lot of really good tidbits come out of that.
Dave: Yeah. And I think the different thing with Amazon booths is that it's actually put on by Amazon. So it's kind of like an Amazon in doctoring conference. So every session is operated by Amazon, every different lecture and talk that they have is about Amazon. So it's really a through and through an Amazon conference, which is both the good thing and the bad thing.
Good thing is that hopefully, I think most people are attending, hoping that they're going to get one or two tidbits about Amazon selling information that they wouldn't get otherwise because it is hosted by Amazon. The bad part is that you're probably getting a fairly biased source of information just for the fact that it's coming from Amazon strictly, all the speakers as far as I know, are actually Amazon employees. So I don't think they're going to tell you any hacks and tricks that maybe are a little bit less well known and pushing the gray hat area. So I think everything is going to be, how do you operate within Amazon sandbox strictly according to every rule of their playbook?
Mike: Yeah, yeah. And for me, I'd like to go and just give them a piece of my mind even though I know it wouldn't make any difference because they obviously don't care. But right now we're having some frustrating issues with Amazon that man it's a brutal platform and so on. It really is sometimes, like I mean you have to know like your place, which I do, which is that, we're nobody to them. But sometimes that feels awful, like in the middle of the situation we're in right now.
Dave: Well, that was Amazon. I think that was their big selling point this year is that if you attend you can actually get to sit down with an Amazon rep for I think they have 30 minute sessions that you can kind of book and actually talk to an Amazon rep for half an hour.
Mike: I mean I can talk to their up on the phone too but like nothing ever actually gets done. So, that's — I think the result that I would – it just feels like the panda too or whatever and that eventual lip service. I don’t know who knows. I'm not going one way or the other. Again I wish I could go just — I've had to put a moratorium on travel because I'm just physically exhausted from all the traveling and now just IRC and boost had a hit on the chopping block this year for me.
Dave: Yeah absolutely, and it's a one day conference too kind of in a far corner of the United States in Louisiana. So it's not the easiest place to get to, and for one day it's yeah, it's a lot of travel for just one day of conference.
Mike: Yep. Cool let's move on to the next thing which is the inventory performance index. This one is not brand new news, you probably have heard about it but we still want to talk about it a little bit because I do think that this is a really important number for a couple of reasons. Number one, I think when Amazon puts out something like this, without having to even read between the lines; it's probably pretty obvious where they're heading and the direction they are going in.
And the non between the line stuff, looking at then changing storage fees by increasing them and making them monthly instead of every six months and things like this go to show you where they're heading when it comes to inventory and the way that you're performing with that inventory.
Dave: Yeah, what's your take on where this is going in the next year or so?
Mike: So I think it's going to get really expensive to keep inventory in Amazon's warehouses long term. The reality is, is that they just are running out of warehouse space. They keep on opening up warehouses as quick as they can, but it's not fast enough because they keep growing so darn fast. But at the same time, it's interesting like this was one of these things that didn't really catch us off guard and wasn't a problem for us because we were already working very hard internally on this number ourselves before the number even came out that we were trying to do things to keep as little inventory in Amazon as possible because in pretty much every circumstance it's cheaper to store inventory at a 3PL than it is to store it at Amazon.
Now there's some exceptions and especially like in your situation Dave which I think is I want to like dig into it if you don’t mind talking about it. But if you're in a situation like you where you're consolidating free and using Amazon as a warehouse because some of the other costs are, like every touch point has a cost. If you were to put it into a 3PL, there is a cost to that. And if you can send it all on Amazon and you're turning your inventory every let's say six months, it could be cheaper to just send it right in Amazon. So let's talk about that just a little bit.
Dave: Yeah and I think that was the big reason why I've been sending things directly into Amazon is because there's an actual cost that having a 3PL in the middle handling everything, dividing your shipments this and that, there's an actual monetary cost to that. But more than anything, there's also a really big time cost to moving everything into a 3PL and then having to divide shipments. You're doing probably dozens of shipments, maybe less, but you’re definitely doing a lot of shipments, and managing all those shipments takes a lot of work. It's much easier just to send if you can everything on one container, one shipment into Amazon and forget about it.
So that was a big reason why I've been focusing on getting everything direct to Amazon as much as possible, avoiding the 3PL. You certainly don't want to be bogged down especially right now I'm a one man show. I don't want to be spending hours a week just creating Amazon shipments. So that was my big thinking, okay, I'm just going to send everything into Amazon. I know the storage costs are a little bit higher, but I'll suck that up. Now with the inventory performance index though, that is all of a sudden not as feasible of a strategy. I mean right now it still is depending on how much they crack down on low performers.
But the writing is probably on the wall that they're going to start cracking down on it and start imposing pretty strict storage limits for people, start charging you a lot of money if you exceed those storage limits. So now, using Amazon strictly as a storage warehouse maybe is not going to be as feasible as it once was. Obviously, if you're selling goods on Amazon, you're selling out of them in two or three months, that's fine.
But if you're planning on storing them there for six, even 12 months, it's going to probably get even tougher than it already has been, even with long term storage fees where they previously were. I mean, their storage fees now beyond six months are just absolutely crazy. If you do not meet that 350 score inventory performance index metric that they've set.
Mike: Yeah, I mean, the number, it's something like 20 times more expensive than keeping it at a 3PL. It's kind of crazy. It's definitely a real number. And we keep talking about this more and more internally. I mean, to me the profitability of e-commerce is in the details and efficiencies. And stuff like can have a dramatic impact on your bottom line. If you can go from 10% net profit to 11% net profit because of efficiencies and shipping, that's a 10% gain in net profit. It doesn't seem like one point is much, but in a business like this, it's a lot.
And for every week that you can decrease your inventory turn by if you're trying to do four inventory turns per year, that's 8% difference in efficiency just by eliminating one week in the process. And that has a huge impact on cash flow if you can all of a sudden have 8% more cash or pay interest on a percent less money however we want to look at it. Or you can also look at it from the other way of I can now have 8% more products on my catalog because my cash is more effective. Like all these things are like really, really important metrics in e-commerce.
Dave: Yeah. I mean, I guess that's one side benefit of this inventory performance index is that theoretically, well, for sellers to be a little bit more nimble and efficient with their inventory. It's going to force you to turn your inventory more times a year, which you should be doing. It's going to force you to eliminate slow moving stock, which you should be doing, but of course this all comes at a cost that's going into Amazon's coffers. But theoretically this should make people be a little bit more efficient with their cash flow planning, inventory planning, and all that.
Mike: Yeah no doubt about it. Go ahead, I'm sorry.
Dave: I was just going to ask, we kind of debated about this too off the podcast. You know what your inventory score is off the top of your head?
Mike: I do only because I'm like logged right now on Amazon right now and plus I look at this number all the time, but we're at five or six right now.
Dave: Yeah, so you're in the good books. I'm a naughty boy. I'm at 346 and just for listeners to know, you need to be at 350 or above, and if you don't, Amazon is going to start imposing penalties on you. And how that 350 score works is that you are evaluated both I think on May 30th and June 30th. This will happen every quarter, but you can get two chances to be above that 350 score.
So on May 30th, Mike you're obviously in the good books, I was in the bad books. I get one more chance on June 30th to get into the good books, and if I get in the good books get above 350, then I will not have any inventory limits placed on me. But right now I'm in the bad books and nobody really knows what the formula is for calculating list, but it seems to be that Amazon is really looking at your sell through rate, so how many times basically you're turning your inventory. And because I have a few skews, which I've just launched which are not turning that quickly; Amazon seems to be penalizing that really toughly.
Mike: Mm-hmm, I think there's some other stuff that seems to be like a really big thing like stranded inventory like having things that just are stuck there that are never going to move.
Dave: I look at my dashboard, I see shoot, I have stranded inventory here.
Mike: Yeah so that's definitely one you could do to fix that really quickly. That I was going to say real quick, the ironic thing is that the thing that’s stuck in stranded inventory for us is one of our best sellers, our second best seller. And it's been like this for eight weeks so I was kind of alluding to why I'm frustrated with Amazon and they can't fix it. It's like it's a bug within their system that they keep on sending me an email twice a day thank you for your patience and we call them every day, and I'm about ready to blow a gasket because we have two containers of the stuff sitting here now because…
Dave: Oh God.
Mike: It's a really big seller. So we get a container a month of this product, and it's just now sitting here and we're paying for storage and it's just so brutal. Again this is one of these Amazon stuff. Again it's also like hurting our inventory before it sits excellently on top of all of it such as like from every corner. But yeah, stranded inventory is a big one, sell through is definitely another. So you're getting things that are slow movers are I think that number — I forget what they call it. But let’s scroll down here real quick, days in inventory is what they call it. We're at 103.
Dave: So that's the interesting thing. I’m at 98.
Mike: Interesting, that is interesting actually.
Dave: And I am 200 points nearly below you.
Mike: Yeah so that is interesting. That really is — that number seems crazy to me that it's at 90 something for you, because like I just know more about your business because we've talked about it. And it seems like you're using it more for storage and that you have inventory that would be there for longer than that.
Dave: Yeah we're also seasonal too. So we're approaching kind of believe it or not, we're kind of a summer, spring based company. We're actually kind of selling through things now, so that's why it's a little bit lower right now. In late winter is actually normal and when we're actually really overstocked, kind of preparing for the spring and the summer.
Mike: What do you have for excess units?
Dave: Excess units zero.
Mike: Interesting, so we have 652. I think that might be the part of that that's throwing this a little bit out of whack for Dave and we'll be showing higher. So we do have because we're older, obviously you've been selling for one time, but you have a new company. We have some stuff in here that that just isn't moving. It's like old things, old ideas, things that we aren't even going to sell ever again. And it's just a couple of units per each one of these things, but they're there. And it does add up. And maybe that's kind of part of it.
And we're working to kind of get that stuff out of here. I mean, I'm like looking at one particular thing. It's like this knee sleep thing that we were selling under IceWraps, which is a very high mover on Amazon, but we can't differentiate that product. And that's one of the things that we've learned and things we talk about in our courses that you want to make sure you differentiate and have a brand that makes sense.
And this is just something that while there's definitely a great market on Amazon, and we actually were selling quite a few of these at one point, it just doesn't make sense to me, like with our branding and our messaging, and we went to like do what we were actually talking about with EcomCrew. So, there's, I don't know, seven and nine, that's 16 plus four more, there's 20 units of that one thing sitting here and the various different sizes. It's not a big number, but it adds up over a bunch of different skews. So I think that's what's happening to us.
Dave: And I guess that's where this performance index over time, if you got close to that naughty [ph] zone below 350, then you can start to look at, either simply disposing that inventory or kind of blowing them out at liquidated cost. That's the only good — again, that's one of the good things I guess about performance index is that it forces your head kind of.
Mike: Mm-hmm. Yeah it definitely does. All right, so let's move on to the next topic here, which is the Amazon app store. This came out over the last couple of weeks. It's interesting because we were just talking about this before we hit record. We were both like, oh, like Amazon is going to take over all these apps and shove a bunch of third party apps out the door. But after looking at it and you can go into your account, it's up on the top right menu here, just says App Store. But looking through it, there's all the players that are in the industry are in there and it looks like Amazon is just using it as a directory for you to find tools and services to help be a seller.
Dave: Yeah. And like you mentioned that appears kind of what it is right now. It's a directory; it's not fully integrated into your Amazon store like Shopify App Store would be, or like Apple's App Store. So it's really just a directory. So you find something like Feedback Genius, and Amazon's listing it there in the App Store. But if you actually want to install it, you actually have to go to Feedbackgenius.com, sign up for an account and manually integrate it the same way that you used to.
Ideally, I hope that it's going in the direction where I'll simply click a button and it's installed in my store, and everything is kind of integrated nicely. My suspicion would be, that's kind of where Amazon is going and they're probably going to go the way where they're going to start taking a cut off everybody too, all the app developers, which won't affect sellers but kind of sucks, I guess, for the app developers.
Mike: And they might figure out a way to charge sellers too.
Dave: Yeah, yeah, that's true.
Mike: Cool. All right well, so before moving on the next topic, we started doing these mid roll ads now if you will but they're for EcomCrew. So we want to tell you guys just real quick about EcomCrew Premium, our new subscription service that we're doing at EcomCrew.com/Premium. It's access to all the courses that Dave and I put together to this point and all the ones that we're releasing in the future.
The next course we're going to be doing is going to be on Facebook Messenger coming out in July, which is exciting. But you also get twice monthly webinars with us, which is going to be a Q&A webinar and behind the scenes look into our businesses, all the products we're launching, landing pages we're doing, Facebook ads, etc. You can find that at EcomCrew.com/Premium. And just one last thing, Dave, I haven't even talked to you about this yet but I want to mention it. Have you looked at EcomCrew’s help scouts report, the Happiness Report?
Dave: No, I've actually been kind of digging for reports. But no, I haven't looked at it yet.
Mike: I have to show you that after the call. But it made me really happy last time I was looking at it. We actually have a literally 100% rating which made me feel warm across the inside.
Dave: Well, I think that's a big thing that we're trying to offer too is that people when they sign up for one of our courses, it's not just a course; they can ask any questions they want. And we really encourage people to the first thing they do, once you sign up for the course and you start digging in the material, any questions, any burning questions you have, ask us a question because that's the biggest benefit I think that we can offer people is that we that we might not be geniuses but we at least know where to find the answers if you ask a tough question. So I think that's the biggest benefit that people do get.
Mike: I agree and enough about us. Let's move on to the next topic here which is Amazon remarketing beta. I'm actually pretty excited about this one just being a Facebook geek and someone that does a lot of remarketing. Have you looked into this yet and talked to anyone about this?
Dave: No. Have you got access to the beta yet?
Mike: So we got an email this week from Amazon Grant asking us if we wanted to do it, and she has to get me on a phone call. She hasn't scheduled a call yet with me, but I'm hoping that will happen this week or next. It actually reminds me to just send a follow up email. She tried to call me like random in the middle of the day and of course I was doing something else, but it sounds like we're going to get access to it. I don't know the exact terms yet and what we're going to pay for it and all those little details.
And on top of this, we actually also got invited to the Amazon Media Group stuff that does the same thing. But they wanted a minimum spend of $15,000 a month to do that. And I was actually really close to doing it because it sounds so appealing. But then I talked to a bunch of people at the Million Dollar Seller retreat this last weekend, and I found eight people that had been suckered into doing this because that's exactly what it sounded like they felt like after doing it and it's a three month commitment. So it's a $45,000 commitment. And the best return that someone got on ad spend was 2X and that was the best result. The rest of them were like even worse than that.
Dave: And with their media platform, is this simply giving you access to like back to when we were in the vendor central program, you can do the same thing, spend a ridiculous amount of money, and you get access to like category sponsorships and that type of thing. So basically like headline search that you see but you can actually do when you are on Seller Central account but a little bit more on steroids I guess. You get to promote the entire catalog on the category and you get your branding and everything in there. Was that basically what the media platform is?
Mike: So they offer that as well but the thing that they were trying to sell me was literally just like Facebook and Google remarketing ads. And basically what they will do is build an audience of people that are looking at your listings and then remarket to them off Amazon on your behalf and you pay for that.
Dave: Interesting, so you're kind of relying on Amazon hopefully having the kind of a secret sauce and them knowing how to do that as best as possible where that's a skill that it seems like a lot of successful sellers are now utilizing is how do I remarket to people through the off Amazon Facebook ads, people have gone to my website and this and that. It seems like you're kind of relying on Amazon then to basically do that effectively.
Mike: Yeah so let me tell you the funny part about that because that's actually one of things that they offered as a part of this remarketing thing was to put the Facebook pixel on your own website. And they will remarket your customers to go buy on Amazon.
Dave: They grab right there.
Mike: Yeah and it's crazy like the nerves these guys have I guess it for because like they're basically — the pitch was our website will convert better than yours, and I agree that that's obviously true. But then at the same time there's the whole issue of just like we were talking about with how Amazon just doesn't seem to really care about you, and it's like really tough to get support etc, and they deem it to be their customer, not yours. You can't market to them in any way, shape or form even though like they came to your website, found out about you, like through you, like one off Amazon. But then they assert that they don't have Nexus over that or something. So it's just like the hypocrisy and all of it is just hilarious to me.
Dave: Yeah, that's I mean, I guess eventually that's kind of the way things are going. Amazon is going to try to take control of all your sales. Any leakage that they have to your website or other platforms, that they want to take that leakage and get them all on to Amazon.
Mike: Yeah, it's a little bit scary, actually. Like when I was having the call with them, it was a little bit scary. One other thing I'll mention, the other thing that we are looking at doing, which I mean, and I'm still actually considering doing it, but I think we're going to probably end up passing on it just because of the number. But if you have an IOS device and you search for any keyword and then you scroll down, you'll see like the third or fourth, fifth results, somewhere around that neighborhood will be a video ad like an in stream, in line video ad. And they're like, really powerful. I mean, like the first time I saw them, I was like, oh my god, like, I want to be able to do that. It's $35,000 spend to do that through the end of the year.
And the way that it works is it's five cents per view charge, which I actually thought is a pretty reasonable number. But it's per brand. So like, we obviously have multiple brands. So if we wanted to do this across a couple brands, it would be like 70 or $105,000. Of course, there's no guarantee on performance. They won't give you any stats on what's happened to this point. You don't get any return on ad spend reporting back from it, because it's still “in beta” so they can't report on it for you, which is a huge red flag to me because you know darn well they can report on it if they wanted to. It’s just I think they know that it's performing so poorly, they're afraid to tell you.
But yeah, it is really powerful. We have a couple of our brands can create some really amazing video imagery and start becoming on track to get those searches but just to know a part of it. And that's not obviously — I guess it is no. So I guess it does fall into this news category, but just something else that's going on in our business that we're considering.
Dave: Yeah and the only — my suspicion with video ads would be I mean video ads are extremely successful and efficient, but I know like comparing sponsored ads compared to headline ads compared to product display ads on Amazon sponsored ads are still cut and dry by far the most effective advertising basically medium that's available on Amazon. It makes sense because people think that the sponsored ads are actual like the number one listing on Amazon. They don't realize it's a paid listing.
So I think a video ad while it might be effective and even more effective than headline ads, it's still going to be way less effective than sponsored ads. So if your sponsored ads are not really clipping along at the extremely profitable pace, I would think video ads would be even less profitable.
Mike: Yeah I completely agree with that. And so we're just going to stick with what we've been doing which is sponsored ads, headline ads, and product display ads actually did pretty well for us, we still have access to that through the old system. So that's the last thing on my list. Do you have anything else to throw out for in the Amazon world today?
Dave: No I think that was pretty much it. Yeah I think the big thing is the Amazon inventory performance index. That was ruled out I guess actually a little over a month ago on EcomCrew.com. We actually have a really good blog article that goes into how that inventory performance index is assessed, or at least our best guess to it, and things that you can do to improve it and just, yeah, best practices around the IPA as they call it.
Mike: Excellent, cool, guys. Well, that wraps up Episode Number 152 of the EcomCrew Podcast. So glad you guys could join us today. Just as a reminder, you can go to EcomCrew.com/152 to get to the show notes for this episode, and we'll be back with another one next week. And until then, happy selling, and we'll talk to you then.