Tradeswell Research: Ecommerce Pros Say Marketplaces are Eating Into Profits

This article is part of our Tradeswell Research series. We’re sharing findings from our data and research and turning them into actionable insights that ecommerce brands can use to make better business decisions that drive profit and enhance the customer experience.

We recently surveyed over 300 ecommerce leaders in the consumer packaged goods (CPG), direct-to-consumer (DTC), and retail spaces. In the survey, 55% of these ecommerce professionals said that third-party marketplaces are eating into their profits. When you break it down by company size: 72% of ecommerce professionals from enterprise businesses said this, 48% from medium businesses, and 49% from small businesses.

In this week’s article, we’re diving into the “why” behind this finding and providing three tips to maximize revenue on third-party marketplaces.

Percentage of ecommerce pros that say marketplaces eat into profits

Why it’s hard to maximize profits on third-party marketplaces

Selling products on third-party marketplaces for the first time is like entering the wild-west — it comes with many unknowns. Each marketplace has its own set of “rules,” and if you don’t play by them, you could easily see your profits start to drop.

Marketplace algorithms constantly change

Changes in marketplace algorithms can drastically change your sales numbers. For example, we recently found that Amazon is giving 50% more of the top 12 search results spots to sponsored products compared to organically ranked products. In other words, Amazon is pushing organically ranked products further down the search results page. This is just one example, but it illustrates how frequent algorithm changes can have a big impact on ecommerce sales performance.

It isn’t easy to unify data from multiple sources

54% of ecommerce professionals say that it’s difficult to align their different data sources to get a good understanding of what is actually happening and what they should do – and the more sales and marketing channels that a brand leverages, the more severe the challenge. 

Brand teams often spend hours, if not days, compiling spreadsheets from multiple data sources only to generate insights that are already outdated. 

For example, if you don’t have access to real-time inventory data, you could end up investing in paid promotions on marketplaces for products you’re unable to fulfill. This would eat into your profits and leave customers frustrated.

Minimal insight into SKU-level profitability 

55% of ecommerce professionals said that managing SKU-level profitability is difficult. Few tools exist that automatically capture and unify SKU-level data from across all of a brand’s DTC, marketplace and retail sales channels. 

Without these insights, gathering the data needed to make better decisions around advertising, merchandising, and promotions on third-party marketplaces is time consuming at best, and impossible at worst.

3 ways to maximize revenue on third-party marketplaces

Given these challenges, there are a number of steps that ecommerce brands can take to drive better, more profitable performance on their marketplace channels.

1. Keep track of changes in marketplace algorithms

Sometimes marketplaces will publicly announce changes to their algorithms, and sometimes they won’t. For example, Amazon didn’t announce it changed its algorithm to favor sponsored products over organically ranked products in its search results.

This is why it’s critical to constantly track paid ad performance and organic rankings across your marketplace channels so you can quickly pivot strategies to minimize a dip in sales. 

2. Focus on winning the Buy Box

The Buy Box is the real estate on the product listing page on Amazon and Walmart marketplaces where shoppers can add a product to their cart or “buy now.” Thanks to the numerous marketplace sellers competing to get their products in front of shoppers, not every Amazon or Walmart seller wins the coveted Buy Box. 

By identifying products with a low Buy Box win rate, you can optimize your product listing based on the criteria that the Amazon and Walmart algorithms use to select Buy Box winners. The higher your Buy Box win rate, the more sales you will drive.

3. Try an ecommerce operating system

An ecommerce operating system unifies data from all of your sales channels — including third-party marketplaces — and provides a single system of intelligence. Advanced ecommerce operating systems can provide holistic views of marketplace performance, generate machine learning insights, and breakdown data at the SKU-level.

Guide: What is an ecommerce operating system?

Insight into SKU-level profitability helps you in a few ways:

  • Understand the above line costs, below line costs, and net margin for each product.
  • Pivot your paid advertising strategies to promote products on marketplaces with a higher net margin.
  • Increase promotions on products that incur high storage fees and pause campaigns that promote products with low inventory levels.
  • Identify how merchandising strategies, such as coupons and subscriptions, impact product-level performance.
  • Maintain inventory availability across marketplaces to prevent out-of-stock items that will ultimately negatively impact product listing ranking.

No matter which marketplaces you sell products on, always keep a close eye on algorithm changes, SKU-level cost and profits, and metrics such as organic rankings, buy box win rate, and net margin. By focusing on these things, you can pivot marketplaces from necessary evils to profit drivers.

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