What is a good conversion rate on Amazon? What percentage of sales should I be spending on advertising? And what kind of click-through rate can I expect on my ads on Amazon?
Many of the nearly 2 million brands selling on Amazon.com Inc.’s online marketplaces around the world no doubt ask themselves these questions about performance. And now there’s a report that provides them benchmarks on 18 key performance metrics.
The report comes from Fortunet Partners Ltd., an investment bank that specializes in deals involving Amazon sellers and other ecommerce companies. Fortunet says its report, “Benchmark Guide for Amazon Private Label,” reflects data it’s obtained through its engagement with more than 150 Amazon-focused merchants in the United States, United Kingdom and Europe.
Amazon marketplace performance
Fortunet assists Amazon sellers, direct-to-consumer brands and ecommerce technology providers in selling their businesses, and this guide focuses on how each of the 18 metrics impacts how potential buyers view an Amazon brand.
The Fortunet report divides the metrics into four categories: Amazon advertising, market and business performance, sales and financial, and operational complexity. For each of the 18 data points, it provides high to low scores and, in most cases, advice on how a seller can improve its performance.
Here is a brief summary of Fortunet’s assessment of the most important market and business performance metrics on the Amazon marketplace.
Then, read a summary of Fortunet’s assessments of advertising, and stay tuned for operational complexity, and sales and financial metrics coming later this week.
Market and business performance metrics
Repeat customer rate
Repeat customers as a percentage of total customers. Typically measured over a 12-month period but can vary based on product. A higher rate signifies that a business has built a loyal customer base, indicating potential for stable and recurring revenue.
- Benchmark (for non-consumable products over 12 months): High >15%, Fair 5-10%, Low <2%
- Fortunet suggestions: Prioritize product quality and after-sale service. For products with recurring demand, consider offering subscriptions via Amazon’s “Subscribe and Save” program.
Product star rating
A high average rating appeals to buyers as it represents an overall measure of product quality and customer satisfaction.
- Benchmark: High >4.6, Fair 4.1-4.3, Low <3.8
- Fortunet suggestions: Continually monitor feedback and address any customer concerns. Provide clear and accurate product descriptions to manage customer expectations. Solicit reviews from satisfied buyers, while keeping within Amazon’s terms of service.
The seller’s percentage of sales of similar products within a given market. A high market share suggests a strong brand, customer loyalty and competitive advantage, making a business attractive to potential buyers.
- Benchmark: High >15%, Fair 4-8%, Low <2%
- Fortunet suggestions: Develop a unique value proposition to differentiate your products. Continually introduce new products to increase market presence.
Sales patterns and fluctuations over seasons or specific time periods. Highly seasonal businesses are generally viewed as risky and may require more working capital. Buyers look for businesses that generate consistent revenue throughout the year and increase sales during specific times, such as holidays.
- Benchmark (% of revenue generated in any one month): High >45%, Fair 20-33%, Low <15%
- Fortunet suggestions: Diversify your product offering to reduce seasonality. Adjust pricing and promotions during peak seasons to maximize profitability.
Number of orders as a percentage of number of sessions. Buyers generally see a high conversion rate as “an important advantage” that suggests strong revenue potential per visitor. But some buyers may consider a seller with a low conversion rate as offering an opportunity for growth.
- Benchmark: High >25%, Fair 10-15%, Low <5%
- Fortunet suggestions: Highlight unique selling points and address customer pain points in product listings, including with Amazon’s premium A+ content. Monitor top reviews in your listing and aim for more positive reviews if a negative review appears in one of the top three positions.
Store Positive Feedback %
Positive feedbacks as percentage of total feedbacks. A high percentage suggests quality product and good customer service, making a business more appealing to buyers.
- Benchmark: High >98%, Fair 91-95%, Low <85%
- Fortunet suggestions: Prioritize excellent customer service and respond promptly to customer inquiries. Communicate proactively with customers, including with order confirmations and shipment updates.
Inventory Performance Index
This is calculated by Amazon on a 1-to-1,000 scale, based on four factors: sell-through rate, in-stock rate, excess inventory and stranded inventory. A high IPI indicates efficient inventory management, leading to fewer stockouts or excess inventory costs, making a business more attractive to buyers.
- Benchmark: High >750, Fair 500-600, Low <400
- Fortunet suggestions: Analyze historical sales data to identify demand patterns and improve forecasts, and adjust inventory accordingly. Optimize replenishment strategy to maintain a healthy stock level while minimizing excess inventory fees. Minimize stranded inventory by ensuring product listings are correctly listed and active.
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