In this guide, we explore how to accurately calculate media contribution on Amazon and discuss the significance of sales metrics in business management.
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Why should we talk about sales?
Sales are crucial for gauging business performance. They are often the first indicator of trends, enabling deeper analysis to uncover underlying causes. Understanding Amazon’s sales metrics is essential for effectively navigating and steering your business, given how often these metrics are misinterpreted.
Understanding “Sales” on Amazon
Amazon offers various metrics to dissect your sales data. This section clarifies these metrics, starting from the basics to ensure you capture all necessary details.
Manufacturing View vs. Sourcing View
- Sourcing view: Reports data that is directly related to your vendor codes
- Manufacturing view: Reports data for brands that you have the brand registry for (this does not include 3P sellers).
These views differ significantly:
- Certain metrics in the manufacturing view are independent of fulfillment, like Glance Views and Conversion Rate, including Ordered Revenue which is not tied to fulfillment.
- Manufacturing view might include sales from other companies selling your products to Amazon under the vendor model, though this is diminishing as Amazon prefers direct purchases from manufacturers.
- Sales reporting locations differ; manufacturing sales are reported in the country of the customer, while sourcing sales are reported in the purchase country.
Which view should you choose?
The manufacturing view is generally preferable unless your products are also sold by other vendors on Amazon.
Sales Metrics Breakdown: What KPIs does Amazon utilize to report sales?
Understanding Amazon's sales KPIs is crucial to avoid overestimating your budget allocation for retail and advertising promotions. Here are some key metrics:
Metrics definitions
There are 7 distinct sales metrics:
All of the metrics listed below contribute to "sell-out". Let's explore how they differ:
Key Differences in Sell-out Metrics:
Shipped vs. Ordered:
Generally, there’s a day's delay between product order and shipment, impacting reporting during promotions or for pre-orders.
The difference between the two is significant only when the specific date matters, like during promotional events. Moreover, certain industries handle pre-orders. For these businesses, distinguishing between "shipped" and "ordered" is crucial to track the volume of pre-orders. When pre-ordered items are shipped, these orders are recorded on the shipping day. Thus, in most instances, the figures will be nearly identical.
COGS vs. Revenue:
COGS is based on Amazon's purchase price, which is consistent across Net Received and Shipped COGS.
All metrics are revised to account for returns and cancellations on the day Amazon receives the return. This adjustment is crucial when comparing advertising data to retail figures.
Business Example:
Let's walk through an example, following the product through the sales process to see how each of these metrics is affected at different stages:
- Focus on Shipped COGS for a realistic view of business performance.
- Avoid focusing solely on Net Received as it reflects inventory buildup rather than actual sales.
The "Cost of Goods" Pitfall
Cost of goods is based on the list price.
The cost of goods is calculated from the list price. Often, manufacturers offer Amazon discounts between 10-30%. This discrepancy creates a "trap" where the COGS is 10%-30% more than what Amazon actually pays you. However, there's a straightforward method to calculate this discount applied to COGS: Shipped COGS minus (Shipped Revenue multiplied by Net PPM).
Displays calculation of discount to COGS
(Click on the image to expand)
Sell-in vs. Sell-out
It's essential to monitor Net Received, Inventory, and Shipped COGS closely to gauge the health of your business.
By analyzing these metrics, you can determine whether Amazon is accumulating stock. If inventory levels are rising, it may indicate that your business isn't performing as well as it appears, and Amazon could decrease future orders to clear out excess stock.
(Click on the image to expand)
On the other hand, Amazon might be reducing its stock levels because it is selling more units to customers than it is purchasing. This reduction could indicate that Amazon had previously overstocked, or that they might be planning to place larger orders in the near future.
This trend is especially important to monitor in Q4, when Amazon typically accumulates large inventories and then scales back orders significantly in Q1. Failing to keep track of these trends could lead to an overestimation of Q4 performance and an underestimation of Q1, potentially resulting in poor investment decisions.
Which retail metric should you use to compare with advertising sales?
Amazon's metrics for Sponsored Ads and DSP are quite similar to Manufacturing Ordered Revenue. They report the customer price excluding taxes but do not adjust for returns. This means if your products have a high return rate, you should adjust your advertising performance downwards to avoid overstating the media contribution and media ACOS.
Additionally, there are two other key differences to be aware of:
- Some types of advertising campaigns record data based on the day the ad was clicked, rather than the day an order was placed or shipped.
- Depending on the campaign type, Amazon might report revenue based on the product advertised, not the product actually sold. This phenomenon, known as the brand halo effect, can create discrepancies in media contribution reports, particularly when analyzing short time frames or individual products.
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Putting the pieces together
Understanding these nuances enables better strategic decisions and can be enhanced by tools like Catapult, which provides real-time, integrated data views across departments, crucial for manufacturers operating in multiple countries. Our tool, crafted with input from Amazon vendors, features a centralized dashboard that automatically converts Amazon data into a clear, actionable perspective on your performance.
This is particularly important for manufacturers with operations in various countries and a wide range of product categories. Here, the challenge lies in seamlessly integrating global operations while ensuring easy categorization and comparison. Real-time insights are also imperative. Catapult can address all these needs effectively.
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