Many changes in eCommerce today are prompted by the massive change in the way consumers are beginning to buy. A report shows that an estimated 40% of groceries are being sold online right now, with 55% to 60% of all searches starting on Amazon. With all these changes happening, there is no reason to lose money on Amazon, especially if you have a roadmap. In this episode, Elliot Begoun talks with Betsy McGinn, the author of The Amazon Roadmap. After working with Amazon for over a decade, Betsy has learned a thing or two about the ins and outs of eCommerce. Today, they discuss how you can successfully launch on Amazon and set yourself up to maximize the opportunity that currently exists. 

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The Roadmap To Amazon With Betsy McGinn

Beyond being a dear friend and somebody who I admire, I look towards Betsy McGinn as my Amazon guru personally. When I have questions regarding Amazon and what’s going on in the platform and what are best practices, I lean in to Betsy’s expertise. I will plug the book for her because it is a fabulous book, The Amazon Roadmap. I would encourage you to do that and buy it. I’m going to turn it over to you, Betsy, to introduce yourself. Thanks for joining.

I have been working in eCommerce for many years. It has been with the brands we love. All natural and specialty products in the consumable space. I started my eCommerce career with Seventh Generation where I was managing a natural region in Canada and some other places. I thought, “Wouldn’t it be great to try to take advantage of that eCommerce opportunity?” Since I live in California, some of the best we’re up in Seattle. That was the beginning of building a huge business for Seventh Generation around eCommerce. All of the innovation that it involved. I took that knowledge. A few years ago, I created my own firm. We help brands launch on Amazon, fix their Amazon businesses, integrate direct to consumer, and even answer simple questions like, “Financially, does it make sense to launch on Amazon?” That’s how I love to work with our brands. I’ve been doing it for a while.

One of the things you mentioned there that’s important is understanding financially what it means to launch on Amazon. I hear from a lot of brands as I’m sure you do, “I’m on Amazon and I’m losing money.” My comment always is, “You started without having the right guides around you to structure it because there is no reason to lose money on Amazon.” I want to talk about a few things that I’ve mentioned before about what’s happening on eCommerce from my perspective. There’s a lot that’s changing in the world and society by shopper habits. For one, I’m turning it into a man who had been taken.

One of the things that I thought was so stunning to me was the numbers around eCommerce. Brick Meets Click was tracking grocery at somewhere between 4% and 6% in 2018. They had estimated that that would move up 7% in 2019. An analyst report is estimating that 40% of groceries were being sold online. They were anticipating that settling down to around 20% to 25%, which is massive change in the way consumers are beginning to buy and access. The other thing that I saw was that somewhere between 55% and 60% of all searches are starting on Amazon. You shared some stunning numbers around household penetration, prime and conversion rates. What have you seen lately that has surprised you in terms of the speed of change? What do you think is here to stay?

One of the things that’s true is that the dollar estimate of groceries being sold online is underestimated. That’s easy to do because Amazon doesn’t release this data. What that has created is an environment where other eCommerce partners do not. Plus, we have all of our groceries having their own dot-com. The drug and mass stores are having that as well. We have other platforms like Fresh Direct and Peapod that have been in the grocery delivery service, and groceries are going through services like Instacart. Even as we see this huge growth in eCommerce grocery business, it’s still far underestimated.

What I have seen is huge peaks in March and April, a little bit of leveling off in May, but not coming to anywhere near down to what our old normal was. It is a much higher normal. When I was watching one of my colleagues do a webinar. One of the statistics that she threw out was that Amazon in the month of April had 2.5 billion visitors. That’s exponential. They typically are more in the 250 million visitors. You can see how many new people or the frequency increasing of purchases on Amazon during this period.

It’s not surprising because as you alluded to, there are 105 million prime members in the United States. There are only 129 million households. When you think about how that household penetration relates, you could realistically expect that 82% of households in the US are Amazon Prime members, and they’re super loyal. They already shopped at a rate with conversion multiple times higher than the usual eCommerce conversion. During these unprecedented times, that has continued to ramp up.

It’s stunning to me how quickly Amazon has become part of just about every household. If you’re a brand already doing business on Amazon and you’re wondering, “Am I doing it right? Am I setting myself up to maximize the opportunity that exists with this groundswell change?” How would you recommend to some brands to inwardly look and examine what they’re doing?

Many of the brands that you and I both work with would fall into this category of consumable brands. One of the things that we have seen as a trend throughout this period is that small, new, and nimble brands are tending to flourish in this time. People are not just looking for tried and true products, they also want to try new things and they want indulgent opportunities. Every brand that I work with has seen exponential increases in their business during this time. It’s leveling off in May, but the opportunity is there for small brands. What I’ve been telling brands is, “Do not spend a dime on discounting your product.”

It’s not something I believe in general on Amazon or eCommerce because you already have some layers of cost in there that you wouldn’t have at the shelf. Much of shopping online is about convenience selection, and in Amazon’s case, two-day delivery. What I would recommend for brands is to take advantage of the on-platform advertising that Amazon has available. In a lot of categories, the cost per click has come down significantly during this period. As big brands have pulled back on advertising because they don’t need to and in some cases, they’re out of stock. We’re seeing other brands pulling on advertising because of economic concerns. It’s created a much lower bar for the cost of some categories. There are always categories that are going to be outrageously competitive like pet, baby and supplements. Many of the companies that you and I work with, which are snacks, beverages, staples of consumables and grocery, this is a great opportunity for them to step in and use their money wisely to propel their business through advertising and promotion events.

What about enhanced brand content and brand registry? How important is that?

It’s important. I’ve seen a very good example with it, working with one of my clients and my colleague, Philip, who wrote The Amazon Roadmap with me. Brand registry is where you register your trademarks so that you have ownership of your brand on Amazon. There are misconceptions about it. It does not give you the right to kick third-party sellers of your product off the site. That’s not what it’s there for. It’s more about the ability and privilege of populating enhanced content. Certain types of ad vehicles that are non-registered brands can take advantage for your brand, like the headline ads, the sponsored brand ads, other things like a storefront, Amazon Vine Sampling Program, all of those require brand registry. It’s important to make that a part of your strategy. For new brands, that can be a challenge because they could have started that registry process of their trademark and it’s still a few months away. The moment that it is an opportunity, I would absolutely do it.

What percentage of sales do you think a brand should be spending on Amazon advertising?

When a brand is and I don’t even want to say reaching maturity because I don’t believe there is maturity online. It’s constantly growing, no category is mature, and no brand is mature. There’s opportunity for growth because even we are seeing some channel shifting here, you’re going to benefit from that as a brand. When you’re first launching, expect a year of strictly investment spending. You may be selling your first couple of months $1,000 a month on Amazon, but you may be called upon to grow, to spend something like $2,000 or $3,000. That first year can be a little challenging, discouraging, fraught with questioning of, “Should I be doing this?” It can take months for that flywheel to kick in and your brand to grow exponentially on Amazon. I encourage brands to stick with that. Do that upfront investment spending so that at a certain point when you have a million-dollar business, you’re spending 15% and not 50% of your revenue.

It’s like growing your brand anywhere. I don’t mean specifically in retail but in the greater world where you have to do social media and digital media, it’s investment spending. That piece is not going to change. It’s getting a little bit more complicated. It’s not something that can be done manually like years ago. Brands are called upon to figure out, “How can I do this cost-efficiently and get the results I need to then get to a point where I can spend reasonably?”

The only thing I would want to add to that is there’s nothing wrong with investment spending. When you’re building a business, you need to have that mindset. There’s that old adage, “You need to spend money to make money.” That’s true especially on Amazon or any eCommerce platform. What you should also have are two things. One is a clear path to profitability. You should understand where that tipping point becomes effective for you and where that is. If you don’t have line aside to that, then you need to work on that. Secondarily, you should have expectations of what the return on that spend is.

As a rule, you guys are pathological optimists. You’re going to expect that the return on that investment is probably greater than it will be. You’ll become better if you keep doing that each time reducing your internal forecast error. You should have that expectation going forward. Don’t be afraid to take some risks and invest, but have expectations of what that investment will return. If it doesn’t return, then question why. That’s why it’s important to work with somebody who understands this. Sarah has a question for us, “What is your perspective on the effectiveness of Amazon Launchpad?”

I have mixed feelings about Amazon Launchpad. Some of my clients were in Amazon Launchpad very early when it started several years ago. They had mixed results and mixed opportunities because Launchpad is designed for unique and interesting brands to have some additional support on Amazon through marketing that Launchpad provides them. It also puts them in more of a lifestyle and trend positioning on Amazon than any old product that’s thrown up there. I feel like the whole concept of Launchpad is brilliant and I know there are people that would have been disappointed with it.

What I’ve seen in the last few months is that Amazon is taking a stand on making that program viable, beefing it up for brands, making it healthy so that brands want to participate in it. You may need to make sure that you factor that into your pricing equation because it costs 5%. I have a client who is launching a new product line, and they only wanted that product line in Launchpad, but they wanted to take the 5% on the entire brand because they didn’t have a way to separate it out in their system. Ask those questions and be conscious of what you’re spending. I would experiment with it because it’s only a year commitment. If they are truly committed as they seem to be to making it a more robust program, there’s not a huge risk for brands to try it because the reward could be quite great.

You’re not making us sign in blood. You’re not making a long-term commitment. Even if what you get out of it is learning how to be better, that’s interesting. Somebody here said, “We are in Launchpad and it’s a free program. There’s no 5%.”

They worked a deal because everybody else pays 5%. I was on a call with the Launchpad people where the brand owner tried to negotiate. They said that there is no negotiation.

It’s an increase in the referral, just to make sure. Phil gave us the perfect question around profitability. “If a brand needs to anticipate spending 15% in the long run, then it needs a 25% margin in sales, less COGS, plus Amazon costs, on each sale to earn a 10% profit contribution towards company overhead from Amazon sales. Is that right?”

No, because there are more costs in there than you’re thinking of. Let me use the shelf example. You can use that very simple calculation at the shelf because there are no other expenses involved. One that was missed already is that fulfillment fee, whether you’re doing it yourself, which I don’t necessarily encourage unless you’re a perishable product and you need to. With Amazon’s Fulfillment Program, FBA, there is a fulfillment charge in addition to the 15% commission that Amazon takes.

I always say factor in 2% for damage. If you are a brand that is appropriate for subscribe and save, it’s the best loyalty program ever. I would never turn down an opportunity to have subscribe and save. I factor in another 2% or 3% for that. All of a sudden you have these costs that you didn’t anticipate. The difference is and this is why the financials can work. Less expenses are the dollars between your cost of goods and your retail price. That’s a much bigger chunk of change than when you’re talking about costs between your cost of goods and the wholesale price that you’re selling to a distributor.

I want people to think of it that way so that they don’t think, “How am I going to squeak this out of that $3 or $4 I have built into the wholesale cost?” It’s the difference between cost of goods and retail. That’s what makes it work. All of those inputs need to be considered. Shipping the product into Amazon Fulfillment Center might be $0.25 or whatever it might be, but there are costs that you don’t anticipate. You need to think through the whole process to be sure you catch them all.

The storage fees and inbound freight. We’re doing on online course where we’re teaching the concept of waterfalling. That is the difference. When you look at an Amazon, that waterfall starts at retail price point you’re charging. It’s a good exercise to start at that retail and then begin to waterfall down all of the potential costs, the known cost, and the ancillary or miscellaneous costs that could be like damage or etc. Work your way down to see what the net contribution margin is.

You want to know that that net contribution is contributing to the business. There are some advantages beyond that. One of them is the fact that you convert your cash a little bit faster in an Amazon setting than you would at a wholesale relationship, which could be 60-plus days. Phil is saying, “Assuming that Amazon costs include all of the costs that you outlined, does that calculation work?” If the brand needs to anticipate spending 15% in the long run, then it needs a 25% margin sales, less total cost of goods sold, plus all of the Amazon costs in order to earn a 10% profit contribution towards the company overhead.

That is true, except here’s another one of my philosophies about selling online. You do not have to have low price on Amazon. You’re hurting yourself with your retailers if you try to compete on Amazon. It’s not going to help you because you’re 1 of 500 million products on Amazon. It’s better to spend your money to be discovered than to think that low price is going to win the day. I can’t make that blanket statement without talking about Buy Box. If there are other sellers selling your product and they’re selling it for less than you, they’re going to win the Buy Box.

What I encourage brands to think about is, what is the right package for Amazon? Let’s say you have a product that is $499 on the shelf, and then you do a three-pack and you decide to charge $19.99 on Amazon. You’ve built $3 more in there to go towards your margin. You could have more than 10% net margin at the end of the day, because you have built a path that is right for the consumer, right for Amazon and you can build some additional margin into it.

Amazon consumers are not bent on getting the lowest price. That’s not where they shop on Amazon. They shop for selection, convenience, getting it in two days. They’re super loyal because they’re Prime. Prime members convert at a 74% conversion rate because when they go to Amazon, they’re going to buy. I believe that you are selling yourself short if you try to keep your price low instead of taking the margin that’s going to keep you healthy.

If you’re going to make a mistake, make a mistake by being too high. You can always adjust without blowback. The other thing is there isn’t the same psychology of anchoring that you find in a retail store. In a retail store, you have anchoring. You’re assessing a 3-foot section in three seconds and you’re anchoring between price points, high and low. Most people psychologically buy somewhere in the middle. Very few people buy the highest-priced item and very few people buy the very lowest price item. They’re anchoring somewhere in the middle.

When you are on Amazon or eCommerce, it’s more about the product itself without the anchors on either side except for the Buy Box if you’ve got other sellers selling the same product. Let’s say that’s not the case or you are in parity. Although there are other items up there, they’re looking at the item more specifically and it’s an opportunity. One of the things you can also do is if you disconnect the anchor between your retail price in brick-and-mortar and your Amazon by changing pack configuration, you don’t also have that same mindset.

To my point, my opinion and experience, you should always build it with a path to profitability. If it’s not there, then you start thinking about the things Betsy was saying which is, “Do I change my pack configuration? Do I change my packaging? Do I have a different online offering?” Can you talk a little bit about how brick-and-mortar views Amazon? Pricing, individual items, multi-packs, high and low at brick-and-mortar versus EDC of Amazon.

Do you mind if I say one little thing about what Elliot said? It’s that whole idea of anchoring being a brilliant way to look at it. With this huge expandable virtual shelf at Amazon, not only do you not get that effect, but some of your fiercest competition cannot even be present or a threat online because they’re not doing what you’re doing to be successful. A good example I like to use is that consumers will abandon a detailed page 69% of the time if there’s not enough information for them to understand the brand. It does not only underscores the importance of content but tells you how confusing it can be for the consumer. How many times have you gone to an Amazon page and you couldn’t tell from the title or the bullet points where you’re getting 1 unit or 30 units? If you focus on the things that are going to make you successful like content and the things I’m going to talk about with this question, then don’t let the price point be the issue. That visual of the anchoring is brilliant.

Going on to the next question. First of all, I believe in terms of brick-and-mortar that rarely is there an item on the shelf in brick-and-mortar that is appropriate in and of itself for Amazon. In general you need to have a 2, 3, or 4-pack, not because the consumer is used to buying that way on Amazon, but because those economies enable you to be profitable. All of those costs we talked about, whether it’s fulfillment cost, commission to Amazon, damages, subscribe and save, all of those costs built against a four-pack instead of a single unit are going to make you profitable.

When you think about it, the cost of shipping anything these days is $4. Let’s say you’re shipping one jar of your product at a cost of $4. If you were shipping 2 or 3, it might cost you $450. Look at the difference already in the margin that you could walk away with just by making a pack that financially makes sense on Amazon. That’s a first step. The second that you mentioned about promotion is vital. We get so used to high and low promotions, and brick and retail are successful. We do them once a quarter. It might be augmented by an ad or display or even a TPR at the shelf. That makes a lot of sense. It is tried and true. It has worked in brick-and-mortar, but you don’t have the same structure on Amazon to make something like that and make a difference. There isn’t anybody browsing, buy your products, reading an ad or seeing a display. That’s why I feel that discounting your product is a waste of time.

If you want to do something to incentivize the consumer financially one time, first time to buy your product, all about acquisition and not ongoing rewarding, do a coupon. Do a single-use one-time coupon so that you get that acquisition, but you’re not just spending money. There was more part to that question that I want to capture. I honestly believe that retailers view your success on Amazon as a benefit to their business if you have done it right and if you have sold it at a price that your retailer can compete with, that you didn’t differentiated the pack. It’s all about how you are on Amazon versus Amazon as the beast that brick-and-mortar may object to.

I’ll use the example of one of my clients who has now figured all these components out to make it successful, but they were selling on Amazon for less than a retailer could buy and sell it. They didn’t realize that that wasn’t going to win the day on Amazon. They realized that when the retailer said, “I can’t take it because I can’t afford to sell against their price.” As we all know, those prices are at view to the whole world. You can’t sneak anything by. That’s why it’s important to do a great job on Amazon and leverage that into brick-and-mortar like Madeline Haydon did in Nutpods and Amy Lacey did at Cali’flour Foods. They built a huge Amazon business that they leveraged into stores because they did it right.

That dovetails into a great question from Brad, “As Amazon/eCommerce becomes a much larger core piece of your company’s channel mix and previously may have been the case. There’s going to be more focused on it being a sustainable, profitable contributor versus able to solely position it as an investment channel. Is there a target Amazon contribution after ad spend that you tend to tell companies to aim towards after the upfront investment spend period winds down?”

This is one of the things that is also confusing about Amazon versus brick-and-mortar. We’re used to thinking of margin in a percentage way at brick-and-mortar. If you try to figure out your margin at Amazon and you’re using the Seller Central model, the difference between costs of goods and retail versus at brick-and-mortar, it’s the cost of goods in wholesale. You’re already using different inputs to figure out a percentage. How do you compare the two to make sure that you’re comparing apples to apples? That’s why I encourage brands to look at the dollars they’re walking away with versus the dollars they walk away with at brick-and-mortar to ensure they’re at least as profitable if not more profitable.

I honestly believe it is absolutely impossible to be more profitable on Amazon than you are in brick-and-mortar if you manage your business correctly. With Seller Central, you have the ability to manage your business. Something that I also feel is integral to that equation is brands are starting more and more to use map policies so that they start at the source of some of the third-party seller issues, which is with distributors to ensure that the product that they sell into a distributor at a deep discount doesn’t end up on Amazon. All of that contributes to margin erosion.

If all of a sudden somebody is selling your product on Amazon that they got from a distributor for lower than you are, and you are forced to push your price down to win the Buy Box, then it becomes a race to the bottom. There are ways to prevent that through appropriate pricing and discounting with your wholesalers combination of a scan and a small off invoice, not a 20% off invoice so that you can continue to have a healthy margin online.

Brad, I’d be happy to talk more about this and look at some of the models that I use and that you might want to use for your brands. I honestly believe that you should be as or more profitable on Amazon than you are in brick-and-mortar one. One caveat, there are a lot of products that are challenged financially like waters. How do you ship a 24-pack of water when it costs $1 a bottle and be profitable? There are some types of products that are a little bit more challenging than others but in general, our food and beverage products are perfectly poised to be profitable on Amazon.

I think that’s important to waterfall all the way down to the contribution margin and try to call out all the things that you’re going to do. Do the same for a typical retail, not only what you sell to the distributor, but all the deductions, brokerage and all of those kinds of things, and compare that net contribution. You should find that there’s somewhere similar and I would hope that eCommerce could be better, but there are important differences beyond the net contribution that I want to call out. One of them is known. That’s the big difference.

Many people on this are dealing with the deductions that they get 3 or 4 months later from their distributors. It makes being predictive about your business and being able to foresee and understand cashflow. A lot more challenging when what you sell to what you get back, you don’t have clarity that it could mean one thing, one time and something else in another. When you transact on eCommerce or Amazon, for all intents and purposes the costs are known. That’s important.

The other is as Andy Whitman always says, “Cash is king.” That shortened conversion time from what you sell to when you get cash in return for that is something that’s monumentally important to you as an early stage brand. That means you’re getting that working capital back into your business sooner to deploy it for growing your business. Sometimes we manage our business so much by contribution margin or margin when not every margin percentage is the same.

If one comes with a much shorter cash conversion, then that means you have dollars to do other things to grow your business. The other one is taking time. There’s that cost of capital that you have to consider. We have a two-part question. If we see a number of our competitors all on sponsored ads on Amazon, what is a good approach to compete? That’s question one. Question two, if we can’t compete on price, what are some tips for making sure our products’ mission-driven and purpose-focused values get across to the Amazon customers or do Amazon customers care?

As many Amazon customers care as you would find in brick-and-mortar. I don’t know that I can make a universal statement about that.

If your consumers care and your consumers are on Amazon, which Betsy said 82% of households are Amazon prime, then I would say they care as much as they will anywhere else.

There are other things that are more important that continued growth in conversion. First of all, you should be doing ads. Maybe you can compete on the same exact words, the pay-per-click words that they can. You need to find what you can compete on. What are those unique phrases that bring people to your product that target in a way that makes you successful? I remember listening to a young brand on a panel saying, “Even the crumbs that are left from the brands that can pay more than they can for pay-per-click are enough for her to make a successful brand.” I want to encourage you to look into that. I do want to acknowledge that it’s getting harder and harder to manage campaigns manually. It’s important to understand your limitations. If you can invest in growth with a small agency or a sole practitioner, they can take your advertising to the next level. One of the things that is most important is reviews. I can’t stress it enough as the most important part of your content.

How important are consumer reviews for the Amazon algorithm? How many 4 or 5-star reviews does your product need to have to rise to the top?

Talking about the algorithm, it’s a combination, but quite frankly, the most important component in the algorithm is price. If there are multiple sellers of your product, if you’re all relatively competing on price, then the other factors are going to start to make a difference. How relevant you are in search, how great your content is, your reviews, and how many you have, those are part of that equation. I don’t necessarily say that there is a perfect strategic number of reviews to have to be successful and to start seeing your business accelerate. It varies from category to category. I can tell you that Amazon says that you see results when you have at least twenty reviews. That’s a point at which you have credibility with the customer so they really matter.

When you see brands that have 14,000 reviews. That’s great for the brand and it’s great for their credibility but I don’t think it’s necessary to have that many reviews for our products. The quality of the reviews is more important. The content of the reviews is more important because 92% of people start their product searches on Amazon for consumer products and they don’t go to Google. They go to Google to ask a question. They go to other platforms to ask a question, but consumer products are highly searched on Amazon because people want to read the reviews. I’m not talking about grocery. I’m talking about all those other categories as well. If they are important, they can affect your growth. They can affect your positioning in the algorithm. That is one place I’d pay attention.

Any dos and don’ts as it relates to reviews?

Do not have your employees or your family review your product. I know it seems crazy but Amazon figures this out. I have known them to shut down an account because some employees reviewed the product. One of my clients, which had a travel product that this person reviewed legitimately because they travel all over the world and use the product all the time. Amazon said, “We see that you have a link to the company.” They had worked there three years prior and they wouldn’t post the review. It’s impossible to say where Amazon has all their tentacles to figure out this information, but you don’t want to jeopardize your business by populating with reviews that aren’t authentically received.

That doesn’t mean you can’t prompt your social media following in a way like, “We’re on Amazon. Tell people what you think of our product.” As long as you don’t direct them about what to review, what to say, to give you five stars, any of those influencing factors, it is completely legitimate to use that for reviews. The other thing that Amazon added to the Seller Central platform is their Amazon Vine Program, which allows you to have a product sample for $2,500. It goes to 30 verified Amazon buying reviewers. It’s a good, quick way to get 25 to 30 reviews. I was thrilled when I saw that because I think that’s one of the best spends you could have at Amazon.

I’m going to push two questions together. The first one is, “Can you share a couple of pointers on how you go about scaling sales for Amazon when you have a perishable product and FBA isn’t a possibility? Offering free shipping to compete with FBA puts you at a competitive disadvantage. What’s the choice? The second question is similar, “We have a heavy perishable product that sells at Whole Foods for $7.49. The way to sell that on Amazon, we would need to have an eight-pack, which would be priced too high at about $75. I’ve heard the sweet spot is around $40. We don’t make money with smaller pack sizes using the 3PL, even shipping and warehousing on the West Coast only.” We’ll generalize a little bit. When you have a heavy product or perishable product, what are some of the best practices? What are some of the questions that should be asked and answered?

The sweet spot on Amazon is between $15 and $40, but that does not apply to perishable products. If you have a product that a consumer wants and you have to put it in an eight-pack, a consumer will buy it in an eight-pack and they will pay that premium price. I work with a juice company that has a very successful Amazon business. The number one selling item in their portfolio on Amazon is $119. If you have a quality premium product, and especially if you’re not distributed everywhere, which we know is hard for frozen and perishable products, then you have a place on Amazon and people are willing to pay that premium price.

I know that it’s hard to get Prime. Seller Fulfilled Prime or Merchant Fulfilled Prime used to be a thing that was easier to get. If you work with a perishable fulfillment partner, they can help you with some of these stickler issues with Amazon. They can put you in a better position to succeed because they work this system all the time. One of the things that a couple of brands that I’ve worked with have tested and proven is that it is important to include the cost of the shipping in the cost of the product. Even if that makes it super premium, we’re programmed to the idea of free shipping that consumers expect that. Even if it makes the product more expensive, they don’t want to pay an additional $15.

That test was eye-opening for me. I like to pass it on because I feel like it’s true that consumers want to see it all in. I was talking to someone who had some questions about that and they have a Kombucha Company and they have a nice little direct to consumer business, but they had a 57% cart abandonment rate. I said, “Do you charge shipping?” “Yeah, $26.” I would probably abandon the cart at that point too because you get to checkout and you don’t expect the cost of something to practically double at the last minute. Those are some of my perspectives on perishables.

One of the things you have to also keep in mind with that is it’s unlikely that the biggest challenge with what we’re saying here isn’t the price point, it’s the trial. If it’s their first time with your product, you’re asking consumers to make a pretty sizable investment or take a fairly big risk in that. You have to have a strategy around how do you reduce that perceived risk. One of them is to make sure that you find other trial mechanisms, that you could be using alternative locations.

If you’re going to do eCommerce and Amazon, having a B2B and ability to get to places that are influencers where people can try it, and reduce that risk is one. Standing by the product and offering guaranty, “If you don’t like it, let us know.” When they like and love the product, as long as the economics make some sense, they’re going to trade convenience and accessibility. They know there’s a premium to that. It’s that first risk that you have to keep in mind.

The other thing I’ll say is a little bit more radical. If you believe long-term that Amazon or eCommerce in general is going to be a big part of your brand, your business and your perishable, as you begin to innovate and look for additional skews, it’s okay to start thinking, “Is there a way I can deconstruct this? Is there a way I can offer a new addition to the line that is more eCommerce friendly, which could be a septic packaging? It could be our product in a powder format.” It could be any of those things as well, where people experience the brand in two different ways.

Joshua said, “How am I defining waterfalling?” There are lots of different uses of the term, but I’m simply saying, you start with that selling price and you waterfall, you drop out underneath it all of the costs that come away from it. Referral fee, FBA fee, advertising cost, all the way down to COGS, and you try to make sure you capture every one of those so that in the very end number, you have a net contribution. Net contribution is the number that goes against all of your other fixed costs or overheads. The next question is from Claire, “What is the recommended investment dollar to start a CPG brand as it relates to amazon?”

There are lots of variables to that question. First of all, advertising on Amazon can be one of the most important things to your brand. You’ve got to spend money on that. I would say never less than $1,000 a month to start, but more likely in that $2,000 to $3,000 range, all investment spending. It can vary by category and brand, depending on how competitive those categories are. People think of all these unicorn brands that are successful online like Nutpods or HighKey or Cali’flour Foods. It’s because they put the work in. They’re not unicorn brands. They spend money. They did the investment spending. They had either the right people on their team or reached outside to find the right people to grow their business.

Unfortunately, I am here to tell you that the days of unicorn brands on Amazon are long gone. That is why investment spending is so important. I recommend advertising and if you want to incentivize the consumer at all, the single-use coupon. You can set it up in Amazon system to be a single-use coupon for acquisition. Make sure that your content is great and you’re on the right path to getting great reviews because all of those components can make you successful in addition to the money that you’re spending.

West has a question, “Do you recommend pursuing or have you any insights about Amazon’s new retail platform Go Grocery?”

It’s scaled slower than they expected. They thought that they would have 3,000 stores within a couple of years. I would absolutely keep an eye on it in the times of COVID. It’s going to become a more relevant platform where not touching things is going to be important. We know that they’re focusing on that again, but it has scaled slowly. I’m not sure I can quote the right number of stores, but I think it’s only 28, which is a far cry from 3,000. Make sure to watch it. I can’t give you any good advice about it in terms of how it could scale your brand.

How important is branding and packaging design to create interest in product on Amazon and eCommerce in general, since it’s a screen-based experience?

One of the things that you have the opportunity for an Amazon is not just your primary image looking great, but seven secondary images that can do anything from show other perspectives of your package, list your certifications, give infographics on how to use your product. All of that look and appearance is important. Some of the most successful brands online definitely have beautiful packaging and looks like the picture was taken professionally and not somebody’s done it on their iPhone after it got squished in the backseat of the car. All of that is important. How you look online is essential.

Can you please share your thoughts on advertising on Amazon versus on your own website? Aren’t you competing with your own company advertising?

It’s absolutely essential for you to have your own direct to consumer. It is going to cost money. The reason you are going to need that is because that’s one of the places that you find out the most about your consumer and you can use their consumer data to scale your brand. If you’re talking about volume, Amazon, most likely is going to be your volume plate. People don’t want to go to a website to buy a bag of chips. They want to go one place where they can buy their chips with everything else they’re buying.

For our categories, it’s a little more challenging to have a robust, direct consumer business, but it still is essential. I would not neglect it. Yes, it seems like you’re competing with yourself. What I would do is focus heavily and exclusively on the ad opportunities on Amazon’s platform rather than driving people there from the outside. Use some of those outside platforms like Instagram ads or other types of media to drive to your website. It all comes down to resources. How much do you have to spend on either and spreading it over to those platforms makes a lot of sense.

I’ll offer two analogies. First of all, when you’re a brand, you don’t necessarily pit one store versus another. You don’t support store A and not store B. You support both stores because your consumers choose where they want to shop. The same holds true with your website versus Amazon. There are going to be consumers that want and trust and feel more comfortable on the Amazon platform. They’re going to be other consumers that want to go direct. Sometimes they’ll start on Amazon and come to you because they want to build that relationship.

Being platform agnostic is a good strategy. The other analogy I’ll give you is think about it like a consumer. If you’re driving down the road and sometimes on the right, you see something cool and you pull over there, and sometimes it’s on the left and sometimes you drive a little further. It’s this continuum with all these way points that consumer stop. If you want to build your brand, then you want to be in as many of those way points as you possibly can.

You can also add differentiation between the two platforms so that there is a unique reason to come to yours.

That’s the other thing that I think is a best practice. You can build some loyalty programs and it’s a great place to test a new item. Betsy, thanks as always. We could do this for hours easily. Tell people how to reach you and also a little bit more about your services and your book.

The best place to go is my website McGinneComm.com. It talks about my services there, it shows my book, gives you an idea of some of the brands that I work with. I do a variety of things, everything from helping brands to launch, to helping them get profitable. If you have a project need that you might think is something that you want to have a conversation about. I’m happy to do it.

Everyone, thanks for joining. If we can be of any help, you can reach out to us and join us on the next upcoming TIG Talks. Everyone, stay safe and healthy.

Important Links

• The Amazon Roadmap

• Brick Meets Click

• Fresh Direct

• Peapod

• Instacart

• McGinneComm.com

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