A point of gross margin is worth more than a point of sales growth, and it is usually easier to get.
Growing revenue means more advertising, more stock, more cash tied up and more risk. Improving margin means the same units earn more, with no additional spend and nothing new to fund.
Most sellers spend all their attention on the first and almost none on the second.
Prefer to watch? One hundred and twenty-one seconds on the sizing calculation that ranks every idea, the five levers, and why price is the fastest and riskiest of them.
Size the opportunity before doing anything
One calculation decides where your effort goes:
Annual opportunity = annual units sold × saving per unit
A 30p saving on a product selling 50,000 units a year is £15,000. A £2 saving on something selling 400 units is £800. The second feels like a bigger win and is worth a fraction as much.
Rank every idea by that number and work down. It is the whole prioritisation method.
The five levers
| Lever | Where the money is |
|---|---|
| Cost of goods | usually the largest, and most negotiable |
| FBA fees | driven by dimensions and weight |
| Referral fees | driven by price thresholds and category |
| Refunds and returns | driven by defects and expectations |
| Price | the fastest, and the riskiest |
1. Cost of goods
Normally the biggest controllable cost, and the one most sellers have not touched in a year.
The arithmetic is compelling. If COGS is 25% of selling price and you cut it by 10%, total margin improves by 2.5 points. On £2.5M of annual revenue that is an extra £62,500 a year, with no additional risk, no additional spend and no operational change.
If you have not renegotiated in ten months, do it now. Costs move, your volumes have grown, and suppliers expect periodic reviews. Discounts of 25% while holding quality are not unusual for sellers who simply ask.
Beyond price, the levers are:
Materials — alternatives, using less, simpler packaging.
Configuration — quantity per pack, pack sizes, redesign. Moving a 100-count to 90-count changes your cost per unit and often nothing a customer notices.
Manufacturing — consolidating factories, process changes, alternative sourcing, or a different country.
Logistics — container utilisation and shipment consolidation, which are pure arithmetic and routinely left on the table.
2. FBA fees
Almost entirely a function of dimensions and weight, which means small physical changes produce permanent per-unit savings.
Dimension reduction — crossing a size-tier boundary is worth more than any amount of negotiation.
Weight reduction — same principle.
Re-measurement requests — Amazon's recorded dimensions are sometimes simply wrong, and you have been paying for it.
Programme eligibility — low-price FBA and ship-in-own-packaging both reduce fees for products that qualify.
Overmax and dangerous-goods classifications — worth checking, because a misclassification is expensive and persistent.
See Reducing FBA and Referral Fees.
3. Referral fees
Smaller, but nearly free to fix.
Price thresholds — some categories charge a different percentage above or below a price point. Sitting just the wrong side of one is a self-inflicted cost.
Category placement — a product listed in the wrong category may be paying a higher rate than it should.
Bulk referral programmes, where available.
4. Refunds and returns
Every return costs you twice — the refund and the fee — and returns are mostly caused by three things.
Defects, which is a product problem.
Customer confusion, which is usually an instructions problem.
Wrong expectations, which is a listing problem — and the most common of the three.
That last one is the same work as fixing a rating problem, from the same source material. See Answer the Complaints in Your Content.
5. Price
The fastest lever and the one with real downside, because price affects conversion rate, which affects organic rank.
Treat it as a controlled test, never a permanent change made quietly.
Be clear what you want from it: more margin, a premium repositioning, crossing a fee threshold, or protecting stock during a shortage.
Then consider what it costs you: conversion rate will move, and rank follows conversion. A price rise that improves margin by 3 points and costs you 10% of conversion may be a loss.
Where a price rise is safest: when you are supply constrained — see When You Are Going Out of Stock — because you are selling out anyway and the only question is at what price.
Where to look for the numbers
Margin work needs unit economics per product and enough sales history to size the annual opportunity.
Sales and units by product — see Understanding Business Reports.
Which products carry the business, so you improve margin where volume makes it matter — see Sales Performance: Which Products Carry the Business.
And update your sourcing cost with Amazon whenever COGS changes, because reimbursements are calculated from it — see Reimbursements, COGS and FBA Capacity.
Common mistakes
Chasing the largest percentage saving rather than the largest annual figure.
Not renegotiating because the last conversation was awkward.
Ignoring dimensions, which are frequently the single biggest per-unit lever available.
Raising price without measuring conversion, and losing rank to gain margin.
Treating returns as a cost of doing business rather than as a fixable listing problem.
Related
- Negotiating Lower COGS — the largest lever, in detail.
- Reducing FBA and Referral Fees — the fee side.
- Setting Target TACoS per Product — margin sets what advertising can afford.