Many brands fail to understand the time and monetary commitment necessary when it comes to launching new products on Amazon. So what does it truly take? Let's walk through the specifics of what brands can expect when launching new SKUs including:
- Investment costs
- Reviews and market strategies
- Time to profit
To ensure we provided actionable insights, Spreetail recruited ecommerce experts from across a variety of platforms. These experts offered up their strategic options to help us create an informative timeline and guide on what to expect when launching new SKUs on Amazon.
- Joseph Hansen: Joe is the co-founder of Prosper Show, founder of Buy Box Experts, and 5x brand creator and seller. His innovation and leadership have earned him numerous accolades, including being named to Comparably's 2020 Top CEO list.
- Liz LaVallee: Liz has over 15 years of experience as an eCommerce Marketing Director, with a proven track record of launching and growing brands on Amazon and expertise in developing growth strategies, building high-performing teams, and maximizing market share.
- Abi Harmon: Abi has experience as a global CEO/ General Manager/ Operator with an 18+ year track record of translating commerce and technology. She has a passion for scaling infrastructure, operational excellence, and sustained product innovation.
Here’s what these experts had to say...
Investing in New SKUs
The money, time, and resources you invest into launching new SKUs depends on where the SKU is to be placed and how you expect it to perform compared to competitors.
SKUs launching offline and online: If your SKU is set to launch in multiple places, you will want to take extra precautions. The goal is to create an omni-channel experience when it comes to product information like specifications, dimensions, and features. Outside of this, double the SKU means double the strategy. Lay out specifics like fulfillment, pricing, and inventory for each in a way that ensures no wires get crossed.
Category and subcategory: Be aware of the competitor market for your SKUs specific categories. How are they performing? What is the average sale and review score? What resources do you need to leverage to match or exceed the quality of listings your competition is creating?
Expected LTV (Lifetime Value): Lifetime value is an estimate of the average revenue that a customer will generate throughout their lifespan as a customer. The 'worth' of a customer can help determine marketing budget, resources, profitability, and forecasting. The higher the value, the less investment may be needed since your brand already has a steady following of loyal customers.
Expected AOV (Average Order Value): This tracks the average cost each time a customer places an order. To calculate your company's average order value, simply divide total revenue by the number of orders. The higher your AOV, the more you get out of every customer and out of every dollar spent to acquire those customers. The higher the ratio, the more willing you may be to invest more heavily.
“Initial spend should be very thoughtful and distributed across lots of potential keyword targets and ad types to find the highest converting ads. Then you double down there to increase conversion rate and sales rate and slowly expand the ad assortment. Launching with exceptional content and images is a must to gain early traction.” - Joseph Hansen, Founder & Entrepreneur
Preparing for Success
One of the best things you can do to set your SKU launch for success is focus on creating a good first impression through the work of listing optimization.
Launching with fully optimized listings is important when trying to make a splash. Your launch needs to be firing on all cylinders. This entails refraining from launching new SKUs that aren’t fully enhanced and ready. Producing a half-baked version only slows down the algorithm’s learning momentum. A common occurrence is brands sitting on inventory, wanting to launch even though they aren’t fully ready. It hurts to sit on inventory, but you only get one chance at a first impression, and one chance at a solid launch with the Amazon algorithm. It is crucial to take the time to build out a full set of images, videos, A+ content, etc. to ensure a successful debut.
Once content is built, brands need to think about how it's being distributed. Advertising campaigns can be costly and in some cases aren’t always necessary. Here’s a tip: give a timeframe for your new SKU to work organically. If the product is doing well, you may not want to invest as much money into ads from the jump. Create a balance between which campaigns you put large momentum and spend behind and those you don’t. The choice should be calculated, and evidence-based.
“New launches take time to reach full profitability. When you first launch a new product and you’re trying to get it in a brick and mortar, a lot of times you pay a “slotting fee”. There’s an upfront cost to get it launched and to prove it – and that’s what you’re doing with Amazon, but you’re proving it to an algorithm. With no history, you need to show [the algorithm] it’s a good product that should be shown more. The only way to do that is to invest in it to get it going.” - Liz LaVallee, VP Client Growth – Avenue 7 Media
How Much Should Be Spent?
Initial spending should be very thoughtful and distributed across lots of potential keyword targets and advertisement types to find the highest converting results. Then, double-down to increase conversion rate and sales rate as you slowly expand the ad assortment which should include exceptional content and images.
“The amount you choose to start spending is calculated mostly by a combination of AOV and GMV (Gross Merchandise Value). For products that aren’t expected to generate repeat purchases, and have a normal range or competition, you should expect to spend 10%-15% of the item’s GMV for the first 12 months (15% for lower AOV and 10% for higher AOV). You would then decrease that to 5-10% of GMV (10% for lower AOV and 5% for higher AOV) after maturity. For more competitive categories/subcategories and/or where you can expect repeat purchases, 20-25% of GMV initially and 10-15% GMV at maturity would suffice. “ - Joseph Hansen, Founder & Entrepreneur
Note that these rough calculations reference investing in the product itself. From an ads and marketing perspective, the rule of thumb is often investing 10% of sales back into advertising to further propel your launch. However, you may also find that much of the Amazon seller community sometimes invests upwards of 30-50%.
If you don’t have access to AOV or LTV for these calculations, an alternative is using TACoS (Total Advertising Cost of Sale) as a guideline. This is a metric found on Amazon used to measure ad spend relative to an Amazon seller’s total sales revenue, including ad sales and organic sales. Because your ad campaign performance is directly correlated to your overall organic sales, TACoS provides a fairly accurate representation of your Amazon business performance allowing you to better judge how your investments should be made.
Getting Reviews
Once your new SKU is planned, optimized, and launched, it’s time to start bringing in reviews to help increase sales and BSR (Best Seller Rank). Often the best course of action revolves around ensuring your creator or influencer content is top-notch to get those first round of reviews coming in. If that is in place, you may naturally start to receive more conversions. More conversions create more reviews, and the cycle continues.
For brands who aren’t seeing much movement with reviews, Amazon has a solution we recommend utilizing – Vine. This invitation-only program allows manufacturers to receive reviews for their products on Amazon. Companies pay a fee to Amazon and provide products for review. The products are then passed to Amazon reviewers who can publish a review.
“Vine works for Amazon FBA (Fulfilled by Amazon) or 1P (First-Party). Vine enrollment is inexpensive and allows brands to generate traction on new products and listings. Once you have 10-20 reviews, you’ll seem more legitimate in the consumers’ eyes. This is often seen as a great tipping point for the product as getting into the double digits generates trust.” - Liz LaVallee, VP Client Growth – Avenue 7 Media
Questions to Ask
As you create your launch strategy for your new SKU, there are a few essential questions that will help set the tone for a plan of attack. The following list of questions establishes a baseline for considering important elements that are often overlooked:
- What information should be featured on the product detail page to convert buyers?
- What is the optimal conversion rate we should be hitting? What are the best ways to start sending the right amount of traffic to the page in order to convert?
- Are we conducting any special promotions – ads, emails, etc. How much traffic are we aiming to get from this promotional activity?
- Will this new product compete with other SKUs within our profile? Will it cannibalize other products? If so, is this product worth the continued investment?
- What is the PnL (Profit and Loss) of the SKU? Understanding your risk appetite and investment thresholds before expecting returns is crucial for a successful launch.
- When it comes to listings and sponsored products, what keywords are we going after?
- Do you know what your competitors are investing back into the market? You may be able to utilize third-party tools or conduct your own research by analyzing listings and products to gauge their level of investment.
ROI Timeline: Profits Made from New SKUs
The answer to how long it can take to generate profit on a new SKU post-launch depends on your cost of goods including marketing, review incentives, and more. But, for simplicity’s sake, here’s an estimated run down.
- Initial launch: When you first launch a new product there’s an upfront cost to getting it launched and proved – and that’s what you’re doing with Amazon, but you’re proving it to an algorithm. With no history, you need to show that it’s a good product and one that Amazon would want to show more. The only way to do that is to invest in it to get it going. It depends on the financial modeling of that SKU, wholesale price, retail price, and how much margin you have to play with.
- 3 months: This is when your investment amount will be at its highest level, and you will most likely be at an overall breakeven. During this time, brands need to be aggressive to get noticed by both the algorithm and buyers. Generating conversions and reviews by focusing on advertising, price discounts, and promotions is essential. The product may not be profitable at this time, but you should be close to breaking even.
- 3-6 months: After 3 months you should optimize your SKU to profitability. This can look like decreasing spend on traffic while raising the price to get past that breakeven point. Continue to incrementally optimize until you’re at your full margin. Investment after this point is when your standard product investment cost would take hold (i.e. the average amount you invest in the rest of your established catalog).
“An overall rule of thumb is that it can take roughly 3 to 6 months to fully launch a new SKU. For most categories it’s closer to the 6-month mark. Exceptions happen when you’re launching in a category without much competition, or you have a relatively low price point.” - Abi Harmon, General Manager, Helium 10 & EVP, Pacvue
The true cost of launching a new SKU isn’t set in stone, there are many differentiating factors. But one thing remains the same – careful consideration is the key to success.
Director, B2B Marketing
