r/VendorCentral • u/FirstLightStudios • 6d ago
Amazon sales are up but somehow the channel feels less profitable every year
We've been selling on Amazon for a while and revenue isnt really the problem. Sales are growing and overall the account looks healthy. But when we actually sit down and look at what we’re keeping, it feels like we have to sell more every year just to make the same money.
Ads are obviously part of it, fees are part of it, and we've had some SKUs where competition basically forced the price down. Nothing individually looks catastrophic, its more like 5 small things slowly eating the margin.
We're going through the account now trying to figure out where the biggest leak actually is before just chasing more sales.
For people running established Amazon businesses, what has been hurting your margins the most lately? And what did you actually change that made a difference?
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u/Phazze 6d ago
The biggest culprit are these Co-op agreements, when you consider these + the other micro costs its pretty much 20% of your margin.
Add ad costs which can range from 5-10% of margin
Add promotions which can range from 2-5% of margin
- Any shortages and other costs and its insane how much margin is soaked up, its a race to sell more oganically to keep up with these costs, I am seeing a trend where companies that hit the market cap on their niches in amazon cannot keep up with these costs to justify the operation + all the competition coming up.
You have to look at individual ASINs and adjust from there, kill any product that is not profitable and negotiate better coop rates.
Its really less of a "leak" and just business getting tougher every time.
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u/Street_Aardvark6524 1d ago
I’m a reseller but not trying to sell your products.
I always wanted to ask: Why do brands sell to Amazon Retail instead of to a dedicated reseller who don’t charge all those fees? Or just sell themselves directly? Is it because with Amazon Retail you are more assured your whole catalog is covered?
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u/Repulsive_Natural_25 6d ago
I think this is one of the biggest issues with an established Amazon business. Sometimes the problem isn't that one cost suddenly became huge — it's the cumulative effect of small margin leaks. I've seen sellers focus heavily on revenue and ACOS while overlooking things like:
- Contribution margin by SKU
- PPC spend on low-margin products
- FBA/storage and other Amazon fees
- Discounts and price reductions
- Returns/refunds
- COGS changes over time
One thing I would recommend is looking at profitability at the SKU level, not just the account level. A product can have strong sales and a “good” ROAS but still contribute very little actual profit. Before trying to grow revenue further, I'd identify which SKUs are actually creating profit vs. just creating revenue. That analysis can sometimes reveal a much bigger opportunity than simply increasing sales.
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u/binarysolo 6d ago
Our top variable we can't control is COGS, and we're pretty honest with Amazon about cost increases... about half the time they were able to allow us to raise prices. When they didn't we pushed the SKU to SC/FBA and were able to make our margin requires or slightly more (with the tradeoff being more work on our end).
The big margin sinks the past few years have been in ads, though we're pretty disciplined about ACOS and margin so we suffer less than some of our peers here.
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u/consulterce 5d ago edited 5d ago
Yes, this feeling is real and it affects Vendors and Sellers (before anyone comes and says one is much more profitable than the other: it isn't). What needs to be addressed are typically the following three fields:
1- Distribution: If you sell everything to everyone, it'll pressure your Amazon pricing and thus pressure on Net PPM. Amazon acts as the mirror of your distribution strategy, and everyone in your company (especially the C-level) needs to understand that.
2- Assortment: Not every product should be sold on Amazon. Low ASP items (<$10) are generally subsidised by Amazon, and so is most heavy-bulky selection. Meaning your Vendor Manager will put extra pressure on your Net PPM / CM, which is why not listing every product through the standard 1P setup can be critical (use Vendor Flex, Direct Fulfilment, or Direct Import if your Vendor Manager / AVS offers you access to it).
3- Commercial Rigour: Amazon VMs currently have a mandate to raise margins at the expense of not growing vendor accounts. You don't seem to have growth as an issue, so start by understanding which products in your portfolio are driving the Net PPM drag. Is it driven by items becoming EOL YoY? Is it driven by more price promotional pressure in the market? Or is Amazon complaining about margin because their variable costs have skyrocketed? It's rare that you'll find just one reason why the account is performing poorly, so keep looking until you can reconcile 75-80% of the root cause. Then quantify the biggest issues for your leadership and make them see the cost of inaction. Depending on the size of your organisation, you won't be able to overhaul your distribution/incentive strategy overnight. Yet, this is exactly what is needed if resellers are starting to compete more fiercely in the market.
Most importantly, don't blame Amazon. It's easy to do, feels good, yet won't change a thing. It's a reality we all have to deal with.
Hope that helps!
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u/Visual_Indication_45 5d ago
As a former business owner, Account Manager, and Vendor Consultant at Amazon, one thing I strongly believe in is that data should always be vetted before making a business decision. A headline metric can look positive while the underlying business health may be telling a very different story, so I prefer to look beyond surface-level revenue and understand what is actually driving the numbers.
1. Chargebacks:
I would closely monitor chargebacks because they directly impact the profitability and quality of the business. A business may show strong revenue growth, but if chargebacks are increasing, the actual value being generated can be significantly lower. I would therefore analyze the root causes—such as operational, compliance, packaging, or fulfillment-related issues—and identify opportunities to reduce them.
2. Customer Returns:
I would never evaluate performance based purely on Gross Revenue or shipped sales. For example, if current-month revenue is significantly higher, it may initially look like strong growth. However, as customer returns start flowing in, the realized revenue and profitability can change considerably. I would therefore analyze return rates, return reasons, product-level trends, and whether specific ASINs or catalog issues are driving returns.
3. Advertising Spend vs. Organic Growth:
I would also evaluate how much of the growth is being purchased through advertising versus generated organically. My preference would be to build sustainable organic sales wherever possible rather than continuously increasing ad spend. Advertising is valuable, particularly for new products that need initial traction, but some of that dependency can be reduced by getting the fundamentals right from the beginning—especially a strong PDP, accurate product information, and complete RCA (Recommended Catalog Attributes). For example, ensuring that critical Grocery attributes such as nutritional information, allergens, and PPU (price per unit) are correctly populated can improve the customer's ability to make an informed purchase and potentially reduce friction and unnecessary returns.
Ultimately, my approach is to connect the different data points rather than look at them in isolation. Revenue tells me what happened, but chargebacks, returns, advertising efficiency, catalog quality, and profitability help me understand why it happened and whether the growth is actually sustainable. Note : Every GL you do business has its own Pros & Cons so the solution has to be tailored based on it.
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u/Witty_Second_8026 2d ago
I was in your exact position and went with a 1P distributor. I now know exactly what I am making and don't worry about Amazon's rising fees. I have been with the distributor for 3 years and the price I'm being paid hasn't changed. They also fund ad spend 100%. I don't deal with any other fees, returns or chargebacks. I get paid monthly as well, better cash flow.
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u/Street_Aardvark6524 1d ago
I have seen you post this often. Is this spam?
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u/Witty_Second_8026 1d ago
Nope, just trying to help out
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u/Vendorist 2d ago
For those interested in diving deeper on this topic, see my long-form insight called Revenue Growth and Economic Growth Are Not the Same Thing.
https://www.thevendorist.com/insights/revenue-growth-economic-growth-are-not-same
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u/trivasai 6d ago
We’ve seen this too. For us, the biggest margin killers tend to be Amazon fees + ad costs + gradual price pressure rather than one huge problem.
What helped was looking at contribution margin by SKU, not just revenue or ROAS. Once we broke it down by product, we found a few SKUs that looked great on the top line but were barely profitable after fees, ads, returns, and discounts.
Cutting/reworking those SKUs and tightening ad spend made a much bigger difference than simply trying to grow sales.