Are you thinking of launching a premium product on Amazon but unsure of whether it will be profitable or not?
The 80/20 rule can be the key to making your launch a success. But before we dive into how to implement this rule, let’s first define what a profit margin is.
What is the profit margin?
A profit margin is the percentage of your sales revenue exceeding your business costs.
The higher the percentage, the better! And the 80/20 rule states that you should aim for an 80% profit margin and a 20% cost price (including all expenses).
Why is an 80% profit margin important when launching a premium product?
The answer is simple – competition. When you’re launching a high-priced product, your competitors may be selling at a lower price. So, how do you compete with them without going into the red?
✅ The first step is to present the premium features of your product in the best light possible through high-quality listing images, videos, and content.
✅ The second step is to invest in better marketing through Amazon associates and pay-per-click advertising.
✅ And the third step is to be flexible with your pricing to stay competitive.
An 80% profit margin will help you bear these expenses and make your product launch successful without going into the red.
But how do you calculate your Amazon profit margin?
There are different types of profit margins. Let’s learn about each one by one.
Gross Profit Margin
The gross profit margin is calculated by taking the net sales minus the cost of goods sold (COGS) and dividing it by the net sales, multiplied by 100.
Operating Profit Margin
The operating profit margin takes any administrative, operating, sales, and overhead expenses into account and is calculated by taking the operating income divided by revenue multiplied by 100.
Net Profit Margin
Lastly, the net profit margin reflects how much revenue is left after COGS, operational expenses, taxes, debts, and one-time expenses and is calculated by taking the revenue minus COGS, operating expenses, other expenses, taxes, and interest, divided by revenue, multiplied by 100.
Another important factor to consider when launching a premium product is reducing customer acquisition costs.
One way to do this is to select a product with a short buying span.
For example, lipstick is a highly usable product that customers need to buy repeatedly.
A high-quality premium product will attract repeat customers and increase organic sales, leading to smoother growth in sales.
Final Verdict
In conclusion, aim for an 80% profit margin to make your premium product launch successful and select a product with repeat buying behavior. And stay tuned for our next three posts, where we’ll reveal six more tips to help make your launch a success.
