I just had a client ask about “CRaP,” Amazon’s internal term for unprofitable products. CRaP, as many of you may know, stands for Can’t Realize a Profit. The acronym is simple to learn but it can be much more complicated to really understand what drives CRaP and what you can do about it.
How to Avoid CRaP with Amazon
What it means, and what you can do about it.
- United States
First let’s talk about what can cause a product to get CRaPped Out
Again Amazon's term, not mine.
- Products are too expensive to ship (cost vs. weight is untenable). This could be because the item is heavy like liquid laundry detergent or it could be that the item is super inexpensive like a $0.99 bottle of school glue that costs more to ship (1 or 2 day Prime shipping) than it’s worth.
- High inbound shipping costs. This includes the cost to ship to Amazon domestically or by direct importing: If it becomes more costly, Amazon will ask to renegotiate the Vendor’s Freight terms or potentially CRAP out the product.
- Damaged product: If the product is frequently damaged/unsellable during inbound shipment, warehouse transfers, or to customers, etc, then Amazon will ask to renegotiate the Damage Allowance terms or potentially CRAP out the product.
- Automatic markdowns. If Amazon has more WoC (Weeks of Cover) than they care for (on average this is 4-6 weeks) then their automated pricing system will begin to discount products until the run rate (sell-through) increases and they reach a better inventory position. This process is what Amazon calls OIH (Order Inventory Health). When this happens, those products may no longer carry the desired margin and then be triggered as CRaP.
- Unfavorable competitive pricing. Similarly, if an item is being sold for less than the desired Sale Price on a competitor site (Walmart etc.) or by a 3rd Party Amazon Marketplace seller than when Amazon matches it could also trigger CRaPping out of the item.
- Recalls. Returns and manufacturer recalls as well as Chargebacks for non-compliance to Amazon’s processes may also cause an item to be CraPped Out if the overall margin is severely impacted.
- Profit calculations. There have also been instances where Amazon profitability calculations may take into account data from 3P only ASINs which impacted the 1P established ASINs and caused certain products to be CraPped Out.
How can I tell if my product is going to be CRaPped Out?
Prediction is always tricky and it’s no different here.
Thresholds for CraP are not consistent across categories, or even vendors, as Amazon may take a holistic view of a vendor account and not just specific products. In other words, if Vendor A has 3 products and 2 of them are exceeding margin thresholds by a lot and the third product is CRaP eligible, Amazon may decide not to CRaP Out the item because it would create a selection gap. Alternatively, the Vendor may have negotiated for the continued purchase of the item to prevent it from CRaPping out. On the other hand, if Vendor B in another category is in the same situation the Vendor Manager may require higher margin thresholds and therefore actually CRaP Out the third item.
Additionally, things like Vendor Fulfilled products, dropshipping, and DI (direct import) could all have impacts as well to the contribution margin (CM) and therefore impact CRaP.
What Can I Do?
- Net PPM. First and foremost, it’s critical to understand true margin and Net PPM (Net pure product margin) calculation at both the ASIN and the catalog level.
- Proactively ask for a list. Ask Amazon for a list of all CRaPped Out products and products on the threshold of being CraPped in your catalog.
- Identify leading indicators. Like the old “Add On” badge or significant changes to freight and/or ASP.
- Negotiate, Negotiate, Negotiate. Understand your terms at the account level and where you have leverage or room to buffer the margins.