How to Expand Your Amazon Operations Without Compromising Profit Margins

Expanding on Amazon is a huge opportunity, but rapid growth can come with challenges. Many brands increase sales volume only to realize that their profit margins are shrinking. Rising fulfillment costs, increasing competition, higher ad spending, and inventory inefficiencies can all take a toll. Scaling effectively requires strategic planning to ensure that higher revenue also means higher profitability.

This guide will cover key strategies for expanding your Amazon business while keeping costs under control and protecting your profit margins.

Understanding the Costs of Expansion on Amazon

Scaling on Amazon isn’t just about selling more products. Every stage of growth introduces new expenses, and failing to track them can lead to lower profits despite higher sales. Here are some of the biggest costs to watch:

1. Amazon Fees

Amazon’s fee structure changes as your business scales. Some key fees to monitor include:

• Referral Fees – Amazon takes a percentage of every sale, typically between 8-15% depending on your product category.
• FBA Storage Fees – Storing too much inventory in Amazon warehouses increases your costs, especially during Q4.
• Fulfillment Fees – FBA order processing and shipping costs can eat into profits, especially for larger or heavier items.

2. Advertising Spend

Amazon PPC is crucial for visibility, but advertising costs can spiral out of control if not managed properly. Expanding requires optimizing ad campaigns to maintain efficiency:

• Focus on high-performing keywords rather than increasing budget across too many campaigns.
• Use negative keywords to filter out irrelevant traffic and avoid wasted ad spend.
• Optimize product listings to improve conversion rates, reducing reliance on paid traffic.

3. Inventory & Storage Costs

As you scale, inventory management becomes more complex. Overstocking leads to higher storage fees, while stockouts cause lost sales and rank drops.

4. Fulfillment & Logistics Costs

More sales mean more fulfillment expenses. Expanding sellers need to balance cost-efficient fulfillment options:

• FBA vs. FBM – Some SKUs may be more profitable if fulfilled via a third-party logistics provider.
• Multichannel Fulfillment (MCF) – Using Amazon’s MCF can fulfill orders from other platforms like Shopify, but costs should be compared.

Optimizing Amazon Ads to Maximize ROI

Amazon ads are necessary for growth, but poorly managed campaigns can shrink margins. Here’s how to optimize advertising while scaling:

1. Prioritize High-Converting Keywords

Not every keyword is worth bidding on. Analyze conversion rates and double down on the terms driving profitable sales.

2. Use Negative Keywords Aggressively

Eliminate irrelevant searches that lead to wasted spend. For example, if you sell premium products, exclude words like “cheap” or “budget.”

3. Refine Ad Targeting

• Sponsored Products – Best for direct conversions.
• Sponsored Brands – Useful for brand awareness.
• Sponsored Display – Helps with retargeting and cross-selling.

4. Measure ACoS and TACoS

• ACoS (Advertising Cost of Sales) – Measures ad spend efficiency.
• TACoS (Total Advertising Cost of Sales) – Provides a broader view by including organic sales impact.

Expanding Beyond FBA: Lowering Fulfillment Costs

While FBA is convenient, it isn’t always the most cost-effective option. Sellers scaling up should evaluate other fulfillment methods:

1. FBA vs. FBM (Fulfilled by Merchant)

• FBA Pros: Faster shipping, Prime eligibility, better customer trust.
• FBM Pros: Lower fees, more control over inventory, better margins for large products.

2. Third-Party Logistics (3PLs)

Working with a 3PL provider allows you to ship through multiple marketplaces while keeping costs down.

3. Hybrid Fulfillment Strategy

Many brands use both FBA and FBM to optimize costs while ensuring fast delivery.

Expanding to International Markets Without High Costs

International ecommerce expansion offers growth potential, but it requires careful planning to remain profitable.

1. Start with Amazon’s Global Selling Programs

• North America Unified Accounts – Easily sell in Canada and Mexico.
• Amazon Europe Expansion – Requires VAT compliance but opens access to multiple markets.

2. Minimize Shipping Costs

• Store inventory in Amazon’s international warehouses.
• Work with fulfillment partners that specialize in cross-border logistics.

3. Research Local Regulations & Taxes

Understanding VAT, tariffs, and compliance rules ensures that international sales remain profitable.

Streamlining Operations with Automation

Scaling without automation can lead to inefficiencies and increased costs. Here are key areas where automation can help:

1. Pricing Automation: Repricing tools help stay competitive while maintaining margins.

2. Inventory Forecasting: AI-driven inventory management tools prevent stockouts and overstocking.

3. Ad Management: Automated bidding tools adjust PPC bids in real time to maximize efficiency.

4. Automated Customer Service: Chatbots and AI-driven customer service solutions improve response times without adding overhead costs.

Expanding to Other Marketplaces for Diversified Revenue

Relying solely on Amazon is risky. Diversifying your business to multiple platforms can protect your business. Here are some leading ecommerce platforms, following Amazon, to consider for your multichannel ecommerce strategy: 

Protecting Profit Margins While Scaling

Growth doesn’t mean much if your margins disappear. Here’s how to keep profitability strong:

• Monitor costs regularly – Keep an eye on fees, ad spend, and fulfillment costs.
• Leverage data analytics – Use Amazon reports and external tools to make data-driven decisions.
• Stay agile with pricing – Adjust pricing dynamically based on demand, competition, and profitability.

Scaling your Amazon business is possible without losing control over margins—if you take a strategic approach.

Conclusion

Expanding your Amazon operations doesn’t have to come at the cost of your profit margins. By optimizing your pricing strategy, leveraging multi-channel fulfillment, improving your advertising efficiency, and streamlining inventory management, you can scale your brand while maintaining strong profitability. Data-driven decisions, operational efficiency, and the right marketplace strategies will ensure that growth translates into long-term success rather than increased expenses.

At Prime Retail Solutions, we help established brands like yours expand on Amazon while protecting and improving profit margins. From 3P marketplace services to efficient inventory planning, our expert team ensures your business scales effectively without unnecessary risks.

Contact us today to discuss how we can help your brand grow profitably on Amazon!

Suggested Images & Placement

1. Amazon Fees Breakdown (Near “Understanding the Costs of Expansion”) – A table or chart showing different Amazon fees.
2. Advertising Optimization Tips (Near “Optimizing Amazon Ads”) – A PPC dashboard screenshot highlighting ACoS and TACoS tracking.
3. FBA vs. FBM Cost Comparison (Near “Expanding Beyond FBA”) – A comparison table showing cost differences.
4. Global Expansion Strategy (Near “Expanding to International Markets”) – A world map highlighting key Amazon marketplaces.
5. Automation Tools Overview (Near “Streamlining Operations”) – A workflow diagram showing automation benefits.

These visuals help brands quickly grasp key insights and make informed expansion decisions.