Amazon Retailing Part 3: Understanding Customer Experience Metrics
Part 3 of our Selling on Amazon series discusses Customer Experience Metrics and how they affect your ability to make money on Amazon. This article is the third in a series, following previous topics about Winning the Buy Box and Listing Your Products on Amazon. Understanding Amazon’s concept of Customer Experience Metrics will help you win the buy box more.
This screenshot shows an overview of the calculations that, together, make up the Customer Experience Metrics. It’s taken from Amazon’s Seller Central in the Reports, Customer Metrics section. Each green box represents a particular one part of the criteria Amazon uses to gauge a seller’s performance on their site. For each criteria, Amazon also supplies a target value/percentage that a retailer should maintain.
Order Defect Rate
The first metric tracked by Amazon is called the Order Defect Rate. This metric is actually a roll-up of several statistics. The first is the Negative Feedback Rate. A few weeks after a customer on Amazon places an order, Amazon asks them to rate both the product and the retailer on a scale of 1 (least favorable) to 5 (most favorable). The feedback for the retailer determines this part of the metric. Negative feedback is any review with a rating of 1 or 2; 3 is considered neutral, and 4 and 5 are positive. The Negative Feedback Rate is the number of orders with negative retailer feedback divided by the total number of orders, all within a given timeframe. So if you sold 1000 orders, and 15 of them received negative feedback, then your Negative Feedback Rate is 15/1000, or 1.5%.
The second criteria that makes up the Order Defect Rate is the Filed A-to-z Claim Rate. Amazon’s A-to-z program is a method of resolving disputes between third-party retailers and the end customer. This rate is calculated by the number of orders that resulted in the customer filing an A-to-z claim divided by the total number of orders in the same timeframe.
The third and final portion of the Order Defect Rate is the Service Chargeback Rate. If a customer issues a chargeback through their credit card company for any reason other than fraud. Some examples are delivery of a defective or damaged product, failure to refund the money for a returned product, or the item was not received. The Service Chargeback Rate is NOT affected by chargebacks where fraud is claimed, such as the cardholder claiming that they never placed the order. Amazon absorbs any costs of fraud-related chargebacks. The Service Chargeback Rate is calculated as the number of orders with a service-related chargeback issued by the customer, divided by the total number of orders.
Any order with one or more of these problems – negative feedback, an A-to-z claim, or a service chargeback – is considered a defective order. The entire rolled-up Order Defect Rate is the number of orders with any of these defects, divided by the number of total orders within the same timeframe. If a given order has more than one defect, such as negative feedback and an A-to-z claim, it counts as only one defect. As an example, assume you had 1000 orders during December. Of those 1000 orders, 9 had only negative feedback, 2 had an A-to-z claim, 1 had both a negative feedback rating and an A-to-z claim, and 1 had a service chargeback. That results in 13 order defects, or 13/1000 which equals 1.3%.
Pre-Fulfillment Cancellation Rate
The next metric tracked by Amazon, after the Order Defect Rate, is called the Pre-Fulfillment Cancellation Rate. This represents how many orders you as the retailer cancel before shipping the order. Typically this happens when an item is sold that you no longer have in stock. If you are a multi-channel retailer, this is an easy thing to happen – the last item sells on Amazon, but before that order makes it into an order report, you sell the same last item on your own website or in your store. Since you can no longer fill the order on Amazon, you cancel it. This is a pre-fulfillment cancellation, because you cancel the order instead of shipping it. The Pre-Fulfillment Cancellation Rate is the number of canceled orders divided by the total number of orders within a given timeframe.
Late Shipment Rate
Amazon expects retailers to ship orders within a given timeframe. Additionally, they expect retailers to notify Amazon through Seller Central that the order was shipped, and to provide tracking information to the end customer. If an order shipment notification is more than 3 days later than the expected ship date, the order is considered late. The rate is calculated by the number of late orders divided by the number of total orders.
Note: the default lead time is 1-2 days. This is the number of days between when the order is placed and the time expected to leave your warehouse. If your expected lead time is greater, you can specify this in your inventory upload file in the leadtime-to-ship column, if available.
Post Ship-Confirm Refund Rate
Before you confirm that an order has shipped, if you cancel the order, that is considered a pre-fulfillment cancellation. However, after you confirm that an order has shipped, if you cancel it and issue a refund OR if the item is returned and refunded, this qualifies as a refund. Reasons for refunds tend to be more varied than reasons for cancellations (which are almost always due to stock issues). Amazon still tracks refunds as part of the overall measure of performance.
For each of these targets, except the refund rate, Amazon provides a target value that retailers should try to achieve. This image shows the rates for one merchant, with the targets displayed under the label for each row.
The target rates are:
- Order defect rate: < 1%
- Pre-fulfillment cancel rate: < 2.5%
- Late ship rate: < 5%
What difference does it make?
If you’re wondering why you should care, the answer is that these numbers can greatly affect your bottom line, particularly if you are a high-volume dealer on Amazon. Better scores raise your ability to win the buy box. Additionally, excessively poor performance may affect your ability to sell on Amazon at all. For example, toy retailers may be prevented from selling during the lucrative holiday season of November and December if their performance isn’t good enough.
Fortunately, Amazon emails these metrics to you every two weeks so that you can easily monitor your scores. They are also available in Seller Central under Reports < Customer Metrics, linked to from the top navigation.