In a previous article, we explored the concept of the Amazon Flywheel—a self-reinforcing growth engine fuelled by an obsessive focus on customer experience. The better the experience, the more customers Amazon attracts and retains. More customers mean more sales, which allow Amazon to lower prices and expand selection. Lower prices and broader selection further improve customer satisfaction—spinning the Flywheel faster and faster.
This model doesn’t just power Amazon—it also serves as a blueprint for success on the marketplace. And at the heart of it lies a core economic principle: economies of scale.
What Are Economies of Scale?
Economies of scale refer to the cost advantages that arise as production increases. As businesses grow, they can spread fixed costs (like rent, software, or salaries) across a larger number of units, reducing the average cost per unit. They also gain leverage in negotiating lower variable costs (such as materials, shipping, or advertising rates).
Why It Matters on Amazon
To understand why economies of scale matter so profoundly on Amazon, one must first grasp what kind of marketplace Amazon really is. It’s not just a platform for selling products. It’s a living ecosystem—an algorithmic meritocracy—where visibility, growth, and profitability are granted not by promise or potential, but by performance. It is a space where small players can rise quickly, but only if they understand the rules of acceleration.
On Amazon, every seller is competing for the same finite resources: attention, trust, ranking, and sales velocity. But these resources are not distributed evenly. They’re allocated based on output. Amazon doesn’t care who you are or how beautiful your branding is. It cares about how fast your product sells, how reliably you deliver, how well your listing converts. That’s it. This is why understanding and applying the principle of economies of scale is foundational.
In traditional retail, it’s possible to build a profitable business at small scale. You can have a boutique store, a niche product, a premium price, and still make a respectable margin. On Amazon, that’s rarely sustainable. The platform rewards movement. The faster you sell, the better your ranking. The better your ranking, the more visible your product becomes. And the more visible you are, the more units you sell. This cycle of visibility and velocity is the engine that drives growth – that’s the flywheel engine in a nutshell. But like any engine, it requires fuel. That fuel is volume.
Understanding How COGS Fits Into Economies of Scale
Before diving into the strategy, let’s understand the role of COGS: COGS (Cost of Goods Sold) refers to the direct costs associated with producing or sourcing each unit of a product. This typically includes:
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Product manufacturing or purchase cost
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Packaging
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Inbound shipping
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Amazon FBA fulfilment fees (if using FBA)
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Any other variable cost tied directly to each unit sold
Economies of scale help reduce indirect (fixed) costs per unit, but COGS still sets a floor on your overall cost structure. However, as you scale, even some elements of COGS (like bulk purchasing or logistics efficiencies) can decrease.
Let’s illustrate this with a clear example:
Simple Example with COGS Included
Let’s assume the following monthly scenario:
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Fixed costs: £10,000 (software, team, photography, design, etc.)
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COGS (direct variable cost per unit): £5 (includes manufacturing, packaging, and fulfilment)
As volume increases, your fixed cost per unit drops dramatically—but COGS remains mostly stable (though it can reduce slightly with scale too, e.g., bulk purchasing discounts).
The result? Your total cost per unit drops, improving either your margins or your ability to price more competitively.
Bonus: How Lower COGS Can Further Boost Margins
Let’s say by ordering at scale or switching suppliers you reduce COGS from £5 to £4.50.
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At 10,000 units, new total cost per unit = £1 (fixed) + £4.50 (COGS) = £5.50
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Compared to £6 previously, that’s a 8.3% cost saving — multiplied across 10,000 units, it’s £5,000 saved.
How to Achieve Economies of Scale on Amazon
Scaling on Amazon requires volume-first thinking and a willingness to invest upfront in growth.
A common misconception is that you need dozens of products to achieve scale on Amazon. That’s not true. You can unlock economies of scale with a single, well-optimised product—if you focus on the right strategy: smart pricing to drive sales volume.
Smart Pricing: The Fastest Path to Scale
At its core, Amazon rewards what sells. The faster your product sells (higher sales velocity), the more the algorithm boosts its visibility in search results, which in turn drives even more sales. This cycle feeds itself.
But for the Flywheel to spin, you must generate momentum. The best way to do this is through aggressive, strategic pricing—especially in the early stages of a product’s lifecycle.
Here’s how it works:
Step 1: Launch with Competitive Pricing
Price your product to undercut or match top competitors—even if it means lower margins or breaking even temporarily. The goal is not profit. It’s velocity.
Think of this as paying for visibility—only instead of spending on ads, you’re investing in price.
Step 2: Drive Up Sales Velocity
Once your price attracts initial buyers, your sales velocity will increase. This leads to:
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Improved Best Seller Rank (BSR)
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Greater organic visibility
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Inclusion in Amazon’s automated recommendations
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Better ad performance (due to higher CTRs and CVRs)
Step 3: Scale Volume, Reduce Unit Costs
As volume increases, you begin to:
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Dilute your fixed costs across more units
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Potentially negotiate better COGS from suppliers
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Improve logistics efficiency (e.g., shipping pallets instead of boxes)
At this point, your cost per unit drops—creating true economies of scale.
Step 4: Gradually Adjust Price or Margin
Once your product is ranking well and winning organically:
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You can slightly raise your price without hurting sales
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Or you can keep prices low and enjoy superior market share
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In both cases, your margins improve because your cost per unit has decreased
Case Example: From Launch to Scale with One Product
Let’s say you sell a single kitchen utensil at £20, with:
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COGS = £6
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Fixed monthly costs = £10,000
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Initial monthly sales = 500 units
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Total cost per unit = £6 (COGS) + £20 (fixed/500 units) = £26 → Not profitable
Now, apply smart pricing and drive sales to 5,000 units/month:
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Fixed cost per unit = £10,000 / 5,000 = £2
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Total cost per unit = £6 + £2 = £8
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At £20 sale price → Margin per unit = £12
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Total monthly profit = £12 × 5,000 = £60,000
By keeping the product the same and only adjusting volume, you’ve turned a loss-making item into a highly profitable business.
Advanced: Expanding Economies of Scale Across a Portfolio
Once a seller masters economies of scale with a single product—or a tightly focused set of SKUs—they’ve built a system. The infrastructure is in place: logistics, customer service, advertising strategy, supply chain relationships, and operational discipline. These foundational elements, hard-earned and optimised through repetition, become the backbone for scaling additional products with far less friction and risk.
Expanding a portfolio then becomes an exercise in replication. The same mechanisms that lifted one product can be systematically applied to new launches. And because core costs are already covered and institutional knowledge is in place, each new product contributes to stronger margin performance and greater leverage. In this way, economies of scale evolve into economies of scope, allowing the entire catalog to benefit from the momentum of what came before.
Why Many Sellers Fail to Scale
At first glance, selling on Amazon appears deceptively simple. You list a product, set a price, invest in some advertising, and wait for sales to roll in. And for a brief moment, that formula often works—especially if you’ve chosen a trending niche or brought a product to market at just the right time. The real challenge, however, is not starting on Amazon. The real challenge is sustaining growth, achieving scale, and building a business that is both profitable and durable over time. This is where most sellers stumble.
The core reason is mindset. Many sellers enter the Amazon ecosystem with a short-term mentality. Their focus is on immediate profitability. They want to see a return on their ad spend within a week. They want to cover all costs and clear a margin within the first 30 days. And they often price their products accordingly—high enough to protect profit margins from day one, but not competitively enough to generate meaningful volume.
This approach is understandable. After all, if you’ve invested your own capital into inventory, photography, packaging, and ad campaigns, the instinct to protect that investment is strong. But it’s also flawed. Because Amazon is not built for cautious operators. It is built to reward momentum, sales velocity, and customer demand. A product that sells slowly—even if it earns a tidy profit on every unit—will never achieve ranking visibility. And without visibility, your entire business is running on fumes.
What often happens is this: the seller lists the product, sets a high price to preserve margin, and drives a handful of sales through paid traffic. Those sales are expensive, because there’s no organic visibility yet. The product doesn’t rank, so the seller remains dependent on ads. The ACoS creeps higher. The cost per click increases. Ad spend starts eating into the very margin they were trying to protect. Frustrated, the seller either turns off ads or raises the price even further to maintain profitability. Both actions reduce sales velocity even more. The product sinks into obscurity. Eventually, it’s either delisted or liquidated at a loss.
This is what a negative Flywheel looks like.
It’s not that the product was bad. It’s that the strategy was misaligned with how Amazon’s ecosystem functions. The seller tried to extract profit before building scale. They tried to harvest before they’d even planted.
What’s worse is that the competition doesn’t play by the same rules. Many successful sellers—especially those backed by aggregators, private equity, or experienced operators—understand the importance of delayed gratification. They will enter a market with pricing so aggressive it looks irrational to outsiders. But they’re not irrational. They’re buying rank. They’re sacrificing margin to win velocity. And once they achieve that, they gradually shift the economics in their favor. They benefit from better organic traffic, stronger conversion rates, repeat customers, and eventually, higher prices backed by social proof and search dominance.
Meanwhile, the new or undercapitalised seller, trying to guard a 30% margin from day one, can’t compete. They’re priced out of relevance before they’ve even begun.
But price is not the only reason sellers fail to scale. Operational inefficiencies are another silent killer. Sellers who can’t replenish inventory quickly enough, who don’t have visibility into their cash flow, who launch new SKUs without proper forecasting—all of these issues create bottlenecks that stall momentum. On Amazon, momentum is everything. When your product goes out of stock, you don’t just miss sales—you lose ranking. And regaining that ground often requires more ad spend, more price cuts, and more time than most sellers are willing or able to invest again.
Then there’s the failure to adapt. Amazon changes constantly. What worked six months ago might not work today. If your campaigns aren’t being monitored and optimised weekly—if not daily—you’re falling behind. Sellers who operate on autopilot, who stop testing new images, who ignore changing search trends, eventually lose relevance. And when that happens, their growth plateaus, then declines.
And finally, perhaps the most overlooked failure point is emotional resilience. Scaling a business—any business—requires discipline, patience, and a willingness to lose money before making it. Many sellers underestimate this. They assume one or two bad months means the product has failed. They panic when ads underperform. They second-guess their pricing, their positioning, even their niche. And instead of iterating through the discomfort, they pivot prematurely, abandoning strategies just as they were starting to work.
The reality is this: Amazon is not for the faint of heart. It rewards operators who play the long game. Those who understand that scaling requires investment—not just in capital, but in mindset, systems, and strategic discipline.
To scale on Amazon, you must resist the instinct to optimize for short-term gain. You must be willing to operate at breakeven—or even a loss—if that’s what it takes to gain momentum. You must recognize that margin is the reward for building volume, not the prerequisite.
The sellers who succeed are those who flip the equation. They don’t ask, “How can I make the most profit from every unit I sell?” They ask, “How can I sell as many units as possible, as quickly as possible, to unlock scale, reduce costs, and dominate my category?”
That’s how you win. That’s how you build not just a product, but a business. And that’s how you move beyond being another short-lived Amazon listing—toward becoming a brand with true staying power.
The Role of Advertising in Economies of Scale
Advertising on Amazon is often misunderstood. Many sellers treat it as a cost center, an obligatory line item in their P&L, something to be reduced as soon as possible. But in truth, advertising is not just a way to drive visibility—it is one of the most powerful levers available to accelerate economies of scale. When used strategically, advertising can compress the time it takes to achieve profitability, reduce your average cost per acquisition over time, and strengthen the entire foundation of your operation.
To understand this, we need to look at what advertising really does inside Amazon’s ecosystem. When a seller launches a new product, that listing has no history—no reviews, no rank, no velocity. In Amazon’s eyes, it is invisible. Without external visibility or traffic, it doesn’t matter how good your offer is or how optimized your listing appears; it simply won’t be seen. This is where advertising becomes a strategic growth tool rather than just a promotional expense.
By bidding on relevant keywords through Sponsored Products, a seller can immediately place their product in front of a targeted audience with high purchase intent. This initial burst of visibility is crucial—it kickstarts the product’s sales velocity, which is one of the most influential factors in how Amazon ranks products organically. The more a product sells, the more it appears in organic search results. It’s a feedback loop built into the very structure of Amazon’s algorithm. Advertising, therefore, is not just about getting clicks. It’s about building momentum.
And once that momentum is underway, something interesting happens. As the product sells more, its Best Seller Rank improves. As the rank improves, so does its visibility—this time, not because you’re paying for it, but because Amazon’s system has now decided your product is “in demand.” This increased organic visibility drives additional free traffic, which means more sales without incremental advertising spend. In other words, your advertising spend per unit sold begins to drop. What started as a cost to generate traffic becomes a mechanism for reducing acquisition costs and improving profitability.
This is the point at which advertising begins to unlock economies of scale.
Take, for example, a seller who’s trying to break into the kitchen accessories category with a single product. Initially, that seller may need to spend aggressively—perhaps 40% or more of the product’s price—on advertising just to generate the first wave of conversions. But over time, as that product ranks higher, gains reviews, and begins converting at a better rate, the advertising becomes more efficient. The same £1 of ad spend might now result in two or three conversions instead of one. With every additional sale, the product’s ranking is reinforced, creating a compounding effect where organic traffic starts to overtake paid traffic. As this balance shifts, the seller can either scale ad spend to expand reach further or reduce it to preserve margin—either way, unit economics improve.
There’s also a psychological advantage. Products with stronger rankings, more reviews, and consistent placements on the first page of search results build trust. Consumers perceive them as more legitimate and are more likely to purchase them without hesitation. This, too, drives conversion rates higher, improving the return on ad spend and further reducing the cost per acquisition. Once a seller crosses a certain threshold of visibility and velocity, the advertising budget is no longer working in isolation. It’s now integrated into a broader machine that includes SEO, brand equity, and customer behaviour—all reinforcing each other.
Another dimension worth exploring is how advertising accelerates breakeven timelines. Let’s say a seller needs to reach 5,000 units sold per month to cover fixed operational costs and enter a sustainable profit zone. If they’re only moving 500 units organically, they’re operating at a loss. Every unit sold is technically increasing their deficit. But with the help of advertising, that same seller might be able to reach the 5,000-unit threshold within a few weeks or months instead of years. Once breakeven volume is achieved, every marginal unit sold improves profitability rather than dragging it down. Advertising, in this context, is not an expense but a bridge to scale.
And then there’s data. As volume increases through advertising, so does the richness of performance insights. Which keywords convert best? What search terms signal high purchase intent? Which product images yield the highest click-through rates? None of this is available to a seller without first driving sufficient traffic—and advertising is how you generate that data. Over time, this leads to smarter decisions, tighter campaigns, better listings, and higher efficiency across the board. This, too, is a form of scale: intellectual scale, based on insight and iteration.
It’s important to note that advertising’s role doesn’t end once organic visibility is established. In competitive categories, defending keyword real estate becomes essential. Competitors will try to conquest your brand terms or show up next to your listings. Strategic advertising allows you to defend your turf while continuing to launch new variations or complementary products with built-in audience knowledge. This creates a platform for what economists would call “economies of scope”—the ability to spread operational and marketing efficiencies across multiple products, not just one.
Ultimately, advertising on Amazon should not be viewed as a drain on profitability but as the ignition system for a much larger machine. When used strategically, it creates momentum, reveals insights, amplifies visibility, and compresses the path to scale. The most successful sellers are not those who spend the least on ads, but those who spend wisely—recognising that advertising is not a cost to be minimised, but a catalyst to be mastered.
Thinking Bigger: Beyond Amazon
It’s easy to fall into the trap of viewing Amazon as the ultimate destination—a self-contained marketplace where success is defined solely by keyword rankings, BSR, and seller dashboards. But for truly ambitious brands, Amazon is not the endgame. It is the proving ground. It is the laboratory where ideas are tested, products are validated, and operations are stress-tested at scale. And once that foundation is established, Amazon becomes a powerful springboard into larger, more diversified retail opportunities.
The advantages of building traction on Amazon go well beyond the platform itself. Brands that succeed in gaining market share on Amazon acquire something that’s extremely valuable in the eyes of buyers, distributors, and retail chains: proof of demand. When your product is organically ranking on the first page of search results, when it carries hundreds or thousands of reviews, when it maintains consistent sales velocity and healthy margins, it sends a clear signal to the broader market: this product works. It resonates with real customers. It moves.
This signal is what opens doors.
Retail buyers from brick-and-mortar stores—including high-street chains, supermarkets, and specialty retailers—now actively monitor Amazon rankings and customer reviews when considering new vendors. A strong presence on Amazon gives your brand credibility that simply cannot be manufactured through traditional marketing or pitch decks. It’s quantified, public, and undeniable. In fact, for many categories, it has become the new standard of proof.
But the benefits extend further.
When you achieve scale on Amazon, your supply chain becomes more efficient. You start importing in larger quantities, reducing your per-unit cost and improving cash flow dynamics. Your packaging becomes more refined, your labelling more compliant, and your logistics team more sophisticated. These operational improvements don’t just serve Amazon—they prepare you to meet the rigorous demands of larger retail distribution networks, where compliance, efficiency, and reliability are non-negotiable.
Moreover, Amazon teaches you how to operate in a highly competitive, data-driven environment. You learn to optimize pricing in real time, respond to customer feedback quickly, and master your unit economics with ruthless precision. These are not just e-commerce skills; they are modern retail skills. Skills that translate directly into omnichannel success.
Take, for example, a consumer goods brand that succeeds in scaling its hero product on Amazon’s U.S. marketplace. With thousands of verified reviews, a well-designed Storefront, and a history of strong performance in paid and organic traffic, that brand is now in a position to approach retail buyers at major chains such as Target, Whole Foods, or Boots. The conversation shifts. You’re no longer a “new product.” You’re a proven performer with data to back your case.
This transformation—from seller to brand—is subtle but powerful. Amazon equips you not just with revenue, but with leverage. And that leverage, when used strategically, allows you to expand into wholesale partnerships, DTC channels, retail chains, and even international distribution agreements.
There’s also the matter of brand equity. The more customers buy from you on Amazon, the more your brand becomes recognised outside of it. Social media mentions increase. Customers search for you by name. Influencers reference your product in content. In time, the Amazon ecosystem begins to feed awareness into your owned channels—your website, your Instagram, your email list. The flow of customer attention, once fully reliant on Amazon’s algorithm, begins to spread outward. And that’s when your business truly begins to mature.
For international brands looking to expand into new markets, this dynamic is even more important. Success on Amazon—especially in the United States or the UK—can serve as the foundation for cross-border expansion. Retailers in Europe, Latin America, or Asia look closely at what’s trending on Amazon.com. If your brand is gaining traction there, they’ll assume it has global appeal. In many ways, Amazon has become the global showroom of retail—what performs well there often performs well elsewhere.
So while mastering Amazon is essential, it should be seen as the first chapter, not the whole book. The true power of building scale on the marketplace is that it prepares your brand to step confidently into new arenas—with the data, infrastructure, and reputation to back it up.
Final Takeaway: Think Like Amazon
Jeff Bezos built Amazon with a relentless focus on long-term growth, not short-term profit. The Flywheel and economies of scale are the foundation of that philosophy.
To win in this environment, you must shift your mindset. Amazon is not a cash machine; it’s a marketplace built to reward momentum. Every part of the system responds to movement: sales velocity, rank acceleration, rapid feedback loops, and consistent performance. Those who try to extract value too early, who cling to margins before earning them, often find themselves stuck in place, watching more aggressive operators pass them by.
You don’t need a massive product catalog to scale. What you need is traction. And traction starts with smart pricing, strategic advertising, and a relentless focus on compounding small wins into larger ones. Scale is achieved through disciplined execution over time, where each decision amplifies the next.
Think of Amazon as your launchpad. Prove your product. Build demand. Use the marketplace’s infrastructure to refine your logistics, master your operations, and acquire the data you need to make informed moves. Then, when the time is right, extend beyond it— through retail partnerships—with the credibility and systems to support that growth.
This is how brands are built. One sale at a time. One strategic move at a time. And always with the long game in mind.
So don’t just think like Amazon. Move like Amazon. Build like Amazon. Scale like Amazon.
Keep the Flywheel spinning.
