With Amazon fees climbing, new charges appearing and tariffs squeezing P&Ls, margins for many brands are now so thin that paying for agency support can feel like a stretch. On an episode of MerchantSpring Marketplace Masters, Andrew Morgans, CEO of the agency Marknology and a MerchantSpring customer, argued that this reframes the agency's role entirely: profitability has moved to the front of every client conversation, and the agencies that thrive will act as financial partners, not just executors. Here is how he approaches it.
The Fees Hiding in the P&L
Morgans' frames rising costs as death by a thousand cuts. Everyone fixates on the obvious lines, PPC and CPCs, category fees, the Q4 fulfilment hike, but the quieter erosion happens across inbound and storage. In the last eighteen months alone, Amazon has begun penalising sellers who hold less than about a month's supply of inventory, pushed FBA and inbound fees to record highs, and made the whole inbound game markedly more complex, so that getting stock into Amazon efficiently now demands real supply-chain thought rather than a quick weekly task.
The problem, he says, is that you can't spot a new fee until you have a baseline. Do you know what percentage of revenue your COGS, advertising, returns and inbound fees each represent in a healthy month, tracked as a trend line? Without that, a new charge slips onto the bottom line unnoticed. With it, the moment a line moves, you see it. The discipline is unglamorous but decisive: go through the P&L deliberately, set the baseline, and be ready to notice (MerchantSpring keeps a rundown of the Amazon fees that erode profitability).
Why Brands Can't See Their Own Profitability
Morgans' estimates that the vast majority of the brands his team works with don't have a firm handle on their fees, and the reason is structural. When a marketing or channel manager at a larger company is handed Amazon, their job is to show sales, and profitability gets quietly outsourced to a finance or bookkeeping team that isn't Amazon-fluent and doesn't know the tools or the fee mechanics. A one-person operation who sourced, priced and shipped the product knows their numbers cold; scale to a bigger team and that knowledge evaporates, because now it's officially somebody else's job.
That's the gap an agency has to close. When a brand manager says simply 'we're not profitable on Amazon,' the agency digs in and often finds the channel owner has little visibility into why. So you're asking them to raise prices, build combo kits for margin, enrol in ships-in-same-packaging, or rethink the 3PL, and they push back that they're a marketing manager who thinks about images and media, not channel economics. Morgans' point is that profitability should be part of that person's remit, because if the channel isn't getting more profitable, someone higher up will eventually question whether it's worth being on Amazon at all, and the agency will be the first thing cut. Making the case well means more budget for PPC, creators and everything else.
Quick Wins That Pay for the Agency
Because early trust is everything, Morgans looks for fast, visible wins. The first is advertising discipline at the SKU level: when you can see profitability product by product, the SKUs with high return rates, thin margins or weak conversion stand out, so you pull ad spend off them and redirect it to the products that convert and earn, a move that can shift the numbers within thirty days.
The second is a genuine supply-chain review, because a plan that was efficient two years ago may be quietly bleeding money now; rates, packaging and bundling, and over- or under-stocking are all worth re-examining. The third is testing the main image on a few hero products, since the main image is what wins the click in the first place, and a lift in click-through flows straight through to advertising efficiency and profit.
The economics are forgiving for a decent-sized brand: Morgans notes an agency often only needs to improve results by one to three percent to more than cover its own fee. Small, well-targeted changes compound into an obvious return.
Diagnose the Root Cause, Don't Just Cut the Ads
Morgans' most useful contribution is a KPI diagnostic matrix that maps a symptom to its likely root cause and fix, and to which part of the business owns it. A low click-through rate might trace to a stale main image or an uncompetitive price; a low conversion rate to listing content that doesn't close or the wrong ad-targeted audience; a high TACOS to no organic rank support and low conversion inflating acquisition cost; a dropping best-seller rank to a stockout, a suppressed listing or a competitor going aggressive on price. Marknology sorts every issue across four pillars- content, strategy, advertising and operations- and the recurring insight is that a problem people label 'advertising' is usually a mixture of pillars.
His case study makes it concrete. A pet-supplement brand doing around forty thousand dollars a month saw margins decline over three months, and the owner's instinct was the straight-line answer: ads are too expensive, cut the spend. But the data showed the ads were fine; they were compensating for failures in the other three pillars.
Content: click-through had dropped 15% because a competitor refreshed their main image and started winning the click. Operations: the best variation had been out of stock for eight days, losing organic rank. Strategy: pricing hadn't changed in twelve months while a new competitor undercut them by 15% with better content. Cutting ad spend would have fixed none of it. The owner was right to worry and wrong about the cause, and that diagnosis, Morgans argues, is exactly where a good agency earns its keep, the way a mechanic's real value is telling you what's actually broken.
Build the P&L Before You Do Anything Else
None of this works without an accurate P&L, which is why Marknology requires one as a condition of onboarding: without it, you can't have a real conversation about the business. Morgans is candid that brands are often reluctant to do the setup work, so the practical path is a profitability tool where you export the SKUs and ASINs, fill in landed costs once, and let it calculate the rest, then review COGS, returns and subscribe-and-save as percentages on screen with the client. He's blunt that relying on a brand to self-report its profitability usually produces the wrong number; you have to measure it, the way a doctor still runs tests no matter what the patient reports at intake.
His advice to smaller agencies is not to agonise over spreadsheets: a capable profitability tool is inexpensive relative to what it unlocks, and it gives you the baseline every improvement is measured against. A range of third-party profitability tools exist with different nuances (whether they include FBM, whether they work off actuals or projections), so the task is choosing one that fits your model and standardising on it. For agencies specifically, MerchantSpring's marketplace analytics built for agencies is designed to make that P&L the shared starting point for every client conversation.
Justifying Agency Fees Under Margin Pressure
The hardest version of this problem is the client who values the agency but says there simply isn't margin left to pay for one. Morgans' answer, which he concedes is a bit of a hot take, is to restructure the offer rather than race to the bottom. Some clients need the agency for setup and launch no matter what; after that, if the business isn't yet big enough to support a full month-to-month engagement, step down to a strategic or PPC-and-strategy retainer instead of walking away. Marknology prices around its four pillars, so it can hand back the labour-heavy work (creative, running ads, endless variations) and keep the high-margin strategy and oversight.
The move is to lean up who touches the account, offer a smaller, senior-led package, perhaps a quarter of the usual retainer, and stay on as a fractional strategist, picking the heavier work back up when the brand launches new products or grows into it. His underlying counsel to agency owners is to know your own margins pillar by pillar, so you know exactly which services you can offer affordably without draining your business, and to accept that if a service would lose you money, it isn't a fit. Marknology itself moved from full-service-or-nothing to a menu of offerings precisely to survive this squeeze, and the relationships it preserved that way are the ones that grow back.
Make Profitability Your Starting Point, Not an Afterthought
Morgans' whole approach begins with an accurate, SKU-level P&L, the baseline every diagnosis and quick win is measured against, which is exactly what he uses MerchantSpring for. MerchantSpring gives agencies and brands true profitability per ASIN and account, with Amazon fees, storage, returns and advertising all captured, so you can walk into a client conversation as a profit partner rather than a line item. See how agencies use MerchantSpring, or book a walkthrough of your own accounts.
