How to make profit selling on Amazon
Overview – How much can you make selling on amazon?
Now, let’s talk about profitability on Amazon – that is, working out the correct fees and costs on Seller Central, to be specific.
The tips I’m about to share with you are the same, whether you’re selling from the UK, US or EU or whether your targeting an audience in any of these regions.
I’ve seen how 85% of the businesses that approach us for consultation on Amazon selling and profitability do not fully understand their profit margins, specifically, what they should be. And, it’s a rather shocking statistic to me because some of these clients have worked with other agencies prior to approaching us.
So, anyhow, I want to explain what we should do to determine profitability for something you want to sell on Amazon, while also focusing on the right products at the right time to generate that profitability.
This will allow you to competently know whether your advertising and marketing efforts on Amazon are bearing any fruit – and whether the cost of these can fit into your margins.
4 key things to remember that may impact profitability on Amazon
1. TACoS vs. clearing
No point in having a 9% TACoS (total advertising cost of sale) figure if you’re only clearing a 9% margin. You might as well take money to the side of the box. So that’s one thing you want to make a note of.
2. Revenue calculators
The other thing I want to shed light on are revenue calculators.
The FBA calculator on Seller Central and others you might find on the web offer only a “fair” estimate – do not rely on these as Gospel. They usually do not keep up to date with the latest changes on Amazon. For example, the change to FBA fees now being based on dimensional weights and overall dimensions, is not something these ‘magic’ calculators take into account. Exercise caution!
Furthermore, just because you’ve put the dimensions and weights into your product listing, that certainly doesn’t mean that it’s exactly what you’ll be charged. I’d, again, urge you to stay away from these ‘pre-made’ revenue calculators – all of them!
What’s the solution then? Build your own calculator and then remember to cross-reference the fees. It’s really simple too. Just get into Seller Central, look into your ‘transaction view’, go into the ‘payments’ tab and see exactly what you’re getting charged for in terms of FBA and referral fees. You can click inside every order ID to find these numbers. No more guesswork!
3. Work out from your landed cost price
You want to work out your revenue figures from your landed cost price. This is very important because you need to know how much it will cost to get a single unit from your fulfillment centre directly to your customer.
You know, it absolutely blows my mind how many businesses on Amazon aren’t doing this already or tend to overinflate their costs by basing it on average order value or multiple items.
So, always remember to factor in your shipping courier fees and palette costs, as well as quantity.
Let me explain our basic profit margin calculation according to field:
We break it down into three sections. We, first of all, put down the correct referral fee (which we double check) and whether or not the products are tax-exempt. In the UK, this is called VAT or value added tax.
We show the current retail price to our consumer, we then cover the individual unit cost price (the landing cost price, that is), the single postage cost, and the correct referral fee.
This, essentially, gives us the margins if we’re going to sell individual units. The first section is FBM or SFP. We can then analyse the margin with the correct FBA fee which we cross-reference in the Transaction View. We can always break it via carton or palette cost.
Looking at this example, you can see a very tight margin is created using FBM but a devastating loss if we sold the product into FBA in other single unit or multicarton form. It’s crucial to do this line by line, ASIN by ASIN. We can look at all the individual margins this way. ß Everything sound good to you here, Chris?
This is pivotal to all our clients when they start working with us: do not fall into the trap of calculating FBA from a single unit!
In other words, your FBA has more costs associated because it costs you more to do what you’re doing on Amazon but, in most cases, you will send multiple units into a fulfillment centre, rather than sending a single unit to a consumer, right?
This is where FBA becomes more cost-effective.
4. Avoid Buy Box repricing software
Buy Box repricing software – stay away from it! Why?
Set your pricing from day one so that you are profitable. If you have to undercut your pricing so that it becomes impossible to maintain the Buy Box, get your product off Amazon, it’s that simple. Don’t waste your time and money trying to win the Buy Box.
Advertising impacts organic ranking by up to 60% so it would be wise to not use ACoS (advertising cost of sale) or RoAS (return on ad spend) into your margins but rather use the TACoS metric which is the total advertising cost of sales.
If you take on these four simple points, it will really help you and your organisation to remain profitable on Amazon.
If you have any valuable tips of your own you want to add, I’d love to hear them. Let’s have a discussion going! In the meantime, get in touch with me for a free initial consultation on Amazon profitability: UK (+44) 01743 816191 | US (+001) (646) 791-4154.