Selling on Amazon is very lucrative as well as growing on the market. All sellers are interested in knowing the truth about their profits as a lot of business decisions are made based on a seller’s profitability. Unfortunately, there are a lot of hidden costs that a lot of sellers, especially new, don’t take into account which ruins their profit.
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In this article, Vladi Gordon, from sellerboard, will share a couple of tips on how to calculate your amazon fba profit margin correctly, how to increase your profit and how to stop wasting money.
Let’s start with the tips below
Track your profitability
The first thing you should do to gain full control of your Amazon FBA profit is track it. You may be selling like crazy but if you have no idea about whether you are actually making profit and what your current situation is, you may be in for a nasty surprise. Hence, tracking.
The most important instrument for profit tracking is the Profit & Loss report. It answers the question “Are you making profit per unit sold, regardless of the cash flow?”. The cashflow might be negative if you invest into new products and you still might be making profit, and vice versa: the cash flow might be positive, but you might be losing money (e.g. if you are selling off your stock).
How to generate your profit and loss report in real time? There are several methods:
- Multiple the number of units sold by an average profit per unit. This is fast, but very imprecise due to many factors that you neglect.
- Ask your accountant: it’s good in general, but delayed and not detailed enough and lack relevant analytics (e.g. you don’t see your profit per product or per variant, can’t analyze ad spend per product, etc.)
- Amazon Seller Central Reports + spreadsheet processor: very time consuming and imprecise.
- A special tool, such as sellerboard: accurate profit and loss in real time, with no effort
Think about all costs
Take care of the pennies, and the pounds will take care of themselves
Ever heard this one? This saying is very true in the context of Amazon FBA profitability calculation, as there are lots of small fees that, when added together, may affect your profit greatly.
FBA fees
The FBA fee is the base fee Amazon charges you for sending goods from the FBA warehouses to the customers. What a lot of sellers don’t realize is that the FBA fee displayed in the Seller Central, under the “Manage Inventory” menu is an estimation. In reality you might be paying a different amount per item shipped. Also, the FBA fee might change without notice, for example when Amazon staff use larger packages for your products. The key is not to miss this change and ask the seller support to re-measure your product if you think the FBA fee charged is not legit.
For the profit & loss calculations, sellerboard takes amazon’s fees into account, which were actually charged, not the estimated fees. So you can see your true profit. Also, there’s a special report in sellerboard showing the FBA fee changes if there were any. You get notified if you need to check a fee change, so that you can file a seller support ticket and start paying less if amazon overcharges you for shipping.
Storage fees
Amazon storage fees are not easy to pre-calculate or even estimate, as they are based on the average volume of the products that you store. This volume, of course, fluctuates over time making your storage fees go up or down.
At the same time, having an idea of the actual storage fees you are paying is a good idea, as they can reach as much as 20% of your net profit. For this purpose, sellerboard provides a storage fee report breaking down the fees by the product.
You may also like: How to sell 50 units/day on Amazon and loose money due to storage fees which gets deep down in the rabbit hole of storage fees.
Other hidden Amazon fees
Amazon has more than 70 other small fees that it charges for various reasons.
They are next to impossible to predict, because you never know when there will be the Disposal Fee of the Inbound Defect Fee. They are charged on a case-by-case basis, but you should monitor them and account for them in your FBA profit calculation.
Otherwise, these fees, however small, may affect the accuracy of your Amazon profitability analysis. sellerboard takes ALL amazon fees into account and breaks them down by product (if applicable). You can see your exact profit numbers and analyze them by product, variant, brand, time period, etc.
Don’t underestimate Amazon returns
Unfortunately, in a selling business, returns are inevitable. With Amazon FBA, a return does not mean cancellation of a sale when you are back to square one. On the contrary, a return is a complex calculation that in the majority of cases means a loss. More on Amazon Returns here.
When a customer returns an item to Amazon, they immediately get the full amount back. At this point, you need to book this amount as a loss with the current date (which cancels the profit previously made). You actually become worse off, because Amazon charges you an additional refund fee and does not reimburse the FBA fee it charged during the order processing. Your loss may become even bigger if the item turns out not to be resellable if the product or the packaging is damaged by the customer.
All these factors need to be taken into account in your profit calculation. sellerboard automatically takes returns into account for you, including the evaluation of the returned item’s state (sellable / damaged).
Check return reasons
Analyzing why customers return their purchases can actually save costs by preventing future returns and bad reviews. With sellerboard, you can open a report with all the return reasons that customers specify and their comments directly from the profit dashboard. Use it to detect product and listing problems and take appropriate actions.
Minimize your return costs
The return reasons may suggest your strategy for future sales. If, for example, customers return because the color does not match their expectations, try to adjust your pictures to be as realistic as possible. If they return the item because its description was not accurate, modify the description to be clear and detailed.
Watch out for FBA errors
Sometimes errors happen in Amazon’s warehouses, which might cost you money. If you notice an error in time, you can ask the seller support to double check and correct the error if it hasn’t been corrected automatically. This way, you can either prevent losses or get your money back.
More on Amazon reimbursements here.
Most common FBA errors
What should you watch out for while selling with Amazon FBA?
Lost or damaged inventory
If Amazon loses or damages your goods, they normally reimburse automatically. However, sometimes this doesn’t happen. If you don’t receive your refund in time, you can file a seller support ticket. A special sellerboard report helps you identify such cases and prepare the support tickets.
Returns that were not received from the customer
As you know, Amazon refunds the payment to the customer immediately without waiting for them to ship the item back in. If the returned item never arrives, Amazon should charge the customer again but sometimes that does not happen. Monitor the returns in sellerboard and raise a ticket if the item does not arrive and you haven’t been reimbursed.
Check-in errors for inbound shipments
They happen when Amazon logs fewer items than you shipped to them. If it happens, raise a support ticket. sellerboard will notify you if you need to check.
FBA fee errors
These are caused by wrong item measurements resulting in higher FBS fees. You can request a re-measurement to get a reimbursement and get charged correctly. sellerboard finds such cases automatically and notifies you.
Conclusion
In the Amazon FBA business, it is important to always know your numbers and keep your eyes open for all things, big and small. There is more than one way to cut costs and get a higher profit by simply being careful and not ignoring minor details.
With sellerboard, you can do a comprehensive Amazon FBA profitability analysis and detect any avoidable losses early. sellerboard helps you focus on your growth and save time and money.
sellerboard also includes additional tools for amazon sellers: follow-up mail campaigns, inventory management, PPC optimization and bid automation, listing change alerts. All this starting at $15 per month with a free trial.
Check out the sellerboard demo and start a 2 months free trial to see how it can take your Amazon FBA business to a new level.
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About the author
Vladi Gordon
Amazon Analytics expert and CEO at Sellerboard, one of the leading Amazon Analytics softwares
