- On September 24, 2018
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Here at Seller Labs, we’re not accountants or financial planners . . . but we do work with experts in those fields, experts who happen to be some of the very best in the business. This week, we’re turning the blog over to one of those experts: Tyler Jefcoat of Seller Accountant. Enjoy Tyler’s five-part series on the 5 Keys to Increasing Your FBA Profitability. Check back all week for one key per day to maximize your Amazon FBA success.
As business owners, we love talking about how much revenue our businesses produce but we get quiet when you ask us about profitability. Sales are exciting and crucial, but without profitability, sales are really just a vanity number.
Many business owners slowly wither away by working endless hours. They make money, but they aren’t profitable because their costs are just as high as their incomes. If this is you, don’t despair! Here’s the dirty little secret . . . EVERYONE struggles with profitability! When I say everyone, I mean not just Amazon sellers, not just e-commerce merchants, but EVERYONE in business! Profit is sanity, but it takes intense focus to run a profitable operation.
If you are an Amazon FBA seller and you don’t really know how profitable your are, or you’d rather not talk about it because your company is underperforming, this post is for you. The 5 keys presented in this series are responses to some of the most-common challenges that our customers at Seller Accountant have faced. My hope is that you can find and implement at least one nugget that will improve your bottom line! Let’s dive in.
KEY 1: KNOW YOUR PROFIT (OR LACK THEREOF)
At the risk of sounding too simplistic, the first key to improving your profitability is to know where you stand. Do you have an accounting system that gives you clear insight into where your money is going and how your company is performing? If you don’t have a clear handle on how much the following categories are costing you, it will be nearly impossible to know where you must improve.
- Landed CoGS: Make sure you know what your total Landed Cost of Goods Sold is. Many sellers make the mistake of modeling based upon how much they think they will make on new SKUs . . . without factoring in important costs like customs, freight, and tariffs. Because inventory management is so challenging, it’s critical that you take the time to dig into your purchase orders and 3PL invoices in order to truly understand what your landed costs are for each product. You may be surprised to find that one of your top-selling SKUs is actually losing you money.
- All Amazon Fees: It is really important to fully analyze your Seller Central reports so that you can understand what your Amazon FBA fees are. Don’t assume that you know what your fulfillment costs are; Amazon fees change often and you may be shocked to find out exactly how much of your money is going to avoidable fees like long-term storage.
- Amazon Advertising Costs: You cannot afford to “set it and forget it” with your Sponsored Products campaigns or Headline Search Ads. There are simply too many variables and too much competition. It is critical to keep an eye on each campaign and tweak your bids to ensure that you aren’t throwing money away on losing keywords or underperforming campaigns. The best way to guarantee that you’re bidding the right amounts on the right keywords is to use a tool like Ignite where the application provides suggestions based on actual sales trends and Amazon’s algorithms.
- Overhead: Once you understand and tighten up your Amazon business expenses listed above, take a close look at your operating expenses. Many sellers are spending thousands of dollars on unused tools, underutilized subcontractors, and other unnecessary expenses. If you are struggling to achieve profitability take a close look at your non-critical expenses and cut everything that doesn’t directly increase sales, improve efficiency, deliver key value to your customers, etc. Once you are happy with your profitability you can reinstate that Netflix subscription. 🙂
Look at your profit-and-loss statement closely in order to really understand where your money is going. If you can’t decide if an expense is critical or not, get someone else to weigh in.
This is the first in a five part series this week. My goal for you is to key in to your profitability potential through Amazon FBA. For any questions along the way, feel free to contact our team!
Tyler Jefcoat, Co-Founder and CEO of Seller Accountant, is a longtime accountant and successful business builder who excels in helping stressed out owners regain their lives while driving superior financial results.