Amazon sellers face a seemingly endless labyrinth of fees and surprise costs, making it sometimes feel impossible to get a clear picture of a product’s (or brands’s) profitability.
If only it could be as simple as “money in, money out.”
To know your true profit margins as an Amazon seller, you need to know what fees have a “margin impact,” and what that impact is.
Your business expenses are a lot like your brand itself – unique to you. However, there are some commonalities across Amazon brands that can help us to highlight major factors that impact profit margins:
Cost of Goods: Otherwise known as your “landing cost,” this is the cost-per-unit to manufacture, pack, and ship your product to an Amazon fulfillment center.
Ad Spend: The amount you spend on advertising. This should have a margin impact of 6-10%.
FBA Fees: A major part of your “buy in” if you want to play the game, FBA fees cover you for storing, picking, packing, and shipping your products automatically from Amazon. The margin impact for FBA fees is usually between 25%-40%. This is a fee to keep an eye on as Amazon can remeasure and weigh products as they see fit, adjusting your fee at will.
Returns: A spike here could mean you have a product or listing issue. While unavoidable, returns should only have an impact of 2%-5%. Some categories experience higher returns.
Promotions: Promotions, coupons, Lightning Deals, etc. can quickly add up. Keep their margin impact under 5%.
Taxes/VAT: Taxes will vary depending on the country you’re selling in, and also depending on if you’re selling off-Amazon as well.
A common pain point Amazon sellers share is having to track down these fees and metrics across multiple locations in order to have a better understanding of profitability.
Since there isn’t a central location for all of your business expenses inside of Seller Central, the most efficient way to view and track business expenses for an Amazon brand is to use a third party tool that allows for customizable expenses and custom alerts.
Using a tool that can show the above fees on a product, market, and brand level, all in one place, provides brand owners a simplified method of tracking problems with margin impact.
If one of the aforementioned fees is consuming more of your margins than anticipated, a central dashboard can highlight this right away, and steps can be taken immediately to remedy the situation.
Amazon clearly outlines their FBA fees, however the onus is on the seller to continuously check them to ensure accuracy.
With hundreds of thousands of units being moved through FBA daily, honest mistakes in FBA fees are inevitable, which is why it is important that sellers remain vigilant in checking fees to ensure accuracy.
Further, most sellers are owed money, sometimes in substantial amounts, that Amazon doesn’t automatically remit. Again, the amount of units being managed by fulfillment centers, sales processed, FBA related measurements and weights changed, etc. all contribute to a scenario in which mistakes will, from time to time, happen.
There is no avoiding it – but what you do about it can have major implications on revenue generation and overall profitability.
If you feel overwhelmed by the amount of fees and hidden hits to your margins, don’t feel bad… just take action! Research Amazon margins tools and make sure they track all of the “margin eaters” mentioned above, and make sure you set up custom alerts so you are notified any time one of those fees crosses an unacceptable threshold.
Once you’re properly tracking your potential “margin eaters,” it is time to recover any funds that Amazon may owe you. Revenue recovery with Amazon can be tedious and time consuming, so it is best to work with a reputable recovery service that specializes in working with Amazon.
The service should not charge anything upfront and will usually take a percentage of funds successfully recovered. This percentage should be lower than 30%.
Entourage: Software to Scale Amazon Ads and Results Driven Management.