An important question first: Do you know your numbers? This is not just an empty phrase, but a crucial prerequisite for maximising profits on Amazon. The easiest way to increase your profit is to reduce your cost per sale. In this blog post, I will show you all the relevant costs that are involved in a typical sale on Amazon. I will also show you how to reduce all these costs and almost double your profit. As you might know, my cousin Felix and I were able to build a successful Amazon business selling basic fashion products like socks or boxer shorts by doing just that. A constant optimisation of your cost structure can determine the success of your Amazon business. Now I would like to share my experiences with you and help you to become a successful Amazon seller yourself. So listen carefully, take notes and stay tuned 😉
Reduce Amazon FBA fees
For shipping your products to the end customer, Amazon charges you the corresponding additional fee, the so-called FBA fee. The amount of the FBA fee depends on the size and weight of your product. A table with the respective FBA fees per category can be found here. Logically, your goal should be to keep your FBA fee as low as possible in relation to your sales price. How do you achieve this? One possible step would be to optimise the size of your product to get into a cheaper category. If you can't do that, you should use the remaining space up to the next higher category. For example, you can add an extra unit (in our case a few extra socks) to your product. This way you can justify a higher selling price and increase your sales. Here is a small sample calculation to illustrate this important point:
WITHOUT OPTIMISATION:
VK 21,50€ net; FBA fee 2,34€; FBA fee share of VK 10,8%
AFTER OPTIMISATION -> PACKAGING REDUCED IN SIZE
VK 21,50€ net; FBA fee 1,82€; share of FBA fee 8,4%
As you can see from the example, this simple measure saves you over 2.4% of your total turnover!
Amazon Sales Commission
Amazon charges you this commission on every sale. As a rule, this commission amounts to 15% of your gross sales price. Unfortunately, there is nothing you can do to optimise these costs, you simply have to accept them. Nevertheless, it is important to include this important factor in your calculation.
Spending on advertising on Amazon
Advertising expenses include all expenses for advertising measures on Amazon (PPC, PTA, HSA, PDA). In addition, this includes all external advertising measures (e.g. Facebook Ads). When planning advertising measures on Amazon and other channels, a simple principle has been extremely helpful to me. Maybe you already know the 80/20 principle from other areas or from a university lecture. Evaluate your marketing activities thoroughly and you will notice that you generate about 80% of all sales with only 20% of your campaigns. Accordingly, you should regularly get rid of the worst-performing campaigns. By applying the 80/20 principle, we were able to save a full 3% in advertising costs in February compared to January.
By applying this simple principle, you save another 3% on your turnover!
Refunds
In your margin calculation, you should never forget the costs for refunds. I recommend using the sellerboard tool for this. Sellerboard shows you exactly what costs you have incurred through refunds. I also recommend that you invest enough time in your product development by constantly improving your product and evaluating the feedback from your customers. By taking these measures, you can reduce your refunds and save another two percent of your turnover on refund costs.
You save another two percent of your turnover through product development and the evaluation of customer feedback.
Subscription price
The purchase price of your product is made up of production costs, transport costs and customs duties. You have the greatest leverage here with the transport costs. You can reduce these drastically by transporting your goods to Germany by ship. I know that this has the disadvantage that your capital is tied up longer, but you can make up for that by negotiating better payment terms with your suppliers. If you want to perfect the whole thing, you adjust your order quantities so that they fit exactly into a container. This will minimise transport costs and save you a lot of money.
You save a further 3 percent by optimising the purchase price.
THROUGH ALL THESE MEASURES YOU CAN SAVE OVER 10% OF YOUR TURNOVER! WITH A MONTHLY TURNOVER OF €50,000, THAT'S A WHOLE €5,000 MORE PROFIT! BUT IT ALSO SHOWS THAT THERE IS NOT ONLY ONE SCREW YOU HAVE TO WORK ON. THEREFORE: IT IS WORTHWHILE TO CONSIDER MANY ASPECTS! THE BEAUTY OF THE WHOLE THING IS THAT YOU ONLY HAVE TO MAKE THE EFFORT ONCE, BUT YOU WILL PROFIT FROM IT IN THE LONG RUN.
If you have any questions, just email me at johannes@snocks.com.
Greetings from Mannheim
Johannes
