Whether you’re just starting out as an Amazon Seller or you’ve been managing an online business on the platform for a while now, you may be wondering if it is a profitable endeavor over the long term. Naturally, profitability is highly dependent on a wide range of factors, from product selections to market conditions. This can make it that much harder for Amazon Sellers to understand if they’re getting the most out of their business or if they could be doing more to increase profits.
But is it possible to sell on Amazon and make a profit? What is the easiest way to calculate profits on Amazon? How can you calculate your profit margin based on sales data? Finally, what is the best software for Amazon profit analysis?
In today’s guide, we will answer all of these questions and help you learn how to become a profitable Amazon seller. So let’s get started!
The short answer is that it can be — if you're working with the right data. Every day, thousands of Amazon Sellers run profitable businesses, and the common denominator is not the type of products they sell. From electronics to beauty supplies, you can run a profitable Amazon store without focusing on the “top-selling” products alone.
Amazon profitability doesn’t depend solely on external factors either. Many Amazon Sellers flourish in spite of lack luster market conditions, increased competition, and even higher tax rates. The key lies in understanding the data related to cost structure, and then using the right tools to get the most out of every sale. Here are some of the most important things you’ll need to consider:
Landed cost refers to the total price of a product once it has arrived at its destination. The expenses used to calculate landed cost generally include the cost of manufacturing or acquiring the product, as well as shipping, handling, taxes, import duties, and any overhead involved. Finding the exact landed cost of each product is crucial for calculating profit margins. Landed costs help you determine the right price point for different products to ensure that you are always making a profit or, at the very least, breaking even. Underestimating landed costs, even by a small margin, could lead to extensive losses for your business.
If you sell on Amazon, you know that each sale comes with various fees, such as Amazon referral fees, fulfillment fees (if you use FBA), and storage fees. The amount of fees you’ll have to pay will vary based on the category of the product, as well as its size and weight. If you’re not sure how much you have to pay in fees, you won’t know how to set your prices. Fortunately, if you organize your Amazon fee data with third-party software like ConnectBooks, you will always know how much you’re paying back to Amazon to use the platform.
One important factor that many Amazon Sellers is inflation. Though it may not make a big difference from one day to the next, it can have a huge impact on the profitability of your business over time. This is because the cost of goods, shipping, and other expenses will naturally increase as a result of inflation. Profitable Amazon Sellers adjust their internal calculations and pricing to maintain the same profit margins and keep up with inflation. However, you also have to keep in mind that this passes the burden of inflation to your customers, which could lead to fewer sales. Consequently, it’s essential to find a healthy balance between competitive and sustainable pricing.
Selling items on Amazon for profit, or any platform for that matter, essentially boils down to buying a product at the right price and selling it at the right price. This is the fundamental principle of the "buy low, sell high" strategy. However, determining the "right" price can be challenging due to the many costs involved in the process, which, if not accurately calculated, can erode profitability.
As previously mentioned, virtually any type of product can be profitable on Amazon. To reduce risk and increase profitability, you need to ensure that you’re considering all of the following factors:
● Understanding Costs - When determining your costs, it's not just about what you pay to purchase the product from the supplier. Other costs come into play, such as shipping fees, packaging costs, and Amazon Seller fees, to say nothing of overhead costs like utilities, software, and advertising. And remember that your overhead costs should be spread over the total number of units you sell to calculate the true cost per unit.
● Pricing Structure - Once you understand all your costs, you can determine your selling price. You'll want to price your product high enough to cover all your costs and desired profit margin, but not so high that customers are tempted to look for cheaper products elsewhere.
● Miscalculations - If you don't have a good understanding of all of your aforementioned expenses, you might end up buying products that seem profitable at first glance, but aren't when you factor in the underlying costs. For example, a product might have a good margin based on the supplier's price, but once you factor in high shipping costs or Amazon's fees, the profitability might diminish or even turn into a loss.
● ● Ongoing Adjustments - Costs can increase or decrease over time due to factors like changes in supplier prices, inflation, and other market forces. Therefore, it's crucial to constantly monitor and adjust your prices to maintain profitability.
Selling on Amazon can be a very profitable venture if you manage your costs effectively and price your products accurately. Using an integration tool like ConnectBooks can make this process even easier and more efficient. So, here's a step-by-step guide to help you become profitable as an Amazon Seller:
Do you want to learn more about managing all of your eCommerce channels in one place? If so, reach out to the experts at ConnectBooks today!