Getting started selling on Amazon is easy, but turning a profit is another story. With slim margins that leave little room for error and millions of sellers to compete against, the Amazon marketplace is cutthroat.
Online sellers should regularly track their costs down to the product level in order to maximize profits. By doing so, you can quickly learn what you’re spending, where, and if/how it’s benefiting you. The data tell you where you are so you can decide where to go from there.
For quick tips and actionable advice, download our white paper so you can have the information on hand whenever you need it.
Why Tracking True Costs Is Important
Simply put, you need to know what it costs to run your business, especially on Amazon. Sellers operate on razor-thin margins, and Amazon takes roughly one-third of each item’s price in a series of fees. This means they’re making money on every sale, even if you aren’t.
There is also an abundance of competition. Currently there are more than 2 million Amazon merchants in 100+ countries, so chances are high that someone out there can offer lower prices—and, in turn, attract more customers—than you do.
And Amazon doesn’t make it easy to keep track of your financial data. All your information is scattered across Seller Central, and you only get paid every 14 days. You need an automated accounting solution if you want to see your data in real time.
How To Track Costs
The way you track your true costs is a matter of how you want to sort the information. However, we recommend looking at the granularity of all your data to maximize profit potential.
You probably already know which products in your catalog have the highest profit margins, but do you know how they compare to the rest of your catalog? Tracking your costs by SKU lets you see all the expenses associated with each product, including Amazon fees, overhead, return rates, and more. This will give you an honest look at your portfolio and hard numbers to help you make better business decisions.
By Order, Customer, Channel & More
For a holistic look at your ecommerce business, you need to look at more than the profitability of each SKU. It’s smart to look at each order, customer, and channel so you’ll know where to focus your efforts. Learn how in our white paper, 7 Tips To Boost Amazon Profits With Cost Tracking.
Adjusting Your Product Catalog
Once you get detailed insight into your business portfolio, there are two major moves you need to make if you want to boost your Amazon profits.
Removing Products From Your Portfolio
Maybe you have products that are heavy, bulky, or only seasonally popular. Maybe you simply can’t afford to lower prices despite competing against another seller whose identical listing is cheaper. Whatever the reason is, you probably sell products that don’t have high (or any) profit margins. These are the products you need to remove when optimizing your catalog, and you’ll know exactly which ones they are once you look at the granularity of profits by SKU.
Doubling Down On High Profit Products
After you “trim the fat,” you can reallocate resources toward high profit products. These could be your best sellers, your seasonal products during their time to shine, or the products that are inexpensive to store and ship. It’s important to look at your catalog throughout the year because profits fluctuate, so your spending per product should fluctuate as well. This boosts not only your total profits but also your ROI.
More Tips For Boosting Profits
Accounting automation software facilitates the most seamless cost tracking that will help you boost your Amazon profits. In turn, cost tracking gives you the tools (rather, the data) you need to better see your financial status. Here are two ways to utilize software to track your true costs.
Account For All Your Costs
When you’re selling on Amazon, you’re paying an ever-changing rotation of fees and other operating expenses that only increase as your business scales. Many of these costs are hidden, so you don’t know exactly what you’re paying. But with automation, you don’t miss a single detail. You eliminate human error, and you see every single transaction—without combing through a month’s worth of receipts and credit card statements.
Automate & Standardize Cost Reporting
Your financial data are scattered across your Amazon reporting, and the platform itself calculates profits differently than others do. Your true costs don’t get factored in, so you don’t even see your true profits unless you pull all your data into QuickBooks. Let automation handle the data entry so you can focus on your next moves.
Cost tracking is the simple hack that can fast track your Amazon business to high profitability. Start with these strategies, and if you need more tips to boost your Amazon profits with cost tracking, don’t miss our white paper.