Many sellers have worked hard, but when they finally calculated, they found that they did not make any money at all. Why do businesses that seem to be profitable end up not making money? The answer may be found in the following analysis.
1. Separate warehouses and combined warehouses
Suppose there is a batch of goods to be shipped now. Every time an FBA shipping plan is generated, it is always automatically assigned to three different warehouses by the system. What should I do?
If you choose the default separate warehouse mode of the Amazon system, the weight of each ticket is not heavy, and the unit price of freight will be very expensive: if shipping is by sea, the original container is split into three tickets, and the delivery address is also very different. At this time, the first-leg logistics cost will be much more expensive. What if you choose to combine warehouses? Set up a combined warehouse in the background, and then create a shipping plan. It does become one ticket, but the Amazon system will charge a combined warehouse fee based on the actual quantity, weight, size, etc. of the shipment.
For sellers, when encountering this situation, the correct approach should be to calculate the first-leg logistics costs after the separate warehouses and the fees that need to be paid to Amazon for the combined warehouses. After comparison, choose the lower-cost method to ship.
2. Advertising costs and loss amount
Some sellers rely on advertising for operation. As a result, although there are orders, the advertising costs remain high for a long time.
After calculation, not only is there no profit, but there is even a loss. What should I do if I encounter this situation in operation?
It’s very simple. As a seller, we must remember that operation is a systematic project and we must aim at profitability.
Therefore, if there is profit on orders but the profit cannot offset the advertising cost, such an operation method is not worth promoting. On the two variables of advertising cost and loss amount (profit amount), we require a balance, that is, the advertising cost is appropriate and controllable, and the loss is the least (higher profit). In order to achieve this balance, we must take into account the sensitivity of price to sales incentives.
For example, assuming that the current daily advertising expenditure is $100, and advertising can bring 20 orders, that is, $5 of advertising cost can bring one order. If you are not satisfied with this situation, you should think from another angle: if you reduce the unit price of the product by $5, will it generate more than 20 orders because the price is more competitive? With this thinking, do the test. If the test results verify that it can indeed achieve or even exceed this effect, then you should give priority to price reduction rather than sticking to advertising.
3. Single product profit/profit margin and total profit
There are always sellers who are happy to talk about how high the profit margin (profit amount) of a certain product they have. While they are pursuing the profit margin of a single product, the number of orders is not large.
In the face of life, being content with what you have is a good attitude towards life, but in terms of operation, being only satisfied with the status quo, especially being complacent before you have reached the top of the category ranking and are not at the top of the pyramid, and not making further improvements, is definitely not a good operating attitude.
Why do I say that?
For Amazon sellers, there are two aspects to consider: (1) Compared with the profit margin of a single product, the total profit is more important. Even if the profit margin of a single product is lower, if more products can be sold, the total profit can be higher, so it is worth doing; (2) A larger market share is very important for sellers. Amazon sellers are dividing the “cake” in the existing market. If they are satisfied with a small market share, it means giving a larger market share to competitors. The stronger the competitors are, the stronger they will be. They will gradually occupy more market share. When they come to their senses, they may have been marginalized. If they do not work hard to promote operational development, the final result may be that they have no place.
Therefore, in terms of operation, the correct approach should be to look at the profit margin of a single product, as well as the total profit and market share. While paying attention to them, the total profit and market share should take precedence over the profit margin of a single product.
4. Selling at a loss and abandoning inventory
During store operations, there are always one or two products that are not selling well. When a product has poor sales and there is a lot of FBA inventory, it often: (1) occupies funds; (2) causes sellers to be anxious; (3) requires paying FBA long-term storage fees; (4) the FBA inventory performance score under the account decreases. If the score is too low, it may not be possible to create a new replenishment plan. Faced with slow-moving products, many sellers often resort to selling at a loss. Slow-moving products are already sunk costs, so it is understandable to sell them at a low price or at a loss. After all, if you don’t do this, you may erode the next opportunity cost. But before selling off inventory, we must make a clear calculation, that is, whether the amount recovered from the sale is positive. If the amount recovered from the sale is not enough to cover the fees to be paid to Amazon (FBA fees, commissions, etc.), it is better to create an FBA removal order and abandon the matter. This saves time, trouble, and cost. As for the abandonment rate, you need to check it in the background of the seller center.
5. Sales and collection amount
Some team leaders only focus on the team’s sales, and they are happy as long as the sales are high. As a result, they find that the actual collection received is not much, and it is not even enough for the next turnover cost. The reason is that although the sales are high, the advertising investment is large, the FBA inventory costs are high, and the refund rate is high, which offsets part of the sales; some companies use sales as the calculation base when calculating the performance commission for operators, and finally find that the account has lost money, but the operator still takes a high commission.
To operate an Amazon store, we must clearly distinguish between sales and collection amount. There are many undeducted expenses in the sales we see, such as advertising fees, FBA inventory fees, refunds, platform sales commissions, etc., which will consume part of the sales. If it is a low-priced product, these expenses will account for a higher proportion. In order to be able to calculate clearly, the author recommends paying attention to the collection amount, that is, the amount of money Amazon puts in the seller’s collection account.
Use the amount of payment as a reference, deduct the purchase cost, logistics cost, etc., and the remaining positive or negative can indicate whether it is profitable or loss.
Operation is a systematic project. If we cannot calculate from a global perspective, we will “see the trees but not the forest”. We will only appreciate the beauty of a certain tree, but may ignore that the forest is on fire. Sellers should carefully calculate and compare various variables and present both good and bad plans, so that they can save some costs or make more profits. Making money is not easy for anyone. I hope sellers can be more rational and do more calculations.