Calculating FBA Fees:
The Secret to Determining your Amazon Profit
By Patrick Panuncillon
When watching product research videos, you’ll notice that instructors tackle mostly about the competition (e.g., top-ranking listings with more or less 75 reviews) and demand (e.g., 2500 items sold monthly for the primary keyword).
But one of the essential areas of the product research that is often ignored is the product per unit. Experts say that if a single listing doesn’t generate profits, then it’s as good as useless. It’s worth throwing out.
That is why it’s imperative to ensure that you make dollars out of every sale. You can make use of an FBA profit calculator to help you do just that. In this article, we’ll review the two methods on how you can access the calculator. We’ll also discuss how you can calculate profit per unit accurately.
Here we go.
Retail Price
For you to have an estimate of the amount a customer pays for a product, it’s best to start with the revenue figure. To do that, set adjustments between your split testing strategy and the pricing system down the road. It’s easiest, however, to take your competitor’s average selling price at the outset.
To make that work, you need to assess the price point for various products correctly, but if you have an extension, you can leverage on the Average Price to be more precise.
Expenses
What some sellers refer to as the pied piper or the unwarranted evil are the FBA fees. For your product to be listed on Amazon and gain access to its massive traffic and powerful features, you need to pay the FBA fees. It’s like a rent you’re paying to Mr. Jeff.
Let’s detail each of these costs one by one:
- Amazon Referral Fee. You pay this for listing your product on Amazon, which then refers to traffic who can convert into customers. Amazon calculates the fee from the percentage of the cost of retail. Amazon referral fees vary per category.
- Pick and Pack. This is what you pay for when logistics transport your products from the warehouses and then package them accordingly. The cost for this is part of the labor cost in the warehouses of Amazon.
- Weight Handling. To deliver the product to your customers, you need to pay for this shipping cost. Amazon generates the corresponding fee based on the given weight of the product. But what about when Amazon promotes “Free 2 Day Prime Shipping” for both FBA and Prime products? It’s still the same. It’s up to you to pay for it as the seller.
- Monthly Storage. This is a self-explanatory term. Amazon calculates the given fees via the cubic volume for storage on a given month.
- Prep Service. Labels such as the UPC codes are essential for every item delivered. But it does not come free. You need to pay $0.30 per product.
So how do you calculate the allocation of these costs for any item sold? Let’s say you want to sell marshmallow sticks and, therefore, competing directly against Jungle Stick. The following action is simple. Find the EAN, ASIN, and UPC of a similar product and incorporate it into the FBA Revenue Calculator of Amazon.
Upon identification of the product, Amazon will provide a detailed list of the corresponding individual fees, the net profit, and the overall fees. You will also see how some costs are subtracted and the margin profit left in the so-called Margin Impact. To pull all of this information with a click, you can have an extension.
Profit
Let’s leap forward. After plugging in your Cost of Goods Sold, what is the actual profit generated? This is a technical and a cheesy question. But for more straightforward comprehension, we’ll take into account the cost of the importing, manufacturing, shipping, packaging, domestic shipping, and customs from the source to the Amazon warehouse. We’ll also include the product’s landed cost.
One special feature of the Extension is that it allows you to calculate the given figures automatically. Click on the “Net Profit” figure to dabble on the different selling prices and product costs for any product. In that way, you can determine how these impact your net income.
If you don’t have an extension, on the other hand, you can play around the costs manually. Thankfully, agencies are offering simple spreadsheets to serve as your reference and guide when calculating the numbers.
Additional Expenses
You can take a look at the few expenses added on the spreadsheet to account for more granularly. That includes money deduction for returns and refunds as well as promotional giveaways and Cost per Click advertising. Expect, however, that you’ll end up losing 2% to 4% for average returns and refunds. All of that depends on your customer base, product quality, niche, and various other variables.
Here is an essential tip that seasoned sellers recommend. Remain conservative in your estimates.
Let’s say that what you aim to sell for has a selling price on the lower end and that the costs are more than what you estimate, say 1.5 times higher. This will heighten the standard for a profitable product. That means you’re also reducing the volume of product listings while putting you into likely success when you do select your item.
To put that into a clear perspective, let’s cite a practical scenario.
Example
When Mr. John launched his site called Cool Blast, the market indicated that it would favor a product priced at $27. As a result, he made sales at $27. When competition entered the category, however, John changed his selling price to $20. That’s around a 25% decline from the original price. Today, he is exploring split testing to identify which price point is most profitable.
Mr. John is also delving more in-depth on the best accounting practices, especially on how these apply to Amazon’s FBA. Moving forward, he implements final touches on accounting software for Amazon proponents. The idea is to ensure an accounting experience that is satisfactory to both the platform and the customers. This is a fundamental strategy given that the Seller Central Dashboard is inefficient and clunky.
So, there you have it. Apply the tips mentioned to keep you driving forward with your Amazon listing. It’s certainly a pleasurable experience reviewing your Income Statement, while numbers show an increasing profit.
Author Bio:
Patrick Panuncillon is an entrepreneur and specializes in SEO, as well as social media marketing. He has been helping Amazon sellers and e-commerce start-ups boost their conversions and expand their profit margins.