40% is a pretty healthy gross profit. It gives you some room to navigate in terms of Marketing<\/strong> costs. <\/p>\n\n\n\n

<\/p>\n\n\n\n

Additional Costs<\/strong><\/span><\/span><\/strong><\/h1>\n\n\n\n

On Amazon your Marketing Costs<\/strong> will consist of Coupons, Deals, sometimes Subscribe & Save discounts, and most importantly Advertising. Quick benchmark – plan on 10% of your revenue to be distributed across these costs.

If you can\u2019t allocate at least 10% of your revenue to fund all promotional activities it may be a good signal that you should increase your price.<\/p>\n\n\n\n

I want to call special attention to Returns & Damaged Goods <\/strong>as they are especially important. For 3P sellers this is a cost that you might incur AFTER you\u2019ve promoted and sold the product and allocated your standard costs. For 3Ps there is a flat fee for every unit that a customer returns to Amazon starting at around $2. The net impact here on your profitability depends on the frequency of returns – for Apparel where return rates are very high it can be quite meaningful, and something to watch carefully.

If the purchase price of the product is refunded to the customer then there are a bunch of different reimbursements that Amazon may provide to the Seller. There are also some open questions as to whether or not the product should go back into Inventory to be sold again. To keep this post simple – we\u2019re going to skip these details. <\/p>\n\n\n\n

Other Costs <\/strong>– things like Salaries, Facilities and Rent, Merchant Shipping Costs, and Packaging Supplies are quite common and may apply to both 3P and 1P businesses. Be sure to consider any other costs – even if indirectly related to the sale of a particular product – that support your operations on Amazon. <\/p>\n\n\n\n

The Bottom Line<\/strong><\/p>\n\n\n\n

Net Income –<\/strong> is usually the final line of any P&L and represents profitability inclusive of all revenue sources and cost allocations. Here\u2019s a simplified example of what this might look like on a unit basis (single product) for a 3P:<\/p>\n\n\n\n

<\/figure>\n\n\n\n

An Additional Note on Returns<\/strong><\/p>\n\n\n\n

The most important thing I want to emphasize about returns on Amazon is your ability to try to understand what\u2019s driving the product to be returned. You can\u2019t do anything to negotiate the FBA fee for your products, and it\u2019s not easy to negotiate a lower MDF contribution in your Vendor terms with Amazon. But you do have some control over returns. <\/p>\n\n\n\n

It\u2019s fairly common for consumers to leave a review for your product, especially if they have a bad experience and choose to return it. The reason will usually be included in the review. This information can be key to understanding flaws in your product that, if addressed, can help avoid additional returns. If you fix the problem – you should see fewer returns. This in turn likely means you\u2019re protecting your product and brand from further negative reviews in the future.<\/p>\n\n\n\n

For new products this is especially true, and becomes an overall business health metric rather than just a profitability input. I would strongly recommend you regularly monitor product reviews for recently launched items that might explain why a customer would choose to return your product. Then make sure to act on it.\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

Understanding your profitability is necessary to operate any business. In the world of Amazon, it can be difficult to keep track of the variety of costs that you can incur before and after you sell a product. Making these calculations and having a firm grasp of them simplifies strategic decision-making.\u00a0 Earlier in my career, my […]<\/p>\n","protected":false},"author":9,"featured_media":575,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-574","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-retail-strategy"],"acf":[],"yoast_head":"\n