It is an even sicker feeling when you get excited about your Amazon store selling 200 units…only to find out those units have net you just $12 in profits.
The solution to both of these nightmarish scenarios?
Excellent bookkeeping and accounting.
Bookkeeping and accounting do not have to be a gigantic time suck. In reality, they’re much simpler than you might think.
Just One Dime has saved millions—not thousands—MILLIONS of dollars over the last year because we know our numbers. And we know our numbers because we know accounting and bookkeeping.
By understanding accounting and bookkeeping basics, we have taken advantage of tons of legal incentives that lower our tax liability.
And you can too.
Today, I will give you three steps to bookkeeping and accounting that will allow you to take ownership of your finances as an Amazon Seller.
For the record, I am not a CPA (Certified Public Accountant) or any type of accountant. This is not legal advice, but it is real life advice that I have put into practice many times over the years.
Step #1: Track all of your business expenses (money going out).
Understand the cost of goods sold (COGS).
COGS are any payments that are directly the result of producing what you sell.
For example, when you pay your manufacturer to make and differentiate your product, that’s COGS. When you pay for a product inspection, that’s COGS. When you pay to have your products shipped from the manufacturer to an Amazon fulfillment center, that’s COGS. When you pay for product photos for your Amazon listing, that’s COGS.
COGS is all about building a product so that you can sell it. In other words, it’s the cost you spend so that you can sell whatever it is that you sell.
Understand operating expenses.
Operating expenses are quite different from COGS. They’re the payments you make so you can operate your business.
For example, your internet bill is an operating expense, it directly relates to the function of your business. You need the internet to research products, to communicate with suppliers, to login to your seller central account, to run your PPC campaigns, to optimize your listings, and so much more.
All of these operations are necessary for a viable business. If you use your internet for business reasons, your internet bill is a business expense.
Amazon fees are also operating expenses. A lot of sellers mistakenly believe these are COGS, but they’re not. Amazon fees are the cost of operating your business on Amazon. They’re not in any way, shape, or form related to the production of what you sell.
Any time you sell a product on Amazon, Amazon typically gets 15% of the sale which is called the referral fee. You must pay this fee to sell in your category on Amazon, which means you can’t sell on Amazon without paying it. So Amazon fees—including the referral fee—are operating expenses.
Remember: you pay operating expenses so that your business can…well, operate.
Record all of your monthly expenses in a spreadsheet.
Now that you know your COGS from your operating expenses, you must track them both.
Recording your expenses is quite simple. All you need is a spreadsheet of some sort and a little math.
I will make the process even easier for you. We have created a simple monthly income tracker—preformatted with all equations you need—that comes included with our Amazon FBA membership.
Here’s how it works: after the end of the previous month, you will record all of your expenses. Make sure everything is written down.
Notice two things about this spreadsheet. First, we have separated out each month’s expenses and incomes, one tab for each month. Here, we see January 2022 expenses.
Second, we’ve broken our expenses down into two categories: COGS and operating expenses.
So far for the month of January, we have two examples of COGS.
Our first payment was $3,300 sent to Hubei Jianguo Cosmetics Co., Ltd. on January 23. This payment is a product manufacturing cost, thus it’s COGS.
Notice we have four different categories for one expense:
- Date of the transaction
- Vendor (who gets the money)
- Purpose (why I spent the money)
- Amount (the total spent)
We also have a charge of $114 for product inserts on January 24. Product inserts go into our retail packaging so when customers open it, their minds are blown because we’ve added something of value to improve their experience.
We add these two production expenses to get our total COGS for the month of January:
$3,300 + $114 = $3,414.
Let’s look at operating expenses.
On January 1, there’s a $3,997 expense for FBA Mastery Training, which means this seller invested in Just One Dime’s membership. In the membership, we go extremely deep on accounting to help our members.
Because Just One Dime teaches how to build profitable Amazon businesses, our course is part of business operations. So Just One Dime’s FBA Mastery Training for $3,997 is an operating expense.
We can also see our Amazon fees ($100) and our monthly internet fee ($45).
Adding all three of these numbers together, we get our total January operating expenses:
$3,997 + $45 + 100 = $4,142.
Let me give you a few more examples of business expenses that you should track so you can lower your tax liability.
COGS includes payments to:
- Your supplier for products
- Your product inspector
- Your shipping agent or freight forwarder
- Your product photographer
- Contractors who design your logo and retail packaging
Operating expenses includes payments to:
- Social media sites (Facebook, Instagram, etc.) for ads
- Amazon for fees and your professional seller account
- Your landlord or mortgage company if you use your home for your business
- Your internet provider
- Office supply companies
- Coaching companies like Just One Dime who help you build a successful business
- Travel companies if the trip is business related
Understand Amazon fees.
A lot of sellers struggle with tracking their business expenses because of their Amazon-specific expenses: the several (up to 72!) fees you pay Amazon so you can sell on their platform.
Let me show you a simple way to break your Amazon fees down. From your Amazon Seller Central Account,
- Click the three horizontal lines in the top left corner
- Under Payments click Payments.
- Click Date Range Reports.
- Click Generate Report.
- Click Summary.
- Select the time period of your report.
- Click Generate.
You might have to hit the Refresh button a few times to generate your report.
In the upper right hand corner, next to Expenses, it says $-207,785.58. This dark, bolded figure is the total of ALL of your Amazon fees for that time period.
This report allows you to easily see the total amount you’ve paid Amazon in fees, along with an item by item breakdown of each individual fee.
Your total expenses on this report includes Amazon’s referral fee, FBA fulfillment fee, PPC fee—ALL the fees—together in one spot. Instead of sweating over the expenses that just disappear into an auto-draft black hole, you have your numbers all in one place.
Here’s the cool part: instead of hunting down every individual Amazon fee and its amount per month, you can add this total into the expenses tab of your income tracker. Now you can see how much your business pays in Amazon fees per month alongside your other expenses.
Let’s say our monthly Amazon fees total $100. Add the date, add the purpose (selling on Amazon), add Amazon as the payee, and you’re done.
Right here in one simple sheet, we have all our expenses recorded for one month. It’s that simple.
Step #2: Track all of your income (money going in).
To do this, we will use the same exact Amazon date range payment report that we used to find our monthly Amazon fees.
Let’s look at two types of income: net sales revenue and net profit.
Understand net sales revenue.
Net sales revenue is your total sales minus customer reimbursements.
When you look at our Amazon report under income in the upper left hand corner, you can see this store did a total of $455,235.28 for the time period in question. This amount is our net sales revenue.
"Net" indicates the amount that you—or your business—keep. Gross sales revenue would be your total sales, whereas net sales revenue is your total sales minus customer reimbursements and adjustments. If you take what you made total and subtract any refunds that you issued for returns, net sales revenue is what your business takes away after those returns.
If you want to know the money that you are generating, you need to know your net sales revenue.
Understand net profits.
Net profit is your net revenue minus business expenses. It is the amount of money that your business retains after all expenses are paid.
Net profit is what the IRS will tax you or your business on, not revenue.
To find net profit, take your income (net sales revenue) and subtract your total expenses.
In most cases, you will not find your net profit on any Amazon or software report. Only you truly
know the money going out and coming into your business. Which brings us back to our simple, monthly income tracker included in our Amazon FBA membership.
Record your monthly income in a spreadsheet.
Now that you know where to find your net sales revenue, you can input it into your income tracker. By adding that net sales revenue to the same tracker as your expenses, you can quickly and easily calculate your net profit.
In other words, if you know your revenue and expenses, you can understand exactly how much money you get to keep!
All you do is combine your total COGS and operating expenses and then subtract that number from your net sales revenue.
In this example:
- We start with our total expenses of $302,363.98 ($207,785.58 + $94,578.40).
- We deduct that total from our net sales revenue of $455,235.28.
- Now we know that our net profit, the amount that we keep, is $152,871.30.
This means the IRS will determine how much we owe in taxes off of our profits of $152,871.30 (I can also show you how to avoid paying taxes on the sales tax your customers pay when they shop your products). However, we could, between now and the end of the year, take $50,000 (for example) of that money and reinvest it in a new product. In that case, we would only owe tax on $102,871.30 ($152,871.30 - $50,000) this year, and we’ll make more next year because we reinvested our money.
This is why you must know your numbers.
I would not have the knowledge to tell you how much money we made or how we could reduce our taxable income while we invest back into our business so we can make more money next year, without basic bookkeeping and accounting knowledge.
You must know your outcome (expenses) and your income (what’s coming in), so you know what your actual net profit is so you can then make strategic decisions with that data.
Step #3: Keep records of everything.
If you know how much money you have going out and coming in, that’s great. But it will only get you so far. You must have records.
If your business is ever audited by the IRS, they will not care that you know off the top of your head exactly how much net profit you achieved in 2022. They must see it.
Now you don’t need a gigantic filing cabinet containing every crumpled receipt that was ever loosely related to your business. That sounds like one of our nightmarish scenarios from earlier. You don’t even need paper receipts. You just need a comprehensive system that makes sense.
Organize your records.
There are three ways you can track your business records:
- Keep them yourself
- Purchase a bookkeeping software to do it
- Hire an accountant to do it
If you choose to keep your own records, you will spend the least amount of money.
I did this by myself when I was starting; it only takes a few minutes a day provided you’re consistent.
The first thing you should do is separate your business finances from your personal ones.
Second, set up a digital drive to organize your records. You can digitally record your expenses, income, and receipts with GoogleDrive or Dropbox. They’re perfectly secure. You can even add your income tracker so all your records are in one place.
Fourth, implement an easy-to-follow naming system to keep your drive organized.
Here’s how I do it:
Whenever I upload a document I name it “date–vendor–amount”.
- The date is the date of the transaction.
- The vendor is who received the payment.
- The amount is how much I paid.
I also keep separate folders for COGS and different operating expenses. Once I’ve named a document, I add it to the appropriate folder for easy access should I need it later.
For example, let’s say we bought $15.89 worth of office supplies from OfficeDepot on January 18, 2021. We take a picture of the receipt, name the image “1/18/21–OfficeDepot–$15.89”, and add it to our “Office Supplies” operating expenses folder.
If you choose to purchase a bookkeeping software, there’s dozens to choose from: Xero, Quickbooks Intuit, and so many more. These will run you between $9 and $1,000+, depending on the software and level you choose. The cost also depends on if you purchase a monthly subscription or download the complete version of the software.
If you choose to hire an accountant, you will spend anywhere from $1,000 to $5,000+ per year, not including the cost of software (which they will need). This is by far the most costly option. However, if you truly want to grow your business and wealth, and you have the budget, an accountant is the right move for you.
When you hire an accountant, make sure you select someone with Amazon experience. They will need to access your Amazon Seller Central account, so it will help if they can already navigate the platform on their own.
Whichever option you choose, remember: tracking your expenses and organizing your records is not just for your own mental sanity. It is a safety net if you’re ever audited by the IRS.
Stay on top of your bookkeeping with Shopkeeper.
Shopkeeper is an Amazon-specific bookkeeping dashboard that tracks just about everything you could ever need in an Amazon store. It is a great system in which you can track and manage all of your Amazon fees and even grow your business.
There are up to 72 different fees that Amazon can charge its sellers. Shopkeeper complies all these fees, tracks them, and records their impact on your business for you!
Shopkeeper takes every piece of financial data into account and helps you manage and forecast your business. It helps you understand your revenue, expenses (yes, all of them), as well as your profits. It takes care of all of the math for you, too.
Another great thing about Shopkeeper is it tells you when you should reorder inventory so your store never runs dry. Plus, it makes a fun sound when you make a sale 💰.
Shopkeeper truly is an incredible tool for today’s Amazon seller. Get your extended, 30 day free trial, plus 50% off your first paid month, today.
Understand the difference between bookkeeping and accounting.
Something I’ve found that a lot of sellers confuse is bookkeeping vs accounting.
Contrary to popular belief, they are not the same thing.
Everything we’ve covered thus far has been bookkeeping. Bookkeeping is recording and cataloging any financial transactions. It’s an administrative function. You need bookkeeping so you can know how much money you have going out and coming in so you can report it on your taxes.
Accounting, however, is how you leverage and strategize your money. It’s using your bookkeeping to pay taxes, yes, but also to invest in high-return products, maintain positive cash flow, and ultimately grow your business.
Yes, you need bookkeeping to stay on the IRS’s good side. You do not need an accountant to keep records. But you need accounting to increase your overall wealth. And you will probably want an accountant or a CPA for that part.
You should know that all CPAs are accountants, but not all accountants are CPAs.
Remember this: bookkeeping is keeping records. Accounting is taking those records and being strategic with them, plus taxes.
Use accounting to grow your business and income.
A lot of sellers view bookkeeping and accounting as passive. They think all they must do is check off all their boxes, ensure they’ve filed and paid their taxes correctly, and then wash their hands of the situation until next year. Good to go.
That is a horrible way of looking at it!
That is 100% defense. But what about offense: don’t you want to make money?
Yes, as I strongly emphasize, you do need good bookkeeping to protect your business. But you need strong accounting to GROW your business and your wealth.
Paying taxes to the government is all well and good, but it’s less than half of bookkeeping and accounting. With the right knowledge, tools, and perhaps a CPA, you won’t just do your taxes correctly, you’ll better strategize your wealth and plan for the future of your business.
If I had known even half of what I know now about accounting back in 2013 when I first started doubling my dime, I guarantee you I would be three times wealthier today than I am now.
Because of all the money I didn’t think about wisely in the early days. What I teach now is something I’ve been learning and doing for years.
I may not be a CPA, but I want you to have actionable knowledge so you can apply this right now, for your business, today.
Do not be intimidated by numbers. You do not need to be a math person to practice good accounting and grow your wealth.
All you need is to know the money going out, know the money coming in, and record it.
One question: do you secretly nerd out over accounting like I do? Or do you dread it? Let me know in the comments below.