One tool that can help you do this is Amazon’s new revenue calculator. It got a complete makeover a couple weeks ago. If you’re selling on Amazon, this tool is the most important. You can quickly know if you’re going to make money or not.
There are some sellers out there who sell $20,000 a month, but only make $1,000 in profit. I don’t want that kind of business. That’s crazy. I’d rather be selling $5,000 a month and making $4,000! So I want to show you how to use this calculator so that you know you’ll make a profit.
First, find the ASIN number or search the title of the product you want to sell or are selling and drop it into the calculator. This will pull up the item and auto-generate its category fees as well. I’ll use a charger cable as example.
The first thing you’re going to see is “Your Fulfillment” and “Amazon Fulfillment”. The first is Fulfilled by Merchant, you shipping it out to the customer yourself, while Amazon Fulfillment is Fulfilled by Amazon, FBA, and you ship it to Amazon’s warehouse, then they fulfill all the orders for you. I’m just going to look at the FBA option for the moment.
I’m going to make the item price $12.99 even though the other sellers are selling it for $7.99, because as a general rule I don’t like to sell anything under $15, and especially under $12.
The “Ship to Amazon” cost simply means the cost to ship your products from your house to Amazon. As a general rule, it costs me about 20 cents per item. Shipping through FBA is super cheap because Amazon has a discount agreement with UPS. Whoever made that deal with UPS must be a millionaire, because it was very smart.
The “Cost of Product” is just the supplier cost, what you bought the item for. Let’s say my supplier charges me 85 cents a piece for this item. But what if you also have to pay for shipping?
You have to include the shipping cost as well. If you have a supplier in China and they’re only charging 85 cents per item, it might actually be an additional dollar per item to get it shipped to you. If you’re in the UK or in Europe, you have an advantage, because it’s not as expensive to ship. You can also find some good suppliers in Mexico if you look. But if you’re in the US and buying from China, you have to bear the burden of this cost. So I’m going to make my “Cost of Product” $1.85, which includes the item price and the shipping price.
This is what I have so far:
I’m going to hit “Calculate” and it will show my fees and profits.
My profit margin is 50.58%, and I would make $6.57 per sale. Not bad for such a small priced item.
Let’s get into the details and break down each of these fees and numbers.
The “Total Revenue” is $12.99, that’s how much the customer pays you to buy it.
We have the Selling on Amazon fees, and if you click on it, you can see the breakdown. Amazon referral fees are typically 15% of the revenue. The fee is $1.95, which is almost exactly 15%. Every category has different referral fees, but they average around 15%. If you’re a regular retail company, you’ll pay a much higher percentage just marketing your products, so Amazon is a great way to make money passively.
The “Fulfillment by Amazon Fees” are the fees because Amazon is fulfilling your order: they’re the ones putting it in their warehouse, putting it in a box, shipping it off for you. That whole process is on them, so they charge you for it. That’s why you pay a little extra when you’re using FBA versus fulfilling it yourself.
If you click on the fee, you can see the breakdown. They have a “Monthly Storage” fee, which is $0.01 per item, per month, to store this charger cord in their warehouse. That’s not bad at all. Then the “Fulfillment Fee”, which is based on the dimensions and weight of your product.
Now, you shouldn’t worry too much over the fees. As a general rule of thumb, if your supplier, Amazon, and you all get a third of the revenue, you’re doing really well. If you can raise your percentage so that it’s 40%, 50%, that’s awesome! Some of my clients do over 100% profit per item because they did the research necessary, found an excellent supplier, and customized their product in a way that absolutely kills the competition.
“Seller Proceeds” is how much money you are actually getting back. It’s all the money the customer gave you, minus the fees Amazon takes out. That’s $8.42 for this product. Then, when you take out the cost of the product, we have our profit, which is $6.57.
We can go back and do the same thing for FBM, fulfilled by merchant. I’m going to sell it for a little less, let’s go with $10.99. Notice you can also charge the customer a shipping fee, if you want, as well.
My fee for selling it on Amazon is $1.00 instead of $1.95 this time, because I’m selling my item for less.
Cost of seller fulfillment is all the costs that you pay out of pocket to store your items and fulfill the order. Now, if you’re doing this all yourself, keeping your items in your house and packing it up yourself, your costs will be much lower, but you won’t save time. If you want to build wealth, value your time more than your money.
You don’t make money unless you have time. It’s better to pay a little more so that Amazon takes care of it for you. Yes, you make a little less per item, but think of the hours upon hours in the year that you’ve saved. You can go and find another product and get it to Amazon, you can keep scaling.
Would you rather go and pick apple every day, eat them, and repeat the process the next day because you’re hungry again? Or would you rather plant a tree? When you’re eating apples from your own tree, you can plant another and another and another. Then, before you know it, you’ll have an entire orchard of apples, and the trees only need a little pampering. You’ll have way more wealth than you need. Value your time. That’s why I recommend Amazon FBA.
If you’re storing your items in your house, the “Monthly storage” cost is nothing. If you pay someone to ship off your orders for you, you can put that under “Labor.” I pay someone a dollar per shipment, so I’ll enter that in. Packaging materials, I’ll say $0.23 for example. Shipping to customer is probably the largest cost here. Let’s say it’s $2.63 to ship your item through USPS. Now, you could go back to the beginning and charge $3 to the customer for shipping; you’ll make 37 cents extra off of shipping, and there’s nothing wrong with that. So now we have all these fees in here, we can hit calculate and see our profit for Fulfilled by Merchant for this item. I’ll make $6.18 per item.
I hope that was helpful for you guys. My encouragement for you today is to value your time; save your time, because time is precious. If you value your time, the wealth will take care of itself. Have an awesome day.
Know your numbers and you can build your business smart.
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