When you receive your bi-monthly payout from Amazon, do you know exactly what your profits are? Do you know how and how much Amazon has charged you? Do you know which product you are losing money on? Do you know the real return on investment you have with each of your products? Knowing the answers to these questions is crucial to building a healthy eCommerce business.
There are a lot of tools available on the market to help you calculate profit for you, but almost none of them are truly accurate. Below I will be sharing a system that can help you accurately calculate profit and other important metrics using nothing but Excel.
In order to accurately calculate profit on the product level. You will need to know for each product the detailed costs charged by Amazon, as well as the cost you pay to bring them into the FBA warehouse. Calculate the profit of each product with the following formula:
Profit = Order Revenue – Refund – Cost of Exchange – Service Fee – Adjustment Fee – FBA Customer Return Fee – FBA Inventory Fee – Promotion Fee – Product Landed Cost – Operational Cost
The formula to accurately cacluate profit for your amazon business
You can get these data from the business reports available in Amazon Seller Central ( Or Ventor Central if you are a Vendor ). Unfortunately, Amazon didn’t make them available in an easy to read format, instead, all these data are scattered around and made available in several reports you will have to manually download when they become available.
Formula Component Breakdown
Order Revenue
Order Revenue is defined as the revenue you get from selling a product, minus any costs incurred for fulfilling the order:
Order Revenue = Product Sales + Shipping Credits + Gift Wrap Credits – Promotional Rebates + Sales Tax Collected + Marketplace Facilitator Tax – Amazon Selling Referral Fee – FBA Fee – Other Transaction Fee
You can get these data from the Date Range Report, which is available for download in Seller Central -> Reports -> Payments -> Date Range Report. If you do not see the date range you are looking for, simply click Generate Report Button to generate the report you need. Make sure transactional level reports are generated. You should be able to get the complete report for one month 2-5 days after the closing of the month.
Refund
As the name suggests, Refund means all the fees and credits related to processing a return.
Refund = Refunded Product Sales + Shipping Credits + Gift Wrap Credits – Promotional Rebates + Sales Tax Collected + Marketplace Facilitator Tax + Amazon Selling Referral Fee + FBA Fee + Other transaction Fees
Refund can also be extracted from the transactional Date Range Report.
Cost of Exchange
This is a cost that is easy to overlook. The cost of exchange happens when you send a replacement product to an unsatisfied customer or to honor a warranty claim.
If you are leveraging FBA stock and multichannel fulfillment to send products to your customer, you can download the fulfillment report and filter for multichannel fulfillment to see exactly how many products you have sent out. However, it is recommended to adopt some kind of tracking mechanism to keep track of quality issues and/or warranty claims.
Service Fee
Service Fee accounts for fees you pay amazon for service thats not sales related, it includes monthly charges and etc.
Service Fee = Subscription Fee + Lighitng Deal Fee + Coupon Redemption Fees + Cost of Advertising
You can download the service fee report in Seller Central -> Reports -> Payments -> Transaction View -> Filter view by Service Fees
The Service Fees Report only covers summary advertising data, in order to get product level information, you will also need to generate another report in the Advertising Reports tab. Click Generate Reports and pick “Advertised Products” report, it will contain how much advertising cost you have spent on each product for the period you have chosen.
Adjustment Fee
Adjustment Fee incurs when products are damaged, lost, or returned. The details of the adjustment fee are included as part of the Date Range Report. It is recommended to single these fees out to get a clear picture of how much you are losing due to mistakes made by the warehouse.
This is particularly important if you ship a large number of products to the FBA warehouse. Amazon does everything they can to make sure all damaged or lost or returned products are accounted for and payment adjusted here accordingly, however mistakes still happen and you would be missing out on reimbursement payments if Amazon warehouse miscalculated the number of damaged products or misplaced your product. Every time when I do inventory reconciliation, I can find out that Amazon owes me a few hundred dollars here and there for lost or damaged products that are not included in their report.
If you find inventory reconciliation difficult or cumbersome to do, there are tools available to help you identify unaccounted for reimbursements. Helium 10’s Refund Genie is an easy to use tool to quickly find potential reimbursements for you.
FBA Customer Return Fee ( For Certain Categories Only )
If you sell products in the one of the categories where Amazon offers the customer free returns, you will be charged a return process fee. It’s free for the customers to return, but unfortuantely the sellers will have to pay for it. It’s just cost to do business.
The following categories will incur return fees:
- Apparel
- Watches
- Jewelry
- Shoes,Handbags & Sunglasses
- Luggage
For more information regarding how to calculate the returns processing fee, please visit the help page.
You can get detailed return transactions in Seller Central -> Reports -> Fulfillment -> FBA Customer Returns
FBA Inventory Fee ( For FBA Only )
This only applies if you are using FBA. Amazon charges storage fees based on time of the year and size of your product.
As of March 2020, the storage fees are charged as below (excluding dangerous goods )
| Month | Standard-size | Oversize |
|---|---|---|
| January – September | $0.75 per cubic foot | $0.48 per cubic foot |
| October – December | $2.40 per cubic foot | $1.20 per cubic foot |
A long-term inventory storage fee applies when your products stay in an Amazon fulfillment center for longer than one year. But in any situation, you shouldn’t have products that sit in FBA warehouse for even longer than 180 days. If you do, get rid of them ASAP. It does more harm to you than the value of the product.
You can get a detailed explanation of how the storage fees are calculated from Amazon Seller Central.
Monthly Storage Fees and Long-Term storage Fee reports can be downloaded in Seller Central -> Reports -> Fulfillment -> Payments Tab
Promotion Fee
Promotion Fee includes coupon redemption fees and other fees for promotional services, including all the costs incurred for promotions.
Promotion Fee = Coupon Redemption Fee + Early Reviewer Program Fee + Vine Reviews Fee + Offsite Promotion Fees
Offsite Promotion Fees can be advertising costs you spend on facebook, google etc.
For fees charged by Amazon, they are included in the Date Range Report and Service Fee’s Report
Product Landed Cost
This is the cost you pay to get each of your products into the Amazon fulfillment centers. If you are importing your products from China or some other foreign country, please dont forget to include first leg shipping as well as import duty, shipping charge between port and warehouse.
Operational Cost
In short this is the cost for you to run your business, such as salary for employees, office rental, utility, expenses, etc. I usually do a weighed average to split the cost across all the products based on sales revenue. You may have a different way to account for operational cost, it is ok as long as it makes sense.
Calculate Actual Profit Per Product/SKU
At this point, you should have collected all the costs related to selling your products. Plug them into excel and find out exactly how much profit you are making.
Calculate Accurate Profit Margin For Your Products
Once you have prepared all the data for one month, it is very easy to calcualte the real profit margin.
Actual Profit Margin = Actual Profit / Actual Revenue x 100%
Depending on your category, your actual profit margin should be between 10% to 30%. If you have something that’s higher than 30%, congratulations! Very few products can net a 30% or higher profit margin, keep up the good work! However, if you are getting anything less than 10%, maybe it is time to find a different product to sell.
Product Level Return On Investment (ROI)
At this point you should know the actual profit and profit margin of your product. However, the profit margin alone does not tell the whole story. Return On Investment (ROI) is a better indicator. Because like any business, you have made an investment by purchasing all the inventory. You will want to know the return you are making on the money you have put down.
Monthly Product Level ROI = Monthly Actual Profit For The Product ÷ Landed Cost Of Products Sold × 100%
In general, a Product Level ROI of 40% is considered to be healthy. If your product does not generate at least 40% ROI, it means you might be losing money and it is recommended that you find out what’s prevent it from getting a higher margin ( or lower cost ).
Other Important Metrics To Consider
In addition to ROI, there are several metrics that are critical when it comes to your Amazon FBA business’s health. For the sake of simplicity, I will only list them out here.
- Sell Through Rate
- Inventory Age
- Available Cash
I will create another post to cover why these metrics are important and how to use them to keep track of your Amazon FBA business.
Where to Find and Download Each Report in Seller Central
This is a quick reference for people to quickly locate what reports to download and where they are in seller central.
| Report Name | Where To Download |
|---|---|
| Date Range Report | Reports -> Payments -> Date Range Report. |
| Service Fee | Reports -> Payments -> Transaction View -> Filter view by Service Fees |
| Monthly Storage Fee | Seller Central -> Reports -> Fulfillment -> Payments Tab |
| Long Term Storage Fee | Seller Central -> Reports -> Fulfillment -> Payments Tab |
| Advertised Products | Reports -> Advertising Reports -> Create Reports -> Advertising Products |