This blog post has been created by Teikametrics: The world leader in leveraging data science and machine learning to automate advertising on Amazon. They’re offering Refunds Manager followers exclusive, early access to their new Retail Optimization Platform, Flywheel.
It’s no secret that Amazon has become a major destination for online shoppers. No matter what you’re shopping for, Amazon has become the go-to source for everything from toilet paper to sporting goods, clothing to toys for your kids. In fact, nearly 45 percent of all product searches start on the Amazon marketplace.
Before Amazon came onto the scene, there was no central marketplace for online retailers to access fulfilment and advertising services. Today, Amazon sellers have access to these advantages and more, and sellers who know how to use all the tools that Amazon offers are better equipped for success than those who don’t.
With that said, the world as an Amazon seller can be difficult to navigate, and it is important for online retailers to know the ins and outs of the ecommerce terrain. One of the most important aspects of financial understanding is gross profit. Most business owners feel that they have a firm grasp of what profit is. However, fewer might realize what exactly gross profit is, how it’s calculated, and why it is so important to Amazon sellers.
What Is Gross Profit?
Gross profit is the total amount of revenue that a company makes after subtracting its direct costs. For Amazon sellers, gross profit takes into consideration all of the expenses associated with selling on Amazon, including:
- Cost of Goods Sold (COGS)
- FBA fees that Amazon collects from sellers. These include fees for services like shipping, pick & pack, order handling, and storage.
- Costs associated with being an Amazon Sponsored Product
- Amazon seller’s fees, which Amazon charges per product, depending on the business category. Usually, this fee is about 15%.
- Other marketing costs, like promotions or Amazon advertising spend
Many Amazon sellers focus solely on profit, but gross profit is actually the more important metric to identify and understand. Let’s explore this further.
Why is Gross Profit Important for Amazon Sellers?
Gross profit is the backbone of every business. This is especially true for Amazon sellers, who often have hard-to-track expenses such as sponsored content or other advertising costs. Knowing your gross profit can give you extremely helpful insights into your business’s production process. How? Gross profit allows Amazon sellers to fully understand their financial framework and provides a context for measuring advertising ROI.
If they can calculate it, Amazon sellers can use their gross profit as a tool to gauge how efficiently they’re managing their profits relative to their production costs and their final returns.
A firm grasp of gross profit allows sellers to determine which products are the most profitable, whether their PPC ad spend is paying dividends, how to set their PPC bids, and how much money they should budget towards advertising. That’s quite the all-star metric!
How Do Amazon Sellers Calculate and Analyze Gross Profit?
It might seem overwhelming, but calculating gross profit is less intimidating than you think. Now that we have an understanding of why gross profit is important, let’s dive into how to find it.
To find a business’s gross profit, subtract the COGS and the other fees and costs listed above from the business’s revenue. For example, if a company has a revenue of $100 on a product but their COGS are $40, then its gross profit is $60 for that product. If the COGS are $80, then the gross profit on that product is much lower, only $20.
Once the gross profit has been calculated, you can use it to learn more about your business and get specific data on each of your products. By analyzing gross profit, you gain greater insight into your business costs and profitability. Amazon sellers who can calculate gross profit are operating from on-high: they have a better perspective on where their money is going and which of their products are actually money-makers.
Finding Gross Profit on Seller Central
At this point, we can all agree that understanding gross profit is essential for Amazon sellers. And you know how to calculate it in theory. But does Amazon make it easy for us to realize gross profit in Seller Central?
Not exactly! First, sellers need to collect various reports from Seller Central to calculate gross profit. Once they access this data, they can then use it to make their calculations.
Therefore, finding your gross profit is doable, but there are challenges. Making sense of thousands of rows of data can be both intimidating and time-consuming. Downloading, manipulating, and refining these reports isn’t scalable in the long term, and you will likely make errors along the way. Not to worry though…
A Profitability Solution for Amazon Sellers
Teikametrics Flywheel is a Retail Optimization Platform (ROP) designed specifically to help sellers automate gross profit calculations by combining sales data, advertising data, and seller COGS to unlock overall business performance metrics.
Flywheel puts cutting-edge data science at the fingertips of those who want to maximize their return on investment with Amazon ads. Moreover, its interface gives you an unparalleled view of your business, from the broad to the granular, gross profit to product-level metrics. You get both a revolutionary algorithm and complete visibility of gross profit, and this combination is what makes Flywheel unlike anything else on the market.
And did we mention it works? Businesses spending over $20,000 a month on ads saw 23% growth within the first 30 days of using the product. The Teikametrics team is offering a free account audit from an Amazon expert with exclusive access to the Flywheel Retail Optimization Platform. Click here to learn more!