How I Lost $1389 on One Amazon Product (And How I Fixed It)
November 05, 2019
When it comes to selling on Amazon, there’s one success indicator that is more important than all others. In fact, it’s the most critical rule I’ve ever posted on this blog, and the only real piece of knowledge you need to know to start an e-commerce business.
It doesn’t matter if you sell wholesale products, do retail arbitrage or have your own Amazon private label brand. This rule applies to any business model.
Are you ready?
You must know your margins!
Profit trumps all
Keeping tabs on your profit margins of individual SKUs is the key to managing the rest of your business. It will help with cashflow, accounting, and most of all, making sure you get a paycheck. There’s no point in running a business where you’re losing money, after all.
Amazon provides a free FBA Calculator which crunches all numbers for you, including calculating margins and associated selling fees. It’s pretty straightforward: you type in the ASIN and cost of a product, and Amazon tells you exactly how much profit you’ll take home.
But what if I told you Amazon’s calculator wasn’t actually the best way to calculate your fees?
Unlike a physical store that can keep an item at the same price for weeks or months, Amazon prices are constantly in flux because third party sellers (like yourself) move their prices up and down to take advantage of the buy box. Unfortunately, the seller app doesn’t give you any data on these changes.
Amazon Calculator: A Horror Story
A few years ago, I ran into a whole pallet of DampRid buckets at my local grocery store. They were only $1 and were selling on Amazon for $12 at the time.
I whipped out my Amazon app and used the Amazon fee calculator to figure out how much I would make on the product. The app showed a profit of $2.50, but it was a popular product so I thought they would move quickly enough to justify the small margin.
Unfortunately for me, the app didn’t give me an important piece of information. This was a product Amazon usually sold for $8, but they were temporarily out of stock causing buy box to go to third party sellers at a higher price.
As a brand new seller, the importance of looking sales history didn’t even cross my mind. I just assumed the seller app told me what I needed to know.
Unfortunately, by the time I sent in 500 of these bad boys to the warehouse, Amazon was back in stock at their usual price of $8. Instead of making $2.50, I lost almost $4 a pop.
More than $1300 went down the toilet in less than a week. 😕
A Complete Amazon Calculator
A few years ago Amazon’s calculator was the only one on the market. Luckily, multiple software options now exist to help sellers make more profitable, data-driven. buying decisions. ProfitGuru has a free FBA calculator that provides basic price data along with a sales estimator and price history.
Watch the video below to see how it works:
Or here's a step-by-step guide:
1. First, find the ASIN of an item.
This can be found at the bottom of an Amazon page under product details or in a ProfitGuru search.
2. Go to the FBA Calculator and paste the ASIN into the search box.
3. The lowest FBA price will automatically fill in based on the ASIN.
This can be adjusted to any dollar amount. Likewise, shipping and cost are editable fields. A good rule of thumb is to use $.55 per pound if you’re using UPS as a partnered carrier. In this case, the product is 5 pounds. Click “calculate” to see the net profit and ROI of the unit.
4. The third box will automatically populate with the total number of sellers and FBA sellers, along with the item’s price and rank history.
Double-check for large deviations between the current price and the average, as this can indicate instability.
5. The last box calculates profit and revenue based on selling multiple units.
This allows you to view the profit you’ll make over a long time period.
An FBA calculator is the #1 KEY to making your Amazon business profitable. It can help you determine what products to sell, while also allowing you to keep tabs on your current inventory.
If you’re ready to jump in the Amazon fray, make sure to check out our other guides:
- 3 tips for choosing great products for your Amazon store
- How to sell on amazon: beginner’s guide 2019
- How to find wholesale suppliers and negotiate profitable deals