Turnover is vanity, profit is sanity, but cash is king. One of the main difficulties sellers face is determining their true net profit on Amazon. This is no easy task when Amazon’s fees, VAT, shipping costs and foreign exchange rates are changing all the time.
With multiple cost inputs and volatile markets, it is difficult to maintain efficient pricing to preserve profit margins. You run the risk of losing money when the final price is constantly changing due to market changes and it is difficult to determine the cost of sales.
Sellers who eliminate unprofitable sales and generate predictable revenue are more likely to thrive on Amazon.
Amazon's net profit
The standard definition of how to calculate Amazon’s net profit is – the percentage of revenue remaining after all operating expenses, taxes, and fees are deducted from the sales price.
Certain costs associated with selling a product:
Purchase price
Shipping and packaging costs
Value Added Tax (VAT)
Various platform fees (listing, project, online store and closing fees. Subscriptions. Paypal, etc.)
Calculate your selling price so that you make a healthy profit (and avoid losses):
In the example above, you can see a breakdown of the costs of HP ink cartridges.
The price to buy this product is £38.98.
With all other charges the total cost is £68.15 (£29.17 + £38.98).
This is the break-even point, where you neither lose money nor make money.
Here we have taken the Net Profit to be £11.33. The total sales price must be £79.48
Protect Your Amazon Net Profit
There are two answers. The first is to plot the cost of goods sold across your entire inventory. It's a lot of work, but the benefits may outweigh the risks of making mistakes or spending time doing it manually.
The second option is net margin pricing; using software to handle this for you on each product. Repricing tools for Amazon sellers vary in quality and functionality. Few offer net profit margin pricing.
The ability to identify your net profit on Amazon, analyze the performance of individual SKUs, and remove unprofitable items is invaluable.
Net margin pricing keeps you from selling at a loss. All relevant costs for each product can be built into the repricer. The software calculates the minimum selling price and ensures that you don’t go below it, thus getting rid of those unprofitable sales.
