Pinchas here with your new tip of the week!
Aim for a 25% margin.
This week we will talk about Profit Margins for amazon sellers! We will cover what is a good profit margin and why, we will also share with you how you can have a 25% gross profit margin.
Let us begin:
Your amazon business should work on having a 25% gross profit margin to have a healthy cash flow. Most amazon sellers have cashflow issues meaning they run out of cash when they need to buy new goods or cover themselves. Especially when Amazon increase their fees like in Q4. By having a 25% Margin you should start seeing a healthy cashflow happing at your company. The gross profit margin is the profit after the cost of goods, amazon selling fees, sponsored products. Not including you regular business expenses.
How to make a 25% profit margin?
First, you need to calculate your true total cost per Item. Once you know your true cost you can price your item so you are left with 25% gross profit margin.
Lets do some calculations to see how we figure this out.
To figure out your total cost per item you will need to calculate a few costs associated with your items. Starting with your landed cost, plus Amazon fees and Ad spending per item. Use the amazon FBA calculator and under miscellaneous cost put your average ad cost per item. To find your ad spent per item take the total ad spent of the last month and divide it by the total quantity of this asin. For example you spent $1000 for asin 1 and sold 5000 this month your average spent per item is .20.
This blog explains it at length. Read it here
See the image on how I added ad spent under the miscellaneous cost and it will show you the profit margin on the bottom.
Once you have the total take that number and multiply it by 0.75. The total will be what you need to sell the item for to make a 25% margin. Let’s take one item as an example. Your total cost is $10. You multiply 10 by 0.75 which is $13.33. This is what you will need to sell the item for.
Go through each SKU and do this exercise until you have each item’s price to give you a 25%.