Business on Amazon: True product cost of your private label product

In any business it is important to know your numbers, and private label business is no different. In this blog post i want to talk to you about finding out your true profit margin for your product.

The first thing that i want to walk you through is finding out the true cost that you are paying to get an item to Amazon. To do that we need to look at the actual product cost, and it’s easy, you will probably know exactly what that is, if not, you can look back through invoices from your supplier. Let’s say we ordered 100 items from our supplier and they charged us $300. That means that for each one of those units they are charging us $3. What i want to make sure you include in that is any ancillary fees that you may be paying in addition to that base rate from your supplier. So, a common thing here is that there is extra cost for labels, or if you are including product manual, or insert that is printed by someone else, or even if it is printed by your supplier, there could be and extra cost on the invoice, UPC fees, fees to apply sticker to your items – all of those affect your profit margin. Even 10 cents per item can make a huge difference in your profit margin.

The next thing we need to determine is how much does it cost you to actually send these items to Amazon. Now, most of us are using Amazon’s negotiated shipping rates through someone like UPS or maybe LTL. Regardless, every time you create shipping labels within Seller Central to send your products into the FBA warehouses, they tell you exactly how much they are charging you for shipping. What i recommend doing is creating a spreadsheet and tracking this, so every time you create a shipment you will go into your google sheet, type in your name of the shipment, date,products you are shipping in along with what that is costing you. That way there is ever any doubt, you can always refer to your handy spreadsheet to search through your shipments. But if you haven’t been doing this it is still easy to find out what each of the shipments costed you. You simply go to your FBA inbound shipments under the Inventory tab within Seller Central, and you can click on each individual shipment, and it will show you what those fees were, as these fees need to be calculated into your cost. So if you had 300 items, and Amazon charged you $300 to ship those items in, that means you need to add $1 to your product cost in a way of shipping fees.

Now we have got our product at the FBA warehouse, and we need to determine exactly what we paid to get it sold and shipped to our customer, because at the end of the day we want to know the total cost from the day the product was produced all the way till it was delivered to the customer’s door. To do this i recommend looking at the Transactional View of your business reports. The reason is that the fee preview or the estimate, that Amazon gives you, can be wildly inaccurate. This fee is based on lots of parameters, including your item’s weight, category, and all kinds of other things. And i have seen huge variations in those fee previews, instead, what i recommend doing is actually looking at what Amazonhas been charging you. So to do that, if you hover over Reports, and then go to Payments, one of the options on the top is called Transaction View. If you click on that Transaction View you’ll be able to browse through recent transactions, and you will actually see the exact dollar amount, thatAmazon is charging you for those transactions. If you click on the actual number all the way to the right, Seller Central will break it down for you showing order handling, pick and pack, weight handling, and final referral fees were.

So if we add up the fees that were charged by Amazon to sell and deliver our product, cost to get the item to Amazon, costs charged by our manufacturer per unit, and any additional fees (polybagging, labeling, etc.) we start to have a better picture of our overall cost per unit.

However, there is one little thing missing here – any ads spent costs that will help you sell that product. It may become a little difficult to track for each sale, but a really easy way is to just look at that data monthly. So, in other words, if we look each month at how many items of that particular product we are selling (let’s say 100 units), we can then very easily go and see how much we spent on ads for that unit for that month. If we spent $100 on ads this month and sold 100 units, we can say that on average per sale we are spending $1 per unit. This amount can be now added to ourproduct cost.

This type of thing may sound daunting, but it’s really not a lot of work. You can do this in half an hour for each of your product, as it is really easy totrack all the data. The reasons are, that just having this basic understanding of your product cost is going to open your eyes so much as to the problems and also the possibilities for your product.

Now you know ways to figure out your TRUE product cost, for each and everyone of your products. Hope this has been helpful!