Why you shouldn't buy into Amazon seller bar charts

Our partners at Riverbend Consulting explain why that impressive screenshot of an Amazon seller bar chart could belong to an unprofitable account.

When not working on Amazon account suspensions, our team spends a great deal of time helping sellers with their overall eCommerce businesses. One of the first questions we ask struggling sellers is simple: “Do you know your numbers?”

The response is often to show us the magical Amazon Seller App Screenshot. You’ve seen it before. It’s the bar chart on the home page of the app. It features gold columns representing revenue numbers for the last 30 days (or a different period of time, depending on your settings).

And let’s be real. Oftentimes, these charts are used by business “coaches” and “programs” to flaunt the results of their students – right after the video with the Lambo and right before the photos with the supermodel on the beach. Sadly, those numbers and charts mean nothing. They are vanity. They are a sales strategy for Amazon boosters who want clients. And sometimes, they are folly.

Revenue can be exciting – but it can also mask a loss

Let’s face it. Revenue is sexy. YouTube is loaded with videos of retail arbitrage and online arbitrage sellers, showing mountains of goods they sourced and sold. With this come screenshots of their massive revenue increases over time. “I joined the $1 million club. Look at me!”

The most obvious number for most new sellers to focus on is revenue. Without sourcing and selling goods, there is no point in an Amazon seller account. Plus talking about revenue is fun. Top-line is always exciting. That close-out a seller negotiated with a distributor. The hottest toy they swept off every store shelf in a 200-mile radius. The Amazon exclusive they negotiated with a local manufacturer.

But whether the revenue screenshot shows a $100,000 a month seller or a $1 million a month enterprise, it means absolutely nothing if the bottom line is in the red.

Expenses are boring but important

The Amazon coaches, groups and programs and message boards mostly encourage the focus on revenue numbers. They even challenge sellers to share their revenue screenshots. Yet few coaches want to dig into the nitty gritty of profitability. Unfortunately, too many sellers do not know their numbers on the expense side. Direct expenses add up quickly. For each and every ASIN, a seller must understand:

• Cost of goods sold, or what it cost to buy each unit of the ASIN

• Fulfilled by Amazon (FBA) expenses, including pick-and-pack fees, commission, storage fees for slow sellers, etc.

• Prep expenses per unit, which might include shrink wrap, bubble wrap, boxing, stickering, etc.

• Shipping expenses per unit, whether the seller is fulfilling the order themselves or sending it to an Amazon Fulfillment Center (FC)

• Advertising costs per unit (PPC)

Then come overhead and indirect expenses:

• Transportation (gas, mileage, wear and tear – however you calculate it in your business)

• Warehousing

• Salaries

• Utilities

And so many more. When sourcing product to sell, there is a calculus. Can the selling price be such that it covers all of the expenses listed above, plus overhead and indirect expenses, and still make a profit? What if there is a race to the bottom on price? What if a seller must significantly mark down inventory to get it out the door? Will it still make a profit?

Why many sellers don’t know their numbers

Most Amazon sellers are great at the treasure hunt. Sourcing product is a rush. They aren’t so great at record-keeping. They don’t track expenses. Some don’t even keep their invoices and receipts organized. Then tax time rolls around. If sellers provide a complete record of all expenses to their accountant, they may be shocked. Too many times, we’ve heard clients say, “At the end of the year, I was making less than minimum wage.” It happens. It happens a lot.

What’s a seller to do? Get obsessed about tracking data. All the data:

• COGS on a product-by-product basis

• Direct expenses on a product-by-product basis

• Pricing over time

• PPC by product

• Mileage

• Hours worked

Everything! Find good software. There are many options out there for Amazon sellers. Simply enter the ASIN and your COGS, and the software will pull in FBA fees and help estimate other expenses. Then sellers can understand profitability for individual products. Which should they buy more of? Which should they discontinue? The data says it all.

One option to try

AZSellerKit has created a Riverbend Consulting exclusive version of its industry-leading software – at no charge to our clients and friends. It places special emphasis on account health by highlighting suppressed ASINs and stranded inventory. In addition, it provides sellers with:

• A dashboard highlighting trends in revenue, units sold, inventory value and profits

• Their product catalog, packed with value-added information

• Inventory and advertising reports that go far beyond Seller Central

• Brand protection reports, including Buy Box information

Get control of your inventory, unlock higher margins and more.

Know your numbers. Every day. Sign up here.