Over 240 million people shop on Amazon! Naturally, there’s an increase in business-savvy sellers who want to take advantage of this target-rich environment. In fact, there are over 100,000 new sellers added to the Amazon marketplace every year.
The reality is that many of those new sellers make fatal mistakes in the early days and disappear within the first 6 months of joining the marketplace. There are many reasons why sellers fail, but today we’re going to tackle the most avoidable fatal mistakes sellers make…the accounting and financial kind! Let’s review the top 3 accounting and financial blunders to avoid.
Taxes are tricky and often the last thing on a seller’s mind. But, failing to be aware of the basic tax requirements for sellers could be detrimental to your business. Most notably, you are liable for collecting sales tax in all states where you have “nexus;” which is simply defined as having a physical business presence in a given state.
You probably have nexus in every state that stores and ships your products from an Amazon Fulfillment Center (FC). Amazon has FCs in 16 different states. It’s important that you know which FCs your products are stored in, and whether or not that FC’s state collects sales tax. If the answer is yes, you should be collecting sales tax on every customer order.
Luckily, Amazon can help.. Of course, there’s a small fee for their service, but Amazon can help you collect state sales tax on all of your orders. To opt for Amazon’s support with state sales tax, go to your Amazon seller’s account in Seller Central and fill out “Tax Settings.”
While there, visit the Seller Central forums to read horror stories from sellers who were retroactively forced to pay sales tax on years worth of product orders in a single lump sum payment. Ouch. If you get nothing else from this post, hopefully, it motivates you to talk with your tax professional for more guidance on managing the collection of sales tax in states where you have nexus.
2. Runaway Pay Per Click Spending
Pay Per Click (PPC) is an important platform to master. It’s a great tool for driving traffic to your product listing and boosting sales. But do you know exactly how much money you can afford, and are strategically willing, to spend on PPC campaigns? If your palms get sweaty thinking about the answer to that question, the takeaway is simple – you need to implement a method for tracking and managing your PPC spending on a regular basis.
You’re a professional entrepreneur, and professional entrepreneurs have professional accounting procedures in place to manage their businesses. Remember that PPC campaigns should be treated like any other expense and should be reflected in your Profit & Loss statement.
Don’t let PPC campaigns become a bottomless money pit for your business. Another failure that PPC users consistently make is failing to throw out keywords that aren’t performing well. Everyone gets excited about testing out new keywords, but how frequently do you evaluate the performance of the keywords you’re actively bidding on?
Your keywords with low conversion rates are driving buyers to a destination that isn’t what they were looking for. It’s a waste of their time and a waste of your money. The solution – only keep keywords on your PPC campaigns that are pulling their weight. Ditch the others and ensure that PPC is working for your business, not against it.
3. Underestimating fees/expenses
It’s very easy for new FBA Amazon sellers to be caught off guard by the various fees that Amazon charges for their fulfillment services. And you won’t notice the fees until you start making sales because it’s free to list your product on Amazon.
Amazon generally keeps around 30% of the revenue generated on every sale, but to calculate your exact amazon fees you’ll need to understand that Amazon breaks their fees down by product type: media (CDs), non-media (phone cases), oversize items (furniture). You can expect fees for the following FBA services:
- Order handling fee per customer order
- Pick and pack fee per unit ordered by customer
- Weight handling fee per pound unit ordered by customer
- Storage fee per cubic foot per month
Amazon sellers get themselves into trouble when they fail to consider the cost of doing business FBA style. FBA fees can easily account for 50%, or more, of your expense but that shouldn’t necessarily be a deterrent from building an FBA business.
As an example, check out the financial breakdown for one of my FBA products…
Amazon List Price: $26
Manufacturing Costs: $5
Shipping Costs: $1
PPC Spend: $1
FBA Fees: $8
Total Expenses: $15
Total Profit: $11
I think this product demonstrates that you can still have decent margins in the FBA game. Just be sure to include projected FBA fees into your profitability calculations when considering a new product and its pricing.
These accounting mishaps may seem obvious and avoidable (which they are), but it’s easy for new sellers to get trapped focusing on the day-to-day tactical requirements of getting a product listed and available on Amazon. If you build a professional accounting system up front, you’ll be able to avoid these mishaps and get back to focusing on building and growing a great Amazon business.
Author: Shane Stinemetz
Jiu Jitsu fighter, Sci-Fi lover and Digital Nomad. After becoming an FBA seller, Shane left the tech scene in Silicon Valley to work on Fetcher and travel around the world.