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January 18, 2023

12 Ways to Clean Up Your Amazon Profit and Loss for Increased Profits

This episode discusses strategies for increasing profits for e-commerce businesses, including monitoring conditions and cleaning up the profit and loss statement.

It also emphasizes the importance of understanding cash flow and working with an accountant who understands ecommerce and the business.

The article provides twelve ways to maximize profit and stay safe, using a metaphor of instrument flying to understand the system, and suggests involving oneself in the process of setting up an accounting system and chart of accounts.

Get a Free Amazon Profit Audit

Get a free audit from me, Michael Veazey, personally. As long as you have at least $10K/€10K/£10K in monthly revenue. 

You can be a reseller or Private label/custom product brand owner  

Just click the link below, scroll down, click on “Amazon audit” and book in a time!

Timestamps

[0:00:00 : Maximizing Profits in Ecommerce: A Step-by-Step Guide to Cleaning Up Your Profit and Loss

[0:02:35] 2 Ways to Boost Your Profits by Cleaning Up Your Amazon Profit and Loss

[0:05:54] Understanding Cash Flow and Instrument Flying for Ecommerce Businesses

[0:07:04] Setting Up an Ecommerce Accounting System: Tips from an Accountant

[0:08:41] Tips for Cleaning Up Your Profit and Loss Statement for an Ecommerce Business

[0:12:14] Tips for Accurate Accounting for Amazon Sellers

[0:14:43] Tips for Effective Financial Management in E-Commerce Businesses

[0:16:09] Tips for Monitoring Your Ecommerce Business Finances

[0:18:18] Tips for Optimizing Operating Profit in E-Commerce Businesses

[0:20:04] Audit Your Profit and Loss: Get a Free Audit from My Amazonaudit.com

The Show Outline

 Why This matters

Amazon Seller Frustrations

  • Working hard but not much money left at end of month/quarter/year
  • Don’t know where your money goes
  • Don’t know if you should reorder products, what to buy. How much

What we Want from our Profit System 

  • Clarity and guidance 
  • Financially informed decisions 
  • Overview of business
  • Know what to do more and to stop
  • Know what to costs to cut 

Profit and Loss Mistakes

  • Having no accounting system
  • Not integrating Amazon with the system 
  • Not updating the system with accurate data
  • Not acting on the insights you get 

Who this is for 

  • Resellers using RA, OA, or wholesale sourcing
  • Own brand sellers  (Private Label/custom products)

Using Amazon Profit and Loss is like a dashboard on a small plane 

“Instrument flying” is what pro pilots do to be able to fly in all weather conditions

With “instrument flying”  you are using accurate data to build a mental map of conditions. Everything you do has two aims:

  • To get to the destination
  • To stay safe while doing so

You need to monitor things like 

  • Altitude above the ground 
  • Attitude/orientation
  • Air speed 
  • Weather conditions 
  • Other aircraft 

What Amazon profit seekers can learn from instrument flying

  • Altitude – how far from zero profit are you? 
  • Attitude/orientation
    • Are you at an aggressive approach angle relative to direction of travel 
  • Environmental  conditions  – like shrinking markets, recessions 
  • Other aircraft – competitors –  where they are, speed, how close 

How to Clean up your Amazon Profit and Loss

  1. Choose an accountant that understands ecommerce/ your business
  2. Use an accountant to set up your accounting systems
  3. Use the system your accountant and book keepers are comfortable with
    • Xero is common.
    • QuickBooks is fine

 

3 . Identify the most important numbers to clean up for in your p and l – then work backwards from there 

The most important numbers in your p and l for management accounting are 

  • gross profit
  • Operating profit 
  • Gross profit is your net revenue minus all your direct costs 
  • It shows how profitable your product sales are. 
  • It’s most helpful at the product by product level to help you decide what products to reorder and what to cull (listen to previous podcast). 
  • Operating profit is gross profit  minus overheads. 
  • If you’re not borrowing money, ie have no debt in your business , it’s more or less the same as your pre-tax profit. 
  • It’s an important measure of overall management effectiveness 
  • It also more or less drives the value of the business if you were to sell it. 

4. Differentiate between direct and indirect costs – then work backwards from there 

Drawing the distinction is critical to get a clean gross profit. 

Direct costs vary with revenue. 

My accountants’ rule of thumb for a direct cost is that it passes this test:

“if you hadn’t made a sale, you wouldn’t have a direct cost”

This in practise includes 

  • COGS
  • Variable sales costs

COGS

  • Landed cost of goods
  • Freight 
  • Inbound costs to Amazon FC

Variable sales costs

  • Amazon sales commission
  • Amazon FBA costs

5. Set up your chart accounts in close conjunction with your accountant 

6. Use software to link Amazon and your software 

7. Employ a book keeper to update the accounts monthly

8. Double check allocation of costs to correct account 

9. Review the data – monthly!

  • Annually is too late
  • Quarterly minimum 
  • Monthly is best
  • if possible review with book keeper monthly
  • At least quarterly review with and or coach  

10. Monitor Gross Profit trends closely 

What matters isn’t revenue 

It contributes NOTHING to your business if you’re a reseller!!

If you’re a brand-owner, it’s only justifiable if it’s a prelude to profit. 

  • a sign of PMF
  •  or a launch/market share grab metric
    1. Allow for seasonality
    2. Allow for launches

11. Monitor overheads closely 

  • If they creep up out of sync with revenue investigate hard

12. Monitor operating profit as a % of revenue

What to do next to clean up your profit and loss  

Get a free Amazon profit audit

Get a free audit from me, Michael Veazey, personally. As long as you have at least $10K/€10K/£10K in monthly revenue. 

You can be a reseller or Private label/custom product brand owner  

Just click the link below, scroll down, click on “Amazon audit” and book in a time!

Free Audit! 

Get access to the best Amazon profit analytics system 

 – EVA

What you get with Eva (all included in one modest monthly subscription):

  • Accurate Sales & Profit Analytics
  • Advertising Analytics & Rule-Based Settings
  • Aggregated Views
  • Custom Reporting At Product, Store & Daily Sales Level
  • Dynamic Pricing & Promotion Management
  • Inventory Management & Replenishment Forecasting

Plus Reimbursement Recovery Fee for just 13% of Recovered Amounts

(industry standard is 20-25%)

To get this – with a free trial – go to www.amazingfba.com/analytics

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