Dialing in your SKUs for Profit

We all know that Amazon has the potential to be your most profitable channel.

But, if you don't have a handle on what your Amazon expenses are (and therefore, how Amazon is making money off of you), Amazon can quickly turn into a…

Business leak.

That’s right. Your biggest opportunity suddenly becomes your biggest threat.

I’m on the front lines, day in and day out, managing a profitable Amazon account with tens to hundreds of SKUs and products.

And here’s what I’ve learned.

Your relationship with Amazon is both give and take. But if you're not in control of the take, you're going to be giving... a lot.

Imagine as though we have profit dials — revenue and expense dials we can control in our business. If we can turn down the expense dials, we can increase our profits.

You have to dial in your SKUs for profit.

When you turn up your revenue dial, you also increase how much Amazon takes from you.

Your profit dial goes down when your product costs increase or when you increase your advertising expenses.

But if you increase your revenue, and then you decrease your transactional expenses, and you decrease your variable fees, and you reduce your costs on the product, and keep your ad spend at a reasonable percentage…

Your profits go through the roof!

You just have to weigh up everything in between.

I bet you’re thinking, “But it’s a third-party platform. I’m not in the driver’s seat. I don’t have a lot of say.”

I agree. You don't have a lot of say in your customers.

But you do have a lot of say in knowing exactly where you are at in your business, and how much money you're going to walk away with from each sale.

You should know these things. They should all be dialed in.

It comes down to knowing your numbers and making sure your SKUs are profitable.

As much as we’d all like to have only winning products listed, sourcing product generally follows the 80/20 rule. If you source five products, one is going to be highly profitable and one is going to be an absolute loser.

There's no Amazon science.

It's about identifying profitable products and getting rid of the losers — understanding the profitability of your product range.

So, what are the steps to become a profitable Amazon seller?

Step number one is knowing your numbers.

You've got to know how much each product is producing. The true number, not just a theoretical number.

The true number is what happened after the sale. The true number takes into account your refund rates, what Amazon took for the selling fee, and what they took for the referral fee.

What did you spend on the cost of goods sold, on average? How much were the advertising costs?

Boom. That's how much you made per product.

Step number two is dialing in those profit dials.

This is where you look at your channel like a professional, where you’re really paying attention to the stuff that's actually going to drive profit.

If you’re an amateur Amazon seller, your days are numbered. You're in the survival game.

So, think about your profit dials and all the little expenses that Amazon takes. Dissect them, take a good look at them, and see how much they are really taking.

Then ask yourself, how can you dial in your SKUs for profit?