In the world of Amazon FBA, understanding your true cost per unit (CPU) is an essential element of running a successful e-commerce business. Many sellers, however, tend to overlook important components when calculating this crucial metric, resulting in hidden profit leaks.
In this blog, we will walk you through the steps to accurately calculate your Amazon FBA cost per unit, including landed costs, pick and pack fees, and other variables that are often neglected. By mastering the art of COGS (Cost of Goods Sold) accounting, you can identify these hidden profit leaks and boost your profitability.
Why Calculating Your True CPU Matters
Before we dive into how to calculate your Amazon FBA per unit, let’s first understand why calculating your true CPU is so important.
Your CPU represents the total cost it takes to produce and deliver one unit of your product to the customer. Accurate CPU calculation helps you:
- Optimize Pricing: Knowing your true costs enables you to set competitive prices while maintaining healthy profit margins.
- Profit Margin Analysis: It allows you to analyze your profit margins accurately on a per-product basis, helping you identify which products are more profitable and which ones might be draining your resources.
- Budgeting and Planning: Accurate CPU figures are essential for financial planning, allowing you to make informed decisions about inventory, marketing, and scaling your business.
Calculating Your Amazon FBA Cost Per Unit
Now, let’s get into the steps to calculate your Amazon FBA cost per unit.
Step 1: Calculate Landed Costs
Landed costs include everything associated with getting your products from the manufacturer to Amazon’s fulfillment center. This encompasses manufacturing costs, shipping fees, customs duties, taxes, and even storage fees. To calculate your landed costs, add up all these expenses and divide the total by the number of units in your shipment.
Step 2: Include Amazon’s Fees
Amazon charges various fees for FBA services, including pick and pack fees, storage fees, and referral fees. Make sure to include these in your CPU calculation. You can find detailed fee breakdowns in your Amazon Seller Central account.
Step 3: Account for Returns and Damages
Returns and damaged products can eat into your profits. To account for this, estimate the percentage of returns and damages for each product, and adjust your CPU accordingly.
Step 4: Overhead Costs
Don’t forget to include overhead costs, such as advertising expenses, software subscriptions, and employee salaries related to your Amazon business. Divide these costs by the number of units sold to allocate a portion of your overhead to each unit.
Step 5: Factor in Long-term Storage Fees
If your products sit in Amazon’s fulfillment centers for an extended period, you’ll incur long-term storage fees. These can significantly impact your CPU, so keep an eye on inventory turnover and adjust your calculations accordingly.
Step 6: Regularly Update Your Calculations
Costs can fluctuate, so it’s crucial to revisit your CPU calculations regularly. As your business grows and evolves, you may find new ways to reduce costs or improve efficiency.
Step 7: Leverage Technology
Consider using specialized tools and software, like SellerVue, to streamline and automate your COGS accounting. These tools can help you stay on top of your expenses and ensure accuracy in your calculations.
By following these steps and maintaining a diligent approach to COGS accounting, you’ll be better equipped to uncover hidden profit leaks in your Amazon FBA business. Remember that the key to long-term success in e-commerce lies not just in generating revenue but in managing your costs effectively. With accurate CPU calculations, you can make informed decisions that drive profitability and growth for your business.