By Martin Heubel, Amazon Strategy Consultant at Consulterce
Line-level profitability reviews are the lifeblood of profitable Amazon vendor accounts. Yet most 1P brands have no idea about their ASIN-level net margins.
Instead, they look at Gross Margins and Amazon’s Net PPM. But that doesn’t uncover hidden cost centres like chargebacks, shortages, and coop deductions.
So make sure you create reporting systems that capture the unit economics of your customer P&L.
Here’s how to get started:
First, get your gross revenue. That’s the price at which you sell your products to Amazon.
Second, add up all the costs for each product. That includes buying and making the product, packaging, marketing, etc.
Third, add all the direct and indirect costs of selling to Amazon.
A complete list may include:
- Off-Invoice Discounts
- On-Invoice Discounts
- Trade Terms (DA%, AVS, Marketing, etc.)
- Chargebacks, Shortages, Price Variances, …
- COGS (manufacturing costs)
- Freight
- Storage
- Pick & Pack Fees
- Marketing Costs (Amazon Advertising)
- OpEx (Payroll, Rent, Technology,…)
Knowing your unit economics will let you understand where you make and lose money. And helps you identify where changes are needed most.
Losing money on pick & pack fees? » Set up pallet ordering with Amazon.
Losing money on chargebacks? » Focus your AVN on chargeback waivers.
Don’t let assumptions about your margin performance dilute your bottom line.
Drill down to your unit economics instead.
For further information and support, contact Martin Heubel here
