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Amazon FBA: Are we counting short?

by George Exec
12 replies
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Hi All,

We are currently in the process of setting up an Amazon FBA based venture.

Below is a snapshot of our progress so far:
  1. Sourced a product
  2. Engaged with various suppliers
  3. Secured a deal with a supplier based on pricing and quality
  4. Conducted a basic analysis on our profit margin

Leading on from the above, we have identified a 20% profit margin, this includes:
  1. Wholesale Product cost
  2. Packaging cost
  3. Shipping
  4. FBA fees

Our 20% margin does not include the following:
  1. Customs duties
  2. Distribution of product between Amazon warehouses
  3. Amazon PPC

However our concern is that this 20% profit margin is based on us selling the product at a price that is higher than our competitors (20-30% higher), but it is a product that is arguably better quality, and with better packaging.

The question we have is, based on your experience, would you say the 20% would be a healthy enough profit margin if we factor in price maneuverability to remain competitive, customs duties, Amazon PPC, and distribution between Amazon warehouses?

We have tried searching in the Forum section, however weren't able to find a relevant post that may be able to answer our query.

We look forward to hearing your thoughts,

George
#amazon #counting #fba #short
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  • Profile picture of the author DABK
    So, what is your profit margin when you include everything?

    20 without including everything ain't all that cheerful.

    Originally Posted by George Exec View Post

    Hi All,

    We are currently in the process of setting up an Amazon FBA based venture.

    Below is a snapshot of our progress so far:
    1. Sourced a product
    2. Engaged with various suppliers
    3. Secured a deal with a supplier based on pricing and quality
    4. Conducted a basic analysis on our profit margin

    Leading on from the above, we have identified a 20% profit margin, this includes:
    1. Wholesale Product cost
    2. Packaging cost
    3. Shipping
    4. FBA fees

    Our 20% margin does not include the following:
    1. Customs duties
    2. Distribution of product between Amazon warehouses
    3. Amazon PPC

    However our concern is that this 20% profit margin is based on us selling the product at a price that is higher than our competitors (20-30% higher), but it is a product that is arguably better quality, and with better packaging.

    The question we have is, based on your experience, would you say the 20% would be a healthy enough profit margin if we factor in price maneuverability to remain competitive, customs duties, Amazon PPC, and distribution between Amazon warehouses?

    We have tried searching in the Forum section, however weren't able to find a relevant post that may be able to answer our query.

    We look forward to hearing your thoughts,

    George
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    • Profile picture of the author dave_hermansen
      Originally Posted by DABK View Post

      So, what is your profit margin when you include everything?

      20 without including everything ain't all that cheerful.
      Like others here, I'm concerned that 20% doesn't seem to cover marketing expenses. Amazon PPC is nowhere near as good at conversions as actually listing your products on Amazon but that costs another 15% for most products.

      I'm also not sure if you have counted other things like hosting/shopping cart and payment processing fees into your equation.

      As Walter Hay said, though, you CAN sell your products for more than others if they are truly better and if you assign your own brand to them. Then, your job is to convince people that you have a much higher quality product than the cheap junk other people are selling.
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      • Profile picture of the author George Exec
        Thanks for your response. We will only be selling on Amazon through FBA, so the only marketing expenses will be Amazon PPC. Once we add in 10% for this, our profit margin will be 10%.
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        • Profile picture of the author dave_hermansen
          Originally Posted by George Exec View Post

          Thanks for your response. We will only be selling on Amazon through FBA, so the only marketing expenses will be Amazon PPC. Once we add in 10% for this, our profit margin will be 10%.
          I guess that's where my confusion lies. You say you will be "selling on Amazon" through FBA. FBA has nothing to do with selling on Amazon. You are only using Amazon as a shipping warehouse with FBA.

          Now that you have cleared it up and we see that you are hoping CPC is only 10%, I'll go back to the point I made before about making sure that you make it abundantly clear on your website that your products are vastly superior to the cheap stuff other people are selling.

          I'd also heed Walter Hay's words because it seems unlikely that you are getting true, wholesale factory direct prices OR you are not marking your products up enough in order to compete with vastly inferior products. Nike and Reebok do not mark their prices down in order to compete with no-name generic sneakers. Typical markups when buying direct from China start at 100% and can get to over 800%.
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        • Profile picture of the author Importexport
          Originally Posted by George Exec View Post

          Thanks for your response. We will only be selling on Amazon through FBA, so the only marketing expenses will be Amazon PPC. Once we add in 10% for this, our profit margin will be 10%.
          I can't imagine why anyone would even consider working on such a low margin unless you have an absolutely assured market for thousands of items and can sell hundreds every day.

          While operating my importing business with franchisees in four countries I promised them a minimum margin of 60% after taking all costs into account. They always achieved that and often a lot better.

          The key is to buy at the right price. Don't make the mistake of believing everything you read on B2B sourcing sites such as Alibaba. There are thousands of traders listed there masquerading as manufacturers.

          Once you separate the wheat from the chaff and find the real manufacturers, make sure you get a number of quotes to compare.

          Many newbie importers think they have got a great price but they have no idea how much less they should pay. I have seen ex-factory prices so low that many people would turn away from them, thinking that it was too good to be true.

          In my own experience, I bought 1,000 pcs of a product made to order for a landed cost of $3,000 and sold them all to one customer for $21,000. One of my franchisees did even better. He landed 7,000 items for less than $7,000 and sold them for $57,000.

          I have on file a letter from him referring to this in which he said: " It was great to make $50,000 for 1/2 day's work." (Letter on file for FTC inspection if required.)

          Walter Hay
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    • Profile picture of the author George Exec
      Hi Dabk,

      Our profit margin is roughly 20% with the only real unknown being custom duties.

      George
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      • Profile picture of the author DABK
        You're looking for 10% less custom fees, then. You're going to get less than 10%.

        And you have not listed any contingency set-aside. In any endeavor I've been involved in, there were things that, at least in the beginning, did not go quite as planned. Sometimes, it can be something as remote from your control as the price of gas going up, sometimes it's one of the 'partners' not delivering, on time or as promised, yet you still have to deliver.

        Originally Posted by George Exec View Post

        Thanks for your response. We will only be selling on Amazon through FBA, so the only marketing expenses will be Amazon PPC. Once we add in 10% for this, our profit margin will be 10%.
        Originally Posted by George Exec View Post

        Hi Dabk,

        Our profit margin is roughly 20% with the only real unknown being custom duties.

        George
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      • Profile picture of the author vi pp
        Hi george are tou franchising your business in usa
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  • Profile picture of the author agmccall
    Amazon has a great forum for sellers. just google amazon seller forum. Amazon associates frequent the forum, as well many sellers are there to help

    al
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  • Profile picture of the author zeus136
    You have not included the potentially largest budget item, advertising. To calculate profitability you need to include the cost of customer acquisition. This varies massively across different businesses.
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  • Profile picture of the author provenbusinessmodels
    20% percent is a great profit margin if you are considering how much money you invest and the profits you make per month.
    Actually, if you are selling wholesale products (not OA neither RA) or private labels, you will have much chance to grow with 20% per month as long as products are moving significantly.
    Think about it, when you sell you profit and buy more inventory.
    Let's say you start selling in August with $2000 in the capital while profiting 20%, in August of the next year you will have acquired in total a sum of $17832.20 a strong growth, right?
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  • Profile picture of the author dave_hermansen
    Really, I have no problem with a margin being as low as 10% when the cost of the product is more than $1,000. If not, your margins are definitely too low.
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