There has always been a lot of interest in flipping, also known as arbitrage selling, but this has really taken off post-Covid where so many people have looked to start a side hustle after seeing how risky it is to rely solely on one source of income.
I covered the flipping business model in detail in this blog post and went over the differences between flipping and private label (the latter being my own, preferred Amazon business) and while I’m personally not a huge fan of the arbitrage model, I do recognise that it can be a great entry point for beginner ecommerce sellers.
Flipping allows you to build up a bank to invest in your private label product and you also get valuable experience selling on Amazon. It can also be started with pretty much any amount, I’m talking literally £100+ here, whereas with private label you’re looking at £5k as an initial investment – a huge difference!
For some balance and for those of you who are too lazy to go back and read my previous blog post, the main reasons I’m against flipping as a long term model are:
Flipping is time intensive
Continually sourcing products, especially if you’re focused on retail arbitrage (i.e. buying from stores rather than online), can be very time consuming.
Flipping is difficult to scale
Scaling is a lot less straight forward than when you’re making your own products to sell. You can’t simply put more money into advertising (doing PPC advertising on Amazon when you’re selling another brand is never a good idea!) or expand your product line (you’ll most likely be selling in multiple niches anyway).
You can never sell a flipping business to an aggregator
This is a big one for me, as you can never create a valuable business and brand which you can sell with flipping.
Flipping is a lot of admin work
When you’re dealing with multiple purchases, often at different cost prices, and hundreds of different SKUs, the admin work can get messy! Now this isn’t a huge problem as there’s always tools and software to help you with this, but compared to private label it’s definitely a lot more work keeping track of your expenses, sales, and profit.
In the interest of fairness, I will point out that the time intensity and scalability can be taken care of IF you do things the right way and build processes and outsource, rather than running around chasing the hot product of the week.
Now I know what you’re thinking – why did I even bother flipping then? Well the answer is I didn’t!
I simply don’t have the time to dedicate to this myself. I’m working hard to get to that elusive 4 hour work week, not go the other way back towards 40! But I have seen the interest from some of my blog readers and in the emails I get, so I still wanted to cover flipping properly. And that’s why I asked Imogen, someone who’s worked for me before, to see if she’d like to try flipping and then document her results on my blog for you all to enjoy and learn from.
And thankfully she said yes, so enough from me for now and I’ll hand you over.
How Imogen’s flipping business on Amazon started
When Andrew first asked me if I wanted to test out flipping for a blog post, I have to say I wasn’t that excited! I’ve been planning to launch a private label product using Amazon Sharks and this seemed like a little bit of a step down. But I thought why not give it a go, as I had a long summer holiday off from my studying, and I could hopefully make a little extra money. So after a bit of research and reading around, I dived straight in and made my first purchase – 10 swimming pools!
Definitely a very seasonal item but it was early June with promises of an impending heat wave in the UK. Coupled with the fact that with the traffic light system and isolation rules, it looked set to be another summer of local holidays, and I felt fairly confident in my purchase.
I placed this order on June 6th and fast forward just a week later and my mind had been completely changed about flipping. All 10 pools sold in one day!
I listed 4 of them at £174.50 first thing in the morning and by the time I got back from the gym 2 hours later, they had all sold. Then the next 6 arrived and I immediately listed them, this time putting the price slightly higher at £179.95 – and all 6 sold within an hour.
I couldn’t believe it was that easy, buying pools off of Amazon and then selling them back on Amazon 7 days later for more than double the price!
To delve into the actual profit, in total I paid £751.80 for the 10 pools. They sold for a total of £1,777.70 and Amazon’s fees were £326.40. I paid £14.33 per pool for next day delivery via ParcelForce, so £143.30 in total for shipping.
That left me with £1,308.00 or £556.20 in net profit. Not bad for about 30 mins work! It’s safe to say that at this point I was much more interested and ready to give flipping a real go. Fast forward one month, and after a LOT of mistakes and learning, I had total sales of £15,846.23 and profit of £3,065.19
I was incredibly happy with the result considering that because of my uni summer placement, I couldn’t put that much time into it. And on top of that I was actually suspended by Amazon for a week, in which time I couldn’t sell anything!
Getting suspended for flipping on Amazon
This suspension was my first taste of Amazon’s seller support and it really was as bad as everyone says. It was incredibly difficult to get any real help and the answers they gave were always different and never consistent from person to person. Thankfully just as I was starting to give up, someone explained exactly what was needed from me and I got my account back!
Just to illustrate exactly how inconsistent seller support is, after finally being told exactly what document they needed from me, I uploaded it thinking everything was finally taken care of, only for it to be immediately rejected. I then re-uploaded the exact same document and it was accepted…Definitely something to be aware of when you start your Amazon journey.
This is also a good time to point out that Andrew had set a rule for me when starting my flipping trial, that to make it a fair test I couldn’t ask him for any help whatsoever. So whatever my question was – about sourcing, products, shipping to EU, help with my listings etc, I couldn’t ask Andrew and instead had to rely on forums and flipping groups. And actually because of this rule I did run into a few problems and made some stupid mistakes, which I’ll go over now.
Not turning off international shipping when flipping on Amazon
One thing I was very scared of was getting any orders internationally as I didn’t know how it would work with Brexit and exporting to the EU, so I turned off all international shipping on my shipping template, or at least I thought I did!
One day I woke up to 4 orders from the EU, 3 from Germany and 1 from Spain.
After speaking to Amazon I found out that I was auto-enrolled in a program that lists your products internationally. So I was now left with two choices:
Cancel the orders
Ship them out
To me both seemed like terrible choices – shipping them out would have meant paying 3 times more in postage than what I had calculated and also had the whole problem of import charges to deal with. But if I cancelled the orders so early on in my Amazon selling journey, it would have messed up my metrics and risked my entire account.
So in the end I decided to ship out the orders, after messaging all 4 buyers to say that there would be import charges as the items were coming from the UK and confirming that they were happy to go ahead.
In the end 2 of the buyers received their orders and paid the import charges without any issues.
1 was stuck in customs for an entire month and then I refunded their import charges as an apology.
And the final one was the worst result – after refusing the delivery due to the import charges, I then paid it for them and re-arranged the delivery, only for the buyer to then request a return due to change of mind. When I replied saying that’s fine but they would have to pay the return shipping costs, they immediately opened an A-Z case saying the item had arrived damaged and Amazon refunded them in full.
So for this one order I paid shipping to the EU, paid import charges, then paid for shipping back to me as well! About as bad as it could have gone.
Moving on to my next mistake and something that I would have done differently if I had the chance:
Sending in items for FBA while flipping
As well as the 10 Intex pools that I sold first, I also managed to get some Bestway pools and kayaks to sell, but rather than listing these as FBM I decided to send them into Amazon to sell as FBA. My thinking here was that I could get a higher price, and while that was true, I didn’t realise how long it would take for my items to be checked-in at Amazon’s warehouses. For these two shipments, which were sent on 11th June, it took nearly a whole month for the inventory to become sellable.
In that time I could have sold them ten times over. And to make things worse some items were lost after being received by Amazon and I had to make a claim for reimbursement.
I’d heard horror stories with this, with Amazon sometimes reimbursing people less than their cost price, but thankfully for my claim they were incredibly fair. For my missing kayak they reimbursed the exact amount (minus their fees) that I would have received from selling it. So I was very impressed by Amazon here (less so impressed by their ability to lose a giant box but that’s another point).
Moving on to the last point which I would do differently if I started again:
Not properly tracking inventory, sales, and P/L
I thought about leaving this out so Andrew doesn’t see it, as he did warn me about this before starting! But I didn’t properly track my purchases and expenses from the beginning. I kept putting it off week after week and now it’s at the point where it’s going to take me a long time to get it all sorted out.
Thankfully there are a number of tools available to help with this, including spreadsheets and more in-depth software and I’m testing a few of them out now to see what works best for me. The majority of such software is geared heavily towards private label sellers rather than flippers, so I will test a number of them out before choosing one to stick with going forward. Speaking of which, to finish off this post here’s my conclusion and plans for the rest of this year and beyond.
Planning the year ahead while flipping on Amazon
I want to focus on building a more scalable system, relying a lot less on seasonal ‘hot’ items, which is what I’ve been doing so far. I’m expecting a few slower months as a result, which I’m already seeing this September with sales being less than through the summer, but that will be worth it long term if I can build some more consistency. I have also built up a good amount of stock for Christmas and Q4, so so I’m very excited for November and December, which I’m expecting to be good months, especially if the toy shortage takes place!
So there you have it! Imogen generated £15,000 in sales and £3,000 in profit in one month. I have to admit that’s better than what I was expecting.
This will undoubtedly slow down as the summer months and Covid restrictions created some opportunities that won’t always be there, but I’m still very impressed. It will be very interesting to see how Imogen does over the next few months and if she can start to create a real scalable business with flipping.
If there’s enough interest then I’ll be happy to turn this into a little series for the blog to both track her journey and go into more detail with the process, looking at flipping groups and software etc. So as always let me know what you think, either in the comments down below or you can get in touch with me directly.
And of course if you have any questions for Imogen post them below for her to see. Otherwise, until next time!
At this point your auto and manual campaigns should have been running for a few weeks and ideally are already generating sales.
I wouldn’t be concerned about whether or not they’re profitable at this point as we expect to make a loss in the first few weeks while we generate some sales, gather data and also climb up the search rankings.
The next step is optimising your campaigns – and this is where you can start to make some real money advertising on Amazon!
But don’t fear, I won’t leave you there to handle the rest by yourself. In today’s post I’m going to go over exactly how you should optimise your campaigns to ensure they’re profitable, money-making machines.
Because creating the campaigns is just the beginning! If you simply leave them to run like that the chance of them being profitable (i.e. your ACoS being less then your net profit on each item) is extremely low.
So without further ado, let’s get to it!
Optimising your ad campaigns on Amazon is really split into two different parts:
Bid optimisation – adjusting the amount you pay for each click for your campaign or keyword.
Keyword optimisation – adjusting the keywords that you target with your campaigns.
Let’s start with bid optimisation for auto campaigns, as that’s the simplest.
Bid optimisation for auto campaigns
All we really need to look at is whether your campaign is profitable! And we know this from the ACoS (advertising cost of sale) number.
We went over this in Part 1 and 2 of this guide, but here’s a quick recap.
The ACoS tells us what percentage of the item’s price we paid in advertising to get that sale. So for example if I paid for 5 clicks at £0.60 per click and made one sale of a £14.99 item, that means my total advertising cost for that sale was £3.00, giving me an ACoS of 20.01% (£3.00 / £14.99 x 100%).
And then all I have to do is compare this number to my net margin to see if my advertising campaign is profitable or not. Using the same example, if my net margin is 35% then I’m making good profit, but if my net margin is 15% then I’m making a loss.
So look at the data from the first few weeks of your auto campaign and compare your ACoS to your net margin – If it’s above, then reduce your bid amount.
BUT I wouldn’t be too aggressive with this as if you reduce your bid price too low to the point that a lot of your competition is outbidding you, your ads simply won’t be shown and you won’t get clicks.
And remember that the main purpose of the auto campaign is to gather keyword data, so ideally I would let it run for one month before making too many adjustments.
After that you’ll have gathered the majority of useful keywords and can start adjusting the bid prices down until they reach a positive ACoS.
Some people may find that they actually have a profitable advertising campaign right from the beginning, which is great. At this point you may be tempted to reduce your bid prices a little bit as well to make your campaigns even more profitable but DON’T do this.
Sales and Profit
While it may reduce your ACoS even further, making your campaign look more profitable, you’ll actually be making less sales and profit overall.
Let’s run through a quick example so you know what I mean.
Say I’m running an ad campaign with a bid price of £0.50, which generates 50 clicks a day on average.
From those 50 clicks I have a conversion rate of 30%, meaning 15 sales a day.
With a £15 product and 30% net margin, that’s £225 in sales and £67.50 in profit BEFORE taking into account my advertising costs – which is £25 (£0.50 x 50).
As you can see this is a profitable campaign as the ACoS is 11.11% vs 30% net margin.
So I can make this even more profitable by reducing my bid price right?
Because like I said, reducing your bid price will usually decrease your ACoS, which sounds great… but this is what really happens:
I reduce my bid price from £0.50 to £0.40, and because of the lower bid amount my ads are shown less by Amazon, so I only get 30 clicks a day now.
My conversion rate stays the same at 30% which means 9 sales a day.
So my ACoS has gone from 11.11% to 8.88% – which sounds great?
But while before I was making £42.50 daily profit (after all costs) I’m now making £28.50.
That’s a 30%+ drop in actual profit even though my ACoS has gone down! I hope you see now why I say you can’t simply look at one number in isolation to judge your campaign.
And I know all this talk of ACoS, margins, and percentages will completely bore some of you but you absolutely must know and understand all these numbers to make your Amazon advertising campaigns work.
Otherwise just don’t bother starting! So really my advice when your bid price is profitable is to leave it as it is. This applies not only to your auto campaign but also to your manual campaigns as well.
Big optimisation for manual campaigns
Optimising bids for manual campaigns is more in-depth as you can adjust it for specific keywords, which means we have a lot more control.
But the overall strategy remains the same – if the ACoS is at an unprofitable level then you adjust your bid down slowly.
You’ll also find some keywords that haven’t delivered any sales at all. What to do here depends on how many clicks they’ve had; if it’s just a few then there’s not enough data to make a proper decision so you simply let it run as is. If however a keyword has had 25-30+ clicks and still hasn’t made any sales then you delete it and add it to your negative keywords list in your manual campaign as well (to make sure it’s not used again).
But just like with our auto campaign, for profitable keywords within my manual campaigns I don’t adjust bid prices down. In fact I take things a step further here and often increase my bid prices to well above what Amazon suggest.
My reasoning here is fairly simple – the bid amount we set is actually the maximum we allow Amazon to charge but it doesn’t mean they charge that amount for every click and it’s often less.
This means that setting my bid prices high allows me to outbid my competition and grab that extra traffic and sales!
If you want a more conservative approach, then simply leave the bid prices for any profitable keywords as they are.
The most important part here is to monitor for any keywords that are unprofitable and then adjust your bid prices down. This will result in less clicks, but they’ll be profitable!
And that’s really it for monitoring and optimising your advertising campaigns’ bid prices.
When you’re first starting out with advertising on Amazon, I’d recommend you do this weekly, on a set day.
Next up is keyword optimisation and this is more in-depth than bid optimisation and can really allow you to uncover some hidden goldmines on Amazon if you go after less common, long-tail keywords.
The goal here is really to add as many (profitable of course) keywords to your campaigns as possible, allowing you to uncover additional traffic that your competition isn’t reaching!
The best place to start with this is by analysing the Search Term Report, which you can download right from Amazon itself within your campaign manager. This shows you exactly what keywords Amazon have used in your auto and manual campaigns and how many clicks and sales they generated.
This is really priceless information if used correctly and why I keep saying it’s not just about making money with your campaigns initially – it’s this keyword info that we’re really after.
So from the Search Term Report, the most important data for us to analyse is:
Customer search term – this is the keyword that customers have used in their search on Amazon
Clicks – how many clicks this keyword generated
Spend – how much I’ve spent on that keyword (clicks x bid price)
Sales – how much in sales that keyword has generated
ACoS – advertising cost of sales (spend / sales x 100%)
The goal here is very simple – we want to uncover as many keywords as possible that generate sales at a low ACoS and include them in our manual campaigns where we can then further monitor and optimise them.
But as well as this we also want to uncover poorly performing keywords (low conversion rate and high ACoS) and add them to our negative keyword list.
My strategy is to get as many viable keywords into my manual campaigns as possible so any keyword that generates a sale in my auto campaigns gets added to my manual campaigns for all 3 match types – exact, phrase, and broad.
From there I let them run for a week or two, using Amazon’s suggested bid amounts, and then I evaluate the results and start optimising.
That’s it! It’s so simple yet still incredibly effective. There’s really no complicated, magic formula needed here.
Run an auto campaign > add any keyword that generates a sale to your manual campaigns > monitor and optimise your bid prices and keywords on a weekly basis > watch the sales roll in!
One important point to note, as well as getting this keyword data from your auto campaigns, you can also get it from your broad and phrase match manual campaigns.
We covered this in detail in our previous blog post but when you run broad and phrase match campaigns, your keyword will be used in other longer tail searches. For example if my keyword is “mechanical keyboard”, it might show up for searches like:
RBG mechanical keyboard
Blue switch mechanical keyboard
Now some of these searches may be irrelevant to your product, in which case you’ll instead add them to your negative keyword list, but often you’ll find some amazing less popular search terms that you can then target specifically in your exact match ad group.
So that’s why we need to analyse our phrase and broad manual ad campaigns in the exact same way as our auto campaigns.
When you first start this process you’ll find that you’re adding loads of keywords to your manual campaigns and that’s fine, it’s to be expected. As time goes by there’ll be less and less keywords added as you’ll have already discovered the majority of them.
At this point you can take things even further and start searching for even more keywords using 3rd party software such as Jungle Scout, Google Keywords and other such tools.
I don’t recommend doing this until you’ve pretty much exhausted all the keywords generated by Amazon, as it’s less reliable and can also be a strain budget wise if you’re adding so many keywords at once.
So for now you should have more than enough to work on but I’m also planning a future blog post going over some of the PPC software that’s out there and putting them through some tests to see if they’re worth the money.
As always, if you have any questions at all just get in touch with me and I’ll get back to you personally.
Manual campaigns are an important tool in your Amazon Advertising toolbox. In a recent post I covered PPC advertising on Amazon and why it’s an integral part to any successful product launch that so many people skip out on, and then wonder why they’re not getting any sales and simply can’t climb up the search rankings!
In that post we covered everything you need to know to get started with advertising on Amazon and we walked through the steps needed to create your very first Amazon sponsored products advertising campaign, so if you’re completely new to this I suggest you check that out first.
There’s a few very good reasons why I always suggest starting with an auto campaign, rather than a manual, even though the manual campaigns are more important and profitable for us in the long run.
Why do we need to start using PPC Auto Campaigns?
1. It’s the easiest and fastest way to start PPC on Amazon
With an auto campaign you really don’t have to do much to get started – simply create your campaign, set your max bid, and off you go! Amazon takes care of the rest and you don’t have to provide them with a list of keywords to target.
2. It provides valuable data to use in our manual campaigns
There’s simply no tool or software out there that will give you every possible keyword to target, it’s impossible. So no matter how meticulous you are, you’ll always miss some. And this is where the auto ad campaigns come in; you can download a special report via Amazon called a Search Term Report, which will not only show you what keywords have been used but also how many clicks and sales they generated!
This is incredibly valuable real life data that you can use when building the rest of your advertising campaigns on Amazon.
3. Auto PPC ad campaigns can still be profitable by themselves
While in most cases I would happily run my auto ad campaigns at a slight loss, purely for the data and added sales velocity, often they can still be profitable by themselves!
So it’s a definite win-win situation here.
And that’s why we always start with an auto campaign and then let it run for a while before moving on to creating a manual campaign as well.
How long should you let the auto campaign run for?
Well this really depends on your max bid and daily budget as ideally you need 100+ clicks before doing anything further.
It obviously goes without saying that you’ll get 100 clicks faster with higher bids and a higher daily budget as Amazon will show your ads more…
As covered in Part 1 of this guide, I suggest a minimum of £20+ for your daily budget and then going a few pennies above Amazon’s suggested bid amounts.
You can be confident you’ll get a good amount of clicks at those rates and it should only take a week or two for you to get enough data. Of course if you’re being more aggressive with your launch and have a bigger budget, then go for £30-£50 daily to speed up the process.
Sometimes you’re even able to do this on a smaller budget if you see that your auto ad campaign is delivering a profitable ROI by itself, then it’s safe to increase the daily budget as you’re making money on it anyway!
Alright, let’s now move on to the real action – creating your first manual ad campaign on Amazon. I already covered the process for creating an auto campaign step by step in Part 1, and they’re largely the same, so I won’t repeat it all now.
How to create a Manual Campaign?
Of course the main difference is that this is a manual campaign, so change the name to “Product – Manual” and make sure you select manual targeting as well:
And you’ll see that this brings up two more tabs that we didn’t get with our auto campaign:
We’re going with keyword targeting, which as the name suggests means our ad is shown when people search for specific keywords on Amazon.
Then in the next tab where we can add our keywords, you can see that there are three match types we can choose from:
And it’s really important that you understand the differences before we move on.
Three Different Match Types for Keywords You Must Master
1. Broad match
When you use this keyword match type, Amazon will show your ad for any search that contains your provided keyword(s), regardless of the order, if it’s plural etc. And it will also show your ad for searches of related keywords.
For example, if my keyword was “mechanical keyboard”, this would show up for searches such as:
Keyboard and mouse combo
As you can see a lot of the searches are clearly for a different product, even if they do contain the word keyboard. And this is why broad match is the cheapest keyword match type, as they’re less targeted and relevant, which means a lower conversion rate and higher ACoS.
2. Phrase match
With this keyword match type, your ad is only shown when the keyword is used in full and in the same sequence, such as:
Blue switch mechanical keyboard
Gaming mechanical keyboard
Mechanical keyboard for girls
Mini mechanical keyboard
So the search terms with phrase match are much more relevant and it removes a lot of the false positives we saw with broad match. As a result the bid prices are generally higher, but so are the conversion rates.
3. Exact Match
Lastly we have exact match, which means my ad will only show when someone searches for the exact keyword I’m targeting, so “mechanical keyboard”.
This is obviously the most relevant and targeted match type and will give the highest conversion rate. Now I know what you may be thinking – “why would we even consider using broad or phrase match? After all exact match means we won’t show up for any irrelevant searches and we’ll get the highest conversion rate…”
Well true, but you’ll miss out on loads of traffic like that!
Like I said before, it’s simply impossible to find every good keyword that people use to search for your product – there’s just too many variations and it would be a full time job constantly researching and updating your list.
Not what we want to be doing!
But with broad and phrase match we can still target these other searches and make extra sales.
Yes they will in general have lower conversion rates due to some false hits, but this is usually made up for by the fact that they have lower bid prices as well.
So long story short – we’ll be using all 3 keyword match types in our ad campaigns.
But I do still like to keep them all separate to make tracking and optimization easier, so what I do is create a new ad group for each match type.
Creating an ad group for each match type in Amazon Advertising
Again, just stick to the same simple naming we used for the ad campaign. So for my ad group name I just use “Product – Manual – Exact”:
Just to go over it again – we create 2 ad campaigns for each product. One automatic and one manual. And then under the manual campaign we create three different ad groups (one for each keyword match type). I hope that’s all clear!
After selecting the product you want to advertise, it’s then time to add keywords!
Now Amazon will give you a long list of suggested keywords, which is a perfect starting point. All you have to do is click add and they’ll be added to your keyword list:
This really depends on the product but generally I suggest using the top 5-10 suggested keywords as a starting point.
But as well as that you should also have a good-sized list of keywords of your own from your own product research as well as from the auto campaign that you’ve been running for at least a week. Can you see now why I said it’s going to come in very useful when creating our manual campaigns?
To add these keywords as well, just click on enter list and enter them one by one (one on each line):
Simply click add keywords and they’ll also be added to your list along with the suggested bid. Sometimes certain keywords won’t have a suggested bid, so just judge by other similar keywords and put something that makes sense.
Remember we want to adjust all of the bids to be a few pennies more than what Amazon suggest, so do that as well.
Lastly we have the negative keyword targeting tab, which we won’t use for our exact ad campaigns. This will be very useful later on for our broad and phrase ad groups, as we want to remove any keywords that we can see are performing very badly.
And that’s it – click launch campaign and you’re done!
Congratulations, you’ve now got both automatic and manual ad campaigns (with three different ad groups) running on Amazon.
The next step is to again let them all run for a week. And that’s where the fun starts – optimisation!
Optimisation is what separates successful Amazon ad campaigns, that become profit making machines, from failed campaigns that just burn money day after day.
So stay tuned for part 3 of this guide, where I’ll share the exact strategies I use to optimise my Amazon PPC campaigns.
Before we get into today’s post, a quick welcome back to everyone as I know I haven’t posted a lot recently.
This is only because I’ve been incredibly busy with some business ventures over the last month or so, including some new offline businesses which I’m excited to hopefully share more about in the future.
But I have a ton of great content and posts planned for the blog and it should be business as usual from now on as we start to gear up for Q4 – the busiest and best time of the year for Amazon FBA businesses.
And I know what some of you may be thinking, it’s only July… Christmas and Q4 are still months away! But anyone who’s been selling on Amazon for a while knows that you have to start preparing way in advance. This is more important than ever with all the shipping and fulfilment center delays we saw last year – and this year on top of that we also have inventory and storage limits to add to the headache.
So no question about it you need to start planning and preparing now. I’ll have more posts on this coming very soon.
Back to today’s post, which is all about advertising on Amazon.
How to do PPC advertising in Amazon?
It’s a topic I get so many emails and questions on as for a lot of people, especially new sellers, it’s very complicated and intimidating. Especially if you’re switching from selling on eBay where promoting a listing is as simple as choosing a percentage!
So does this mean you should simply ignore PPC and sponsored ads on Amazon and rely purely on natural, organic sales? After all that way you have higher margins as well right? 100% NOT!
PPC is vital on Amazon, especially when it comes to a new product launch, and it can be the difference between a successful, profitable product and a failure. You can also read our previous article about Amazon PPC Auto Campaigns.
Every week I get emails that go something like this:
“Hi Andrew, I’ve launched a new product on Amazon and my listing has been live for a few weeks now but I have barely made any sales. Can you check it and tell me what’s wrong?”
And the truth is a lot of the time there’s simply nothing wrong with the listing itself. Especially for blog readers and Amazon Sharks members who know how to create a great listing, with:
great product pictures
well written and engaging descriptions
top quality enhanced brand content
Why new Amazon Sellers aren’t making sales?
Simple – Amazon isn’t sending any traffic to their listing!
If you think about it this makes perfect sense, right? After all, Amazon sends traffic to listings that they think will make a sale, and for a new listing they simply have no data to go on – they don’t know what your conversion rate is for different search terms.
So it would be a risk to send valuable traffic to your listing / product without getting anything in return.
Which can leave a new product in a vicious negative cycle:
no traffic = no sales, which = no traffic! And that’s where sponsored products comes into play.
What is sponsored products on Amazon Advertising?
With sponsored products you pay Amazon to send traffic to your listing. You then make sales. This shows Amazon that your listing / product is in fact good enough to send customers too and suddenly not only are you making sales through your ads, you’re also climbing up the search rankings and making organic sales too.
This is a key part of PPC and sponsored products on Amazon that so many people don’t get. It’s not solely about making profit directly from these ads, but also using them to increase your sales velocity. And now instead of the negative cycle, we have something amazing:
Sponsored products = traffic to your listing = sales = increase in search rankings = traffic to your listing = sales!
I hope you now understand why sponsored products aren’t something you can simply choose whether to do or not – it’s vital. And actually it’s nothing to be scared of anyway, IF you know what you’re doing it can be a profit making machine for your Amazon FBA business.
In today’s post I’m going to break it down, make it as simple as possible and give you a basic plan of action for how to get started which you can apply to your own products.
Simply put sponsored products is a paid advertising system built directly into Amazon that allows us sellers to create and customize ad campaigns.
However, this isn’t some basic low-level listing promotion like on eBay, with Amazon sponsored products we can set:
keywords to target
set maximum bids / cost per click
set when our ads run
set the type of ads we use
set the total amount we spend
You get the idea!
How it works is that you pay every time someone clicks on one of your ads, i.e. you pay every time someone is sent to your listing. This is known as pay per click, or PPC, and is much better than paying per impression, which means you pay every time someone sees your ad.
PPC is a lot easier to calculate and control as in effect there’s only a few important numbers that will make or break your advertising campaign:
Your cost per click – the amount you pay every time someone clicks on one of your ads on Amazon
Your conversion rate – the percentage of people who end up buying after viewing your listing
Your net profit per sale
Example PPC Amazon Advertising Calculation
As an example, I have a product which is £15 and I have a 35% net margin, giving me £5.25 profit per item.
My cost per click for my sponsored products advertising campaign is £0.50.
And finally my conversion rate is 29%.
That means for every 100 people that view my listing, I get 29 sales. Those 100 people (clicks) cost me £0.50 x 100 = £50. And those 29 sales give me £5.25 x 29 = £152.25 in profit.
So £50 spent on ads to make £150+ in profit – sounds good to me!
Obviously this is just a basic example so you understand how it all works together (and why I’m always talking about the importance of conversion rate!).
How to set-up PPC the first time
Again, this is actually a lot simpler than most people think. I know a lot of Amazon gurus like to make it sound like rocket science where you need complex software and spreadsheets to make it work, but it really isn’t that difficult.
Once you understand the basics and know enough to be able to create your own campaigns, then the rest is easy enough to master.
Let’s get to it.
To start with, login to your Amazon seller central account and then click on the Advertising tab and then Campaign Manager which will open a new Amazon Advertising window.
This is where we’ll create our campaigns.
When you click Create Campaign, you’ll be given three options for the campaign type:
If you want to learn more about what each of these campaign types are, simply click the explore button beneath each option and a very useful pop-up appears, with a clear explanation and video on each one made by Amazon.
For now we’re only interested in Sponsored Products so select that to start creating your campaign.
Creating A Sponsored Products PPC Campaign on Amazon Advertising
The first thing you need to do is set a campaign name – to keep things simple I just use the product name followed by Auto or Manual (we’ll cover that in a little bit!).
So “Widget – Auto” for example.
Next you set the start and end date and your daily budget.
Now this will of course depend on your individual business, but when launching a product I suggest a minimum of £10 for your daily budget, ideally more. This is because anything lower than that and you simply won’t get enough clicks. With this first campaign we’re trying to achieve two things:
We want clicks and sales
We also want to gather data which we’ll use later to create and optimise more ad campaigns
So anything less than £10-£20 and the process will be too slow.
Next you select the campaign targeting type, from two options – Automatic targeting or Manual targeting. With manual targeting you provide Amazon a list of keywords that you want your ad to be shown for.
With automatic targeting, you guessed it, Amazon automatically generate a list of keywords to target with your ad. This is based on your product, listing title, bullet points, and description.
For our first campaign we’re going to choose automatic (more on how this ties into our overall strategy a bit later).
So our campaign now looks something like this:
Set your PPC Campaign Bidding Strategy. Three options!
There are three options to choose from here:
Dynamic bids – down only: This allows Amazon to sometimes lower your bid amount when it’s less likely to convert to a sale.
Dynamic bids – up and down: This allows Amazon to both lower your bid amount when it’s less likely to convert to a sale as well as increase it (by up to 100%) when it’s more likely to convert to a sale.
Fixed bids: Amazon won’t change your bid amount based on whether it’s more or less likely to lead to a sale.
If these three options weren’t confusing enough, Amazon also offer additional settings which allow you to increase your bids based on where your ads are placed.
So you can allow Amazon to increase your bid amount, by up to 900%, to have your ad shown at the top of search (the first page) or on other product pages.
Now don’t worry if this is starting to get a bit confusing or if that 900% increase sounds a bit scary, because I actually don’t suggest using these options. I’ve tested them personally in my own business and find it very difficult to achieve a positive ROI with these bid options.
I think they’re purely for big brands looking to burn through an advertising budget to get their products seen as much as possible, but it’s very hard to make them profitable…
So just keep things simple – ignore these final options and just go with either Fixed bids or Dynamic bids – down only.
Dynamic bids – down only is what I suggest as it’s the safest and simplest option.
Let’s move on to the next section – create an ad group.
First up, the ad group name. I use the exact same name I used for my campaign. And the reason for this is that I create a new campaign for each product / listing I want to run ads for. I don’t combine multiple products into a single campaign.
That way it’s so much easier to monitor your ad campaigns and to optimise them and I really don’t see any benefit to grouping them together.
So just copy the same name for the ad group and then search for / select the product you’re creating the campaign for.
Next up is the really important part – your bid amount!
Here you set your default bid, which is the maximum amount you’ll pay for each click for your ad.
You may be wondering why not just set this as low as possible then?
Well because then your ads simply won’t be shown!
Just think about it, you’re not the only one running ads for that keyword on Amazon (well it’s extremely unlikely at least) so if you’re bidding £0.20 per click and another seller is bidding £0.50 per click, then Amazon aren’t going to show your ad to many people!
You’ll need to increase your bid to a competitive level or there’s simply no point.
BUT it’s not as simple as highest bid wins, no Amazon are a little smarter than that and they also take into account the click through rate of your ads and the conversion rate of your product.
What’s the click through rate (CTR)?
It’s the percentage of people who view your ad who click on it and is calculated by:
clicks / impressions x 100%.
For example if Amazon show your ad to 10,000 people and you get 600 clicks, that means you have a click through rate of 6% (600/10000 x 100%).
And let’s say your competitor is running an ad that only gets 400 clicks from every 10,000 views, giving them a 4% click through rate.
That means that even if you were bidding £0.50 per click and your competitor was bidding £0.70 per click, Amazon would still make more money from showing your ad even though they’re bidding 40% higher!
And conversion rate is as you know the percentage of people who make a purchase after viewing your listing.
This is also incredibly important to Amazon as they don’t only care about their ad revenue (shocking I know) but also about how relevant the ads they show to customers are.
And a higher conversion rate means that people found what they were looking for. So what does this all mean? What bid amount should we use for our campaign?
Well actually there’s no complicated math needed here, at least not at this point. To start off I even suggest using Amazon’s suggested bid amount, but increasing it ever so slightly – if they suggest £0.50, use £0.52. If they suggest £1, use £1.02, etc.
This is simply so that you can outbid other sellers who are using the suggested amount, even if it’s only by a penny or two.
Next up Amazon auto select to launch your ad campaign on other marketplaces at the same time but you can deselect this as it’s not needed.
Then last but not least we have two optional sections:
Negative keyword targeting
This is where you enter keywords that you specifically want to be excluded from your ad campaign.
There’s nothing I would suggest adding at this point but this can be extremely useful later when you’re monitoring and optimising your campaigns as you may find certain keywords that have a negative ROI.
Negative product targeting
Negative product targeting stops your ad from being shown on certain products. Again, I wouldn’t suggest adding anything here when creating your campaign, but it’s something you can come back to once you start getting some data in.
Next is to click that launch campaign button. Congratulations you’ve created your first Amazon ad campaign!
It wasn’t that hard was it?
Definitely, this is only the beginning. The plan is to run this automatic campaign for at least a week and then we’ll come back to it. At that point we’ll create a manual campaign using the data we’ve got and then start optimizing.
I’m going to cover this all and more in Part 2 of our Amazon sponsored products guide. I’ll share with you the system I use to launch, rank, and run profitable sponsored products campaigns for all my Amazon listings.
We’ll also dive into a bit more detail and compare Amazon sponsored products to other advertising options, including driving external traffic to your listings via Instagram, Facebook, and more.
One thing that has always shocked me is how many business owners don’t have a good grasp of their figures! I get emails from countless Amazon sellers who simply don’t even know all their costs and how to calculate basic profit margins and returns.
Now I’m not saying you need to be a math whizz to run an Amazon FBA business, obviously not. But you 100% do need to know your figures perfectly! Otherwise how can you even assess product opportunities and make changes to your products’ pricing if you don’t know your margins and ROI?
So in today’s post I want to do a basic intro into calculating profitability, which you can then apply to your own product research and Amazon business.
Amazan FBA Cost Accounting – What are the costs you have to take into account?
Well for me personally step 1 is calculating my landed cost for a product, which means the final price for me to get it into the UK in hand and ready to sell.
This can be broken down into (a) product cost – this is the price you pay your supplier in China (or whichever country) to manufacture the product for you, including any packaging and (b) shipping – this is the total cost to get your products from your supplier to you (so shipping and customs clearance costs) and can vary hugely depending on whether you use courier, air freight, or sea freight. https://andrewminalto.com/courier-vs-air-sea-freight/ and (c) import tax. For UK sellers import tax will be made up of VAT, which is currently set at 20%, and import duty, which ranges depending on the product but is generally around 5%.
One important point to note with import tax is that the VAT is charged at the very end, once all the other costs are added. This means that you pay VAT on both the shipping charges and also on the import duty, not just on the product cost.
Amazon FBA Profit Calculation
So let’s see how that all adds up with a fictional order of Gadget X. After speaking to suppliers, getting samples, and negotiating the MOQ (minimum order quantity) down from 1,000 units to 500, the product cost from your supplier is £3.50 per unit including OEM packaging.
Product cost = £3.50 x 500 = £1,750
For shipping courier is too expensive due to the order size, so you speak to a good freight forwarder (my personal recommendations are Woodland Global and Westbound Global) and decide on air freight shipping. You receive a quote which is broken down in to:
Overseas Customs Entry – £45
Air Freight – £303.76
War Risk Insurance – £32.74
Airline Handling – £39.50
Customs Clearance Fee – £42.50
UK Cartage – £35
That adds up to exactly £498.50 in total, which we’ll round to £500 for simplicity sake.
Last but not least we have the import tax. As I mentioned earlier this is split into import duty and then VAT.
And while VAT is set at 20% (apart from some very specific products that are 0 rated), import duty varies depending on the product and tariff code. To find out the tariff code for your product, simply go to this page: https://www.gov.uk/guidance/tariffs-on-goods-imported-into-the-uk and then use the trade tariff tool to look up your product type and find out the VAT and import duty.
For our fictional product the import duty is 4% and VAT the usual 20%.
Applying Import Duty & VAT
But as I warned before we can’t just call this 24% and then apply it to the order altogether. Instead we have to first apply the duty at 4% and then the VAT at 20%.
I know I know it barely makes a difference, but I just wanted to point it out nonetheless! So with £1,750 in product cost and £500 in shipping, that gives us import duty of 4% x £2,250, which is £90. Then lastly VAT at 20% x £2,340, which is £468. Import tax = £90 + £468 = £558
And that’s all the costs we need to take into account to get the product manufactured in China and delivered to my door in the UK.
In total this order cost:
Product cost – £1,750
Shipping cost – £500
Import tax – £558
Then I simply divide that by my total order size, which was 500 units, to get a landed cost per unit:
Final landed cost = £2,808 / 500 = £5.61
£5.61 is the all important figure which I’ll then use to set my pricing on Amazon, work out margins and ROI, etc!
Know each line item well to understand Amazon FBA profitablity
What happens if your supplier offers you a reduced product cost if you take 1,500 units?
You need to be able to quickly and easily work out how these changes will affect your margins and profitability.
But let’s take a step back and continue with our example, now that we’ve got our landed product cost figured out. The next step is to work backwards from your Amazon selling price, to see what you’re left with. For example, we sell our product via FBA for £16.99, which means we need to pay both an Amazon referral fee as well as the FBA fulfilment fee.
Include FBA Fees of course!
For 2021 the Amazon referral fee is pretty much always 15.3% whereas the FBA fulfilment fee depends on the product size and weight. In this example we’ll use £2.57, which means:
Amazon referral fee = 15.3% x £16.99 = £2.60
Fulfilment by Amazon fee = £2.57
VAT on Amazon fees = 20% x (£2.57 + £2.60) = £1.03
And that means that from your £16.99 sale, the payout from Amazon is £10.79 (£16.99 – £6.20).
Once we know our Amazon payout and landed costs, we can work out our profit!
Net profit = £10.79 – £5.61 = £5.18
£5.18 in real profit per item sold…
Amazon FBA net profit and ROI
And from this we can calculate two very important figures – our net profit margin and our return on investment (ROI).
Net profit margin is the percentage of the sale price that’s net profit. So £5.18 from a £16.99 sale price means 30.49% net margin.
This figure is extremely important as it also guides our PPC spending, as we know that 30.49% is our break even ACoS (Advertising Cost of Sale). Anything higher than that and we’re losing money on the sale!
Generally speaking, I always look for a minimum 30% net margin when analysing products to sell on Amazon, ideally 35%+. In some circumstances you can go to 25% but less than that and your margins are just too thin to build a sustainable business.
Next is the Return on Investment calculation. This has less of a practical effect on your business but is still a useful figure to know – ROI shows us, as the name suggests, your return on the money you invested. To work it out simply divide your net profit by your landed cost:
ROI = £5.18 / £5.61 x 100% = 92.34%
Now a number of Amazon “gurus” like to talk about ROI a lot but for me it’s actually nowhere near as important as it’s made out to be. For one thing your time to sell will have as big of an impact on your actual profit.
For example let’s look at two products.
Product A has an ROI of 200%, which means for every £100 invested you end up with £300 back once the product is sold.
Product B on the other hand has an ROI of only 100%, meaning you get back £200 for every £100 invested.
So of course I’m going to go for Product A right!? After all it’s double the return…
Not necessarily! Because the ROI doesn’t take into account how many I actually sell. Maybe Product B sells 35 units a day vs 15 for Product A.
For me that’s the only number that truly matters – your daily/monthly profit. That’s your actual income from your business and everything else is just noise.
And don’t even get me started on people who compare the ROI of an Amazon FBA business vs investing. It’s not even slightly comparable to a passive income!
In the beginning, especially the first 6 months to 1 year, running an Amazon business is a lot of work – anyone who says otherwise is lying.
Yes now that I’ve been running it for a number of years my FBA business is pretty self sufficient and it only takes a few hours a week to manage (mainly spent optimising PPC campaigns and planning inventory) but you can’t expect that straight away.
So long story short comparing it to investing is just stupid!
And on that note we’re pretty much at the end of today’s post. To any seasoned online sellers this is all basic simple stuff but I hope it helps some newbies with how to think about and calculate profit.
Of course I didn’t mention any software in this post, which was on purpose. I really think it helps to work it out yourself when just starting out so you can see the different costs and how it affects your profit.
But for ongoing calculations of course there’s plenty of calculators that can do it all for you. I personally am a huge fan of Shopkeeper.com since discovering it after looking for alternatives to Sellics.
Shopkeeper covers everything we talked about in today’s post and much more. Here’s an example of how detailed their P/L calculator is:
It really does cover everything you can think of. If that’s something you’re interested in, then take a look at my full Shopkeeper review here:
I’m also planning some further tests of their upcoming PPC software as well, so keep an eye out for that.
Just as the summer heat was starting, Covid cases were dropping and everything was starting to look good again – Amazon threw us a real curve ball with their new inventory storage limits!
What Amazon FBA inventory limits mean
Here is a recent question on the Amazon Sharks FBA group that really nails what’s going.
Amazon Sharks FBA group sample question
Yes, Amazon have basically changed their storage limits from being ASIN based (i.e. limits for each product you hold at Amazon’s warehouse) to being storage type based! And this means that your storage limits include all ASINs within each storage type, which are split into 4 categories:
Standard size storage
Now this by itself wouldn’t be an issue IF Amazon had set reasonable limits but instead many sellers have been hit with a blanket 1,000 unit limit per storage type.
Again, 1,000 units sounds manageable for most products but don’t forget that this is for all your ASINs. As another Amazon Sharks member has said:
“I’ve had a standard reply from Amazon but no resolution. Seems to me that if we have 10 products in the same category. We have stock limit of 100 each. For me that means restocking weekly and I think Amazon don’t take into account delivery and time in the warehouse so I’m sending smaller quantities on a regular basis.”
So depending on the amount of SKUs you sell via FBA this storage limit is in effect much smaller. 10 SKUs split evenly means just 100 of each, which is tiny!
How long will the inventory reduction limit last?
Well the good news is that Amazon have assured us that these category based inventory limits will be lifted from July 1st, but only for sellers that have an Inventory Performance Index (IPI) of 500 or more:
Your Inventory Performance Index (IPI) score is 608. Because your IPI score is at or above 500, you will not be subject to storage limitations for standard-size, oversize, clothing or footwear inventory starting 01st July 2021. However, all products are subject to restock quantity limits. For more information, refer to Restock limits by storage type: Frequently asked questions.
Visit the Inventory performance dashboard today to continue improving your IPI score.
The Fulfillment by Amazon team
I’ve written about the Inventory Performance Index in detail before but long story short it’s an Amazon metric that uses multiple factors to “gauge your inventory performance over time” and give you a rating between 0 and 1,000.
To check your IPI login to Seller Central then click the Inventory tab and select Inventory Planning.
Then click on Performance and you’ll see your current IPI as well as a little graphic that shows you your “top influencing factors” and whether they’re Poor, Fair, Good, or Excellent.
Top influencing factors
And there are 4 categories here that directly affect your IPI:
90 day sell through rate
In stock inventory
But okay that’s all well and good if the limits are being lifted for July but what do we do in the meantime?
What are your options as an FBA seller hit with these reduced storage limits?
Restock your FBA Inventory Regularly
This is really the most straightforward solution. Say you normally sell 20 units a day, so 600 a month, and would usually ship Amazon 1,200+ units at a time – giving you enough stock for 2 months. Well now you might have to send only a months’ worth of stock to Amazon’s fulfilment centres and simply send them shipments more often.
But one very important point – this doesn’t mean you should be reducing your order size with your supplier!
If you normally order 2,000 units at a time, don’t cut that in half because you’re sending much less to Amazon! Even if this doesn’t increase your price per unit with the manufacturer it will definitely increase your shipping cost per unit and therefore cut into your margins.
Especially now where freight charges are still extremely high and show no signs of coming down anytime soon.
But I know what you’re now thinking, “but Andrew what am I going to do with 1,000 units of additional stock that I can’t send to Amazon?!”
Two good options for FBA Sellers
You either store it yourself temporarily, which means no additional costs, or you pay storage fees at either an Amazon prep center or better yet simply ask your freight forwarder to store it for you and ship to Amazon when needed. Most good freight forwarders will be more than happy to arrange this for you. If you need a recommendation, then speak to either Woodland Group or Westbound Global. Ryan, the director of Westbound, is an Amazon Sharks member and he has a wealth of knowledge in the fulfilment industry, so you’re in good hands!
Now of course this will mean extra storage costs but it shouldn’t contribute a lot to your overall product cost and it’s worth it to know you have stock ready to go in the UK when needed. Please don’t be penny smart pound foolish here and save a bit of money in storage fees only to run out of stock and miss out on weeks of sales!
While this may seem like an easy solution, unfortunately it won’t help in all cases.
For one thing if you sell very high quantities, say 1,000 units a week, then while in theory you could ship to Amazon weekly, 1,000 units at a time, in practice you could easily run into delays with your stock being unloaded at fulfilment centres. And there’s no easy way around this. It’s hard to guess how long it’ll take and even then it’s not as if you could time it by shipping beforehand as you won’t even be able to create the shipment!
Similarly, if you have a lot of products on Amazon then it’s going to be very hard to keep them all adequately stocked.
If you fall into one of these two situations then don’t despair – there are still a few more options that you can try.
Request an Inventory Limit Increase
You can do this via your account manager (if you have one) or simply through seller support. I’ve been told by a few people that this worked for them but honestly I’m very sceptical. Anyone who has dealt with Amazon seller support knows how inconsistent they are and unless you get very lucky I suspect any request to increase your inventory limits will be met with a generic reply about them being lifted on July 1st.
But still, you don’t really lose anything by trying so give it a go.
If it doesn’t work then one final option is:
Amazon Seller Fulfilled Prime instead of FBA
I haven’t covered this programme yet on my blog for one simple reason – I’m actually not a huge fan of it!
Honestly it reminds me too much of the dark eBay days of handling all the postage and packaging yourself. I happily pay Amazon’s FBA fee for them to take care of all of that for me.
BUT it is a worthwhile option for products that aren’t suitable for FBA – slow moving products or when you don’t have a lot of sales history and can’t send in enough stock to Amazon.
And in that way it’s a perfect temporary solution to the inventory limit problem so many sellers are now facing.
If you do go down this route then you can either fulfil the orders yourself or if you want to be completely hands-off there’s still the option of using a fulfilment centre in conjunction with SFP.
On that note I’m planning to test a few Amazon specific fulfilment centres / prep centres and I’ll have a dedicated blog post on this, as I know it’s something a lot of people are interested in.
If you’re in the very unfortunate position where shipping stock in regularly isn’t feasible and you also don’t qualify for seller fulfilled prime, then unfortunately there’s not a lot you can do.
You should of course prioritise your best selling SKUs and you’ll simply have to hope for the best when it comes to the prep centre check in times.
And it goes without saying that you shouldn’t launch any new products during this time as it’s too risky when you consider the opportunity cost of using up your storage limits.
One final tip would be to pause / lower your PPC campaigns and rely completely on organic sales. That way you can potentially avoid running out of stock and then even if you do, at least you had more sales at higher margins…
Any long time blog reader will know that I’m the biggest fan of Amazon you can find. I simply love the private label business model and switching over from eBay has been one of the best business decisions I’ve ever made. But that doesn’t mean I won’t be honest with my blog readers and I have to say that no notice being given for this was unbelievable.
There should have been at least two weeks to give sellers enough time to plan and manage their stock. The fact that people had shipments that were already on their way and were then rejected because they would’ve pushed them over their inventory limits is ridiculous.
But at the same time it’s important to always calmly assess such situations and decide the best thing to do for your business. The good news is that it should all be under control by July 01st. I know a lot of people are dubious about this but the timing fits perfectly, just after Prime Day when a lot of warehouse space will open up, so I’m optimistic.
If you have any tips or thoughts to share then feel free to comment below or email me directly on email@example.com and I’ll personally get back to you.
If there’s one thing I can’t stress enough when it comes to selling on Amazon – it’s to do everything by the book. No cutting corners and no blackhat methods whatsoever, it’s simply not worth the risk.
I mean this at every stage – when you supply details to Amazon, when you’re shipping products in, contacting customers, your pictures, etc!
You see it all the time, people saying “oh they normally don’t notice” or “loads of other sellers do it.” Please don’t listen! Unless you want to end up on the Amazon seller forums crying about your account being suspended.
Abide by Amazon’s Rules on Reviews
And it’s not just on Amazon that I’m saying this. No matter what marketplace – be it eBay, Amazon, my own ecommerce store, Google – I’ve always been very strict about not doing anything blackhat (or even grey for that matter!) and it’s served me very well over the years.
And on Amazon it’s even more important as they are ruthless when it comes to suspending and even permanently banning accounts that they deem are operating outside their terms and conditions.
We had the perfect example of this very recently when Amazon suspended over a dozen brands for fake reviews. And these weren’t some small time sellers suspended just to make a point – it includes companies such as Aukey and Mpow, who have huge product lines on Amazon.
In total the suspended brands have sales of over $1 billion.
While at first it wasn’t clear exactly why they were suspended, it soon became obvious it was for fake reviews / for soliciting reviews using methods prohibited by Amazon, including offering free products for 5 star reviews (which is something I see a lot of Chinese sellers doing).
Not only have Amazon suspended these brands, they’ve also started removing a number of their reviews. As tracked by Marketplace Pulse (a great ecommerce news website which I suggest you follow) some products have gone from over 65,000 reviews to 14,000:
A lot of people have messaged me asking what I think about these suspensions and if I’m worried about my own business.
My answer is most definitely not, I’m not worried at all. Quite the opposite actually, I love what Amazon are doing!
Exactly like I said earlier I’m very careful with how I run my business on Amazon so it’s only a good thing if they’re cracking down on brands that are gaining an unfair advantage. It’s this whole idea of putting the customer and product quality first that drew me to Amazon in the first place: Why I’m Quitting eBay Completely – one of the best decisions I’ve ever made in my business life!
But okay, now that we’ve gone over why you shouldn’t do anything that could get your account in trouble, does that mean you can’t do anything at all to get reviews and you should just let them happen naturally? Well no!
Amazon customers don’t just leave reviews on their own
You have to play by the rules and encourage good reviews. It’s not rocket science. More reviews = more trust = higher conversion rate = better search rankings = more sales and more profit.
Recently Amazon has started to unify product reviews across all marketplaces, meaning that a single ASIN will show ALL of the reviews it has received, no matter which Amazon website you’re on.
They have also started to categorise these reviews based on the language and added a translation feature so that customers can even read reviews left in another language.
This all sounds good from the customers’ perspective, right? Yes! You get all the combined reviews in one place, which should be helpful in the buying process, especially if it’s a relatively new listing with very few reviews on each marketplace.
If you’re an established seller on Amazon who is using the Pan-EU program, this will also be beneficial for you as your review count will increase without you doing anything.
If however you’re just starting out or only selling on one marketplace and your competitors are selling in multiple regions, then this isn’t great for you. It’s likely that your competitors’ review count will increase (due to merging with other regional Amazon websites), while your review score will stay the same. What’s the solution? Expand your business via the Pan-EU program!
All you have to do is register for VAT in the appropriate countries, translate your listings and you’re good to go! I personally expanded my business at the end of 2019 and did a series of blog posts covering each country separately (Germany, France, Spain and Italy). I must say, it was the best decision I could have made for my business. Currently, more than 50% of my sales come from the EU marketplaces, and that percentage is increasing every month.
If you also plan on expanding via the Pan-EU program, I highly recommend you use VATGlobal.com. It is a company that does VAT registrations and returns for you. I have been very happy with the service they provide, and I have also arranged a special discount deal for my blog readers. To take advantage of that, simply mention this code when contacting them: ANDYVAT2020
Lastly, this new product review merging thing also means that when you’re doing product research, it is more difficult to find products that have a low number of reviews.
When reviews from all websites websites are combined, only very new listings or listings with very low sales will have, say, ten, twenty or even thirty reviews.
Most established listings will have 100+ reviews, and that’s fine. Don’t let this scare you off!!! While reviews are important, it’s NOT the most critical part of the puzzle. Your product and offer are most important, and to prove that, you can search for any product on Amazon, use the Jungle Scout Chrome tool and see that many listings with NO REVIEWS whatsoever will have good sales numbers:
So, don’t think that you can’t launch a product on Amazon and sell successfully starting out with zero reviews. That’s simply not true.
Every week, I receive emails from my Amazon Sharks students sharing their product launch successes and failures, and let me tell you this:
If you have done a good job on product research, branding, offer creation and presentation, you can definitely launch successfully with no reviews at all. And when the reviews do come in, they will only supercharge your conversion rate and sales.
On the other hand, if your product is bad or your offer is weak, you can do alright by buying fake reviews or whatever in the beginning, but over time, when the real/bad reviews start coming in, your listing’s performance will obviously suffer because your RATINGS will go down.
So, don’t let the reviews of competitors scare you off! Put 100% energy and effort into creating an amazing product, brand and offer and the reviews will follow.
Use Amazon’s “Request Review” feature to grow your reviews from future orders.
And that’s it! No secrets, no magic, no nothing—because you don’t need it! By following this simple system, you will successfully launch products on Amazon in 2021 and won’t worry much about the lack of reviews. Here are some more details on each step involved in this process:
Launch your product
When you first launch your product on Amazon, you obviously won’t have any reviews (and that’s fine). I recommend you ideally wait to start your PPC campaigns once you get to step 3. Although you can definitely make sales with no reviews at all, your conversion rates will be higher with existing reviews, so it makes sense to be patient and wait for those first reviews to come in before you launch a PPC campaign.
2. Register for Brand Registry.
This step becomes more and more important. I recommend that you apply for a trademark as soon as you have your brand name confirmed, and if you’re using sea freight, this usually means that your trademark is approved right on time, just as you are ready to sell, so you can register for Amazon’s Brand Registry.
DO NOT delay this process, as without the Brand Registry, you won’t get access to the Amazon Stores feature, A+ Content and, most importantly, the Vine program!
3. Use the Vine program to get up to 150 initial product reviews!
This is the best new feature added to Amazon seller central EVER! With the Vine program, you can give away 30 products on each marketplace and get 100+ reviews in a matter of just a few weeks!
I got 25+ reviews for every 30 products I gave away, which is a fantastic result!
The Vine program is undoubtedly better than the Early Reviewer Program that I used to recommend, but if for whatever reason you’re not eligible for the Vine program yet, you can still use the Early Reviewer program to get your first five reviews in.
If that’s not possible for some reason, then I recommend you simply use the old-fashioned friends & family method, where you ask two or three people to buy from you and leave a review.
You will want to make sure that you have never shared internet access with each other (so that Amazon can’t link your accounts) AND that you mix these reviews with organic or paid sales (at a ratio of 1 review to 10 sales). This is doable and is a rather safe way of getting your first two or three reviews in if the Vine or Early Reviewer programs are not available to you.
When you get your first reviews in, you can start running your PPC campaigns and switch on the last element of the process:
4. Use Amazon’s “Request Review” feature to grow reviews.
With the recent update to Amazon’s rules, they have basically banned every kind of communication between the seller and buyer that is not directly related to an order, including a ban on PDF attachments etc., which has made our lives super-simple.
There’s basically no need for fancy software anymore to follow up with your customers and ask for a review. You can, of course, use such software, but it won’t make any difference as the rules are so tight now that we can basically send just one email to ask for a review—that’s it.
The reason why we don’t need software anymore is that Amazon has now introduced their own “Request Review” button on the Orders page, which sends out an email asking customers to leave a review.
You can find this feature when you go to the “Orders” page and look at orders with the status “Payment Complete”. Then, you can simply click on the “Request review” button to send out that email to the customer asking for a review.
Now, obviously, you don’t want to send these emails to people who have just bought the item but haven’t yet received it. So, it’s a good idea to filter your orders BY DATE so that you send these emails to people who have 100% received the order. Five or six days after the dispatch date is pretty safe as most people will receive their orders within two or three days.
If you’re just starting out and are receiving a small number of orders, you can easily press the button manually for each and every order. You can do this, say, every Monday or Friday so as to cover the previous week’s orders. You don’t have to do it every day. A few days here and there won’t change anything.
But when your orders increase, it will be time-consuming (and boring) to press that button for each order. Luckily, there’s an automated solution! If you have the Jungle Scout Chrome tool, it will automatically “press” the button for each order, so you won’t have to lift a finger:
By using this feature, you can easily process hundreds and thousands of review requests every week. Just make sure you leave your browser window open after you press that MASTER “Request Reviews On This Page” button as the Jungle Scout software can only run this automation when your browser window is open.
Now, this is still a manual process and takes a few minutes of your time every week. If you do use any Amazon software, like Jungle Scout, which has a built-in email feature, you can continue to use it to fully automate this process. But for people who don’t have access to such software, or who are on a tight budget, using Amazon’s “Request Review” button (even manually) works just fine.
Watching where all this is going, I predict that Amazon may actually prohibit ANY external tools for email communication with customers in the near future, because many sellers are abusing the system and spamming customers. For this reason, maybe it is actually safer to stick with Amazon’s built-in “Request Review” feature, as then you’re playing 100% by the rules and won’t put your account at risk of doing something wrong.
This is what I do, and it works.
Sound too simple? Yes, it is a very simple strategy! I don’t spend my time on fancy tricks to game the system because, in the long term, they never work and only get you in trouble.
Also, I mostly sell low-value items for less than £15, so some of the strategies that could work for others are not really applicable to my business. For example, if you sell more expensive items and your profit margins are higher, say £30 or £50 per item sold, then you can work more with external traffic sources, such as Facebook, Instagram, Google PPC, etc. You can bring traffic to a landing page, capture an email address in exchange for a discount code, and then you can communicate better with your customers and get a higher review score.
But from what I have seen and tested, it really doesn’t work that well with cheap products, unless you want to burn a ton of money. Your profit margins are simply too low for the conversion rate you get from Facebook traffic to be cost-effective. Of course, if you already have a large social following, it’s a different story, but if you need to pay for those clicks, it won’t work.
And yes, there are exceptions and all that, but I’m generalising here as I know how much (or how little) money people usually have when they’re just starting out on Amazon. With a limited budget, you will get much better value from giving away free items with the Vine program than from investing the same amount in Facebook ads.
There’s another thing I want to quickly touch on: what I see a lot on Amazon Seller forums and Facebook groups is that people are wasting so much time looking for tricks to game the system, ways to gain a massive number of reviews quickly, etc. Like that would be the only thing that matters on Amazon. It’s not. Reviews alone won’t make your listing stick high in the search rankings, trust me. Especially if they’re fake reviews!
If only people would spend that time on market research, branding, packaging, and creating a UNIQUE and valuable offer! All of the things I talked about in my “three secrets” post are FAR more important than reviews. If you do the three-step process right, the reviews will come in, and they will be nothing but AMAZING!
Don’t forget that ratings count as much as the number of reviews you get. Your product must meet and exceed customer expectations for you to be successful long term—there’s no way around it. Okay, there is one exception: if you sell face masks during a pandemic, you can sell a totally RUBBISH product and still get sales in.
Another important thing I have noticed from my own business and Amazon Sharks students’ businesses is that once you reach a certain level of reviews, it doesn’t matter that much how many above that level you get. Your sales and conversion rates won’t improve by that much once you hit a certain point.
For example, when you go from 0 reviews to 3 reviews, the conversion rate increases significantly. When you go from 3 to 15 reviews, your conversion rate increases noticeably.
But when you go from say 15 to 40 reviews, you won’t see that much of a difference in your conversion rate. And when you get above 100 reviews, you most likely won’t see any difference.
Then there’s also a psychological element in niches where, for example, most sellers have less than 100 reviews and one seller has 2000 reviews.
Obviously, customers intuitively click on that listing, as for them, it’s obvious which is the most popular product (the Amazon badge also usually supports this choice). In cases like these, those 2000 reviews have a lot of power.
But, on the other hand, if there’s a situation where the top five sellers have:
I can guarantee you that the number of reviews you have (if you’re amongst those top five) won’t be the main reason people will choose to buy from you. In situations like these, ratings may actually be more important, as people will side with a higher quality product with better ratings (if the price and everything else is +/- the same).
With all this, I just want to say again that you DON’T HAVE TO be obsessed about reviews at all times! In fact, I spend very little time on reviews. Once the product is launched and it gets to, say, 40 to 50 reviews, I know that it has all that it needs to succeed. The next task is to simply optimise the PPC game and rankings. That’s it. Your reviews will naturally grow over time and reach 100, 200 and more reviews for as long as you continue selling the item.
Lastly, be patient. Seriously. I don’t know what it is with all this modern “I want it all, I want it now” (thanks, Queen!) thing. You launched your product two weeks ago and are upset that you don’t have 200 reviews?! C’mon, give me a break! You have barely started the process. You have to be patient and wait for the reviews to slowly come in. It’s not like every second customer will leave a review for you. Ask yourself how often you personally leave a review on Amazon? I bet it’s not that often, if ever.
Then, imagine your customers. Put yourself in their shoes. They buy that small gadget or household item from you for £12. Do you think they have nothing better to do than to spend their time writing a review? No, they don’t care about our stupid reviews!
Using the Amazon “Request Review” button, I find that approximately 2% to 3% of customers leave a review on average. And that’s for cheap, everyday items. Don’t expect a much higher rate as people simply don’t care. You can, of course, spend your days trying to locate your customers on Facebook, then stalk and spam them with review request messages, but in the long term, is that a viable strategy? How does your BRAND look in that light?
Not very good, and that’s why I’m not a huge fan of such strategies. And as I said, once you reach a certain review threshold, it really doesn’t matter that much, so don’t waste your time on things that don’t matter.
Okay, that’s it for today. This is my strategy on getting product reviews on Amazon, and it works well for my business. If you have any questions or strategies you want to share with us, please leave your comment below the post and I will personally get back to you.
VAT. It’s the subject of many questions that I receive and something that all new sellers (and even many experienced ones!) seem to struggle with. And it’s something I’ve covered multiple times on my blog over the years.
But if you don’t want to go back and read over those posts then let me sum up the conclusion for you, and it’s pretty simple really – don’t register for VAT unless you have to!
Why should Amazon FBA sellers wait to register VAT?
Well, registering for VAT will nearly always cost you and your business money as the VAT you charge on sales (which you have to give to the government) will be higher than the VAT you reclaim on business expenses.
And we can see this clearly with a very basic, simplified calculation.
Say I’m a business selling a product on Amazon for £20. Amazon’s referral fee is £3.60 and their FBA fee is £4.20, leaving me with £12.20 per sale.
I source this product from China for £2.92 FOB, which gives me the following as a final landed cost:
Import Duty (5%)
Sample VAT computation
So with my £20 selling price I’m making a net profit of £6 per item. At 1,000 sales a month that works out at £6,000 profit per month.
How does VAT affect FBA profits?
Now with every £20 sale, £3.33 (20%) is the amount of VAT I’ve charged my customer. But that doesn’t mean I have to give all of that to HMRC and lose half my profit! As a VAT registered business I can also claim back the VAT I’ve paid.
In this case that would be the Import VAT, which is £1.03 per item. And also VAT on my Amazon Fees, which works out at £1.30 per item.
So in total that’s £1 per item sold that I owe in VAT (£3.33 – £1.03 – £1.30). Times a thousand sales a month and my profit is down from £6,000 to £5,000 – a 17% decrease.
In reality it would be slightly less than this as there are other business expenses that you could reclaim VAT on but for the average seller that’s roughly what it would look like and all important point is that registering for VAT costs you money! That’s not even considering the additional accounting costs and paperwork that needs to be done.
Exceptions to waiting to register VAT
An exception to this is if you’re selling certain goods which are reduced or zero rated.
This includes products like children’s clothing and shoes, protective and safety equipment such as children’s car seats, protective boots, helmets etc. For a full list of reduced and zero rated products and services take a look at this page.
If you’re selling one of these products then it would actually make sense to register for VAT as soon as possible, because the amount of VAT you reclaim will be higher than what you have to pay, so you’ll increase your net profit.
For the vast majority of products though this won’t be the case and that’s why I always say put off registering for VAT for as long as possible.
Unfortunately we can only keep that going for so long though as there are a number of thresholds and triggers that mean you have to register for VAT. Which of these apply to you will depend on your specific business but the most common reasons are below.
When do Amazon FBA sellers pass the threshold?
If you’re selling in a European country to customers within that country then you must register for VAT when your sales reach the domestic selling threshold. In the UK this is currently £85,000 and is calculated over a rolling 12 month period, so not year by year!
Here’s a full list of domestic selling thresholds for Amazon’s European marketplaces:
Domestic Selling Threshold
Amazon’s European marketplaces
How storing goods in other European countries affects Amazon FBA Sellers
Previously as long as you were under the distance selling threshold (more on that in a minute) for other European countries you could store and ship goods there without having to register for VAT. But after Brexit that’s no longer the case and now if you store goods within a European country you have to register for VAT in that country.
And this includes storing goods in Amazon’s fulfilment centres or using the PAN-European FBA programme.
Distance selling thresholds for FBA Sellers
If you decide to only store and ship orders from the UK to European customers, rather than storing goods within Germany or France for example, to avoid having to register for VAT – you still have to register if your sales reach the distance selling threshold for that country.
Domestic Selling Threshold
There are other triggers and VAT requirements, but these three are by far the most common reasons for when VAT registration becomes obligatory.
Amazon actually offer a useful VAT registration test which will tell you if you need to be registered for VAT or not.
Here’s the link if you’d like to take a look yourself.
So what these thresholds mean is that if your business does well and your sales grow, then sooner or later you will have to register for VAT. But as we saw earlier this can mean less profit!
Should FBA sellers purposefully stay under the threshold?
Well that’s a great question and exactly what an Amazon Sharks member recently asked me.
As you can see he’s already created a successful side income from selling on Amazon to supplement his full time job, which he wants to expand further, BUT he isn’t sure if that’s the right thing to do when taking into account VAT. And as he’s right at the £85,000 sales threshold he has to decide to either artificially restrict sales or to continue expanding and suffer the loss in margin.
But I know what you may be thinking – how can you even stop sales in the first place!?
How FBA sellers can postpone hitting the VAT threshold
One would be to reduce your ad spend so a higher percentage of your sales come from organic searches. This would also increase your overall margins.
Another way would be by increasing your prices.
Let’s use our product from earlier for another example. Say you sell 350 units a month at £20 each, giving you sales of £7,000 a month (or £84,000 in 12 months, so right at the threshold). At £6 profit per unit, that’s £2,100 per month. So instead of letting your sales pass the £85,000 threshold, which would reduce your profit to roughly £1,750 when taking into account VAT, you instead increase your price to £24.
That 20% price increase might reduce your sales by 30%, meaning you now only sell 245 units / £5,880 a month.
But it also increases your profit per sale from £6 to £9.28, so your monthly net profit is actually £2,274, so higher!
The important part is that it gives you a bigger profit safety net when you reach the VAT threshold.
Of course while this sounds great in theory in reality it isn’t always possible and it’s not a permanent solution – we can’t simply keep raising our prices.
And in answer to the question I received – at what point it’s worth passing the threshold and registering – it really depends on your own specific business and margins.
To help you make that decision let’s do one final example using our made up product / business as the 30% net margin that I’ve used is fairly typical for an Amazon FBA product.
Again, just to recap – at 350 units a month at £20 each, we get yearly sales of £84,000 and profit of £25,200.
Being VAT registered brings this profit down to £21,000.
So at what level of sales can we make the same profit? As that’s really the all important question and what we want to know. As he put it, does he need to reach £120,000 and above or is it less?
Well in this made up business, the magic number is £100,800!
At that level you’re making 420 sales a month and ending up with the same monthly profit of £2,100.
So £85,000 in sales while not VAT registered works out at the same level of profit as £100,800 in sales if you are registered.
I hope you can see why I always say put it off for as long as possible! That’s nearly a 20% growth in sales that doesn’t add to your monthly profit, all because of VAT.
And speaking of putting it off for as long as possible – it’s time to end today’s post with a big tip on how to (legally) avoid VAT!
As we’ve already covered, you have to register for VAT when you reach £85,000 in sales over the last 12 months and this applies whether you’re a sole trader or a Ltd company.
BUT this 12 month period can actually be reset…
How can FBA Sellers reset their counter?
If you’re a sole trader who changes to a Ltd company your previous sales are disregarded when it comes to VAT.
I hope I don’t have to go over how huge this is and how if used correctly it can save you thousands and thousands of pounds. In my opinion it’s something that every sole trader should take advantage of and I’m shocked it’s not talked about more online.
And on that note we’ll end today’s post.
As always if you have any questions or comments post them below or email me at firstname.lastname@example.org and I’ll personally get back to you.
Otherwise, until next time.
All the best,
Disclaimer – everything in this article is purely my own opinion. You should always consult a professional accountant if you need advice specific to your own business.
How to Save 50% on Barcodes for Amazon FBA Sellers?
I’ve covered barcodes previously on this blog but it’s something I still receive a number of questions about every week. And Amazon has also made some recent changes to barcode requirements for FBA sellers (but don’t worry they’ve actually made things easier for us).
That’s why I want to go over them again today and also share something I recently came across that can save you up to 58% on your barcode costs! Read on to find out more about that.
That’s why I want to go over them again today and also share something I recently came across that can save you up to 58% on your barcode costs! Read on to find out more about that.
So first things first – what is a barcode and what’s it used for?
A barcode is an identifier used on all new, branded products. Most people associate it with the black and white barcode image but it’s actually the code underneath that’s important and what identifies each product.
This number is known as the GTIN (Global Trade Item Number) and is specific to each product.
As you can see this GTIN is 13 digits long, which means it’s an EAN (European Article Number). Despite the name this is the barcode type used in the UK and most of the world, except for North America which instead uses a 12 digit GTIN called a UPC (Universal Product Code).
I know that’s a lot of abbreviations! But it’s actually very simple – the GTIN is the worldwide barcode standard used by pretty much all retailers and marketplaces, including all of the below:
And then there are two types of GTIN – one for North America (UPC) and one for the UK and the rest of the world (EAN).
So What Barcodes Do You Need To Sell On Amazon?
When you create a new listing on Amazon, you have two choices for what type of barcode you use – EAN or FNSKU.
What’s the difference?
Well the EAN is the universal manufacturer barcode, exactly as we just covered above. And the FNSKU, which stands for Fulfilment Network Stock Keeping Unit, is Amazon’s own barcode.
Previously when listing products on Amazon we had to use the FNSKU, which meant a slightly complicated system of creating a listing using an EAN code and then using that to create an FNSKU for your product packaging.
But thankfully now it’s much simpler and for most products you can just use the manufacturer barcode (i.e. the EAN code) for your Amazon listing. There are only a few products where you have to use Amazon / FNSKU barcodes, and they are:
Products with an expiry date
Topical products such as skin creams, shampoos, and cosmetics
Products that are prepped so that the barcode cannot be scanned
EAN vs FNSKU
You may have also read that there’s another reason to use FNSKU codes instead of EAN – and that’s the dreaded comingled inventory.
Comingled inventory basically means that Amazon mixes stock of the same product from different sellers. Or in their own words, “if more than one seller has inventory with the same manufacturer barcode, Amazon fulfils orders with inventory that’s closest to the customer. We do this to facilitate faster delivery.”
Say for example I have a PS5 listed on Amazon which is bought by Joe Bloggs, but rather than sending the actual PS5 that I sent to Amazon, they’ll simply grab any one from their stockpile and ship that to my customer.
And this is of course not ideal as I can’t be 100% sure about the authenticity and condition of another seller’s item.
BUT this issue doesn’t apply to private label products as we’re selling our own brand and there are of course no other sellers – so stock being mixed up isn’t something we have to worry about at all.
And that’s why I suggest simply using EAN barcodes for your Amazon products and listings.
It’s easier – there’s issues now with getting FNSKU codes before your product is completely created and branded – and also means that you’re able to use the same product packaging if you want to sell on other marketplaces or even sell to retailers etc.
Where To Get Barcodes For Amazon FBA Products?
If you search online for “cheap EAN barcodes Amazon” you’ll get a ton of results starting from just a few pounds… BUT unfortunately 99.9% of these are unsuitable and can actually cause big issues for your Amazon business!
The problem is that there’s only one official provider of GTIN / EAN codes and all other websites are simply re-selling these codes to you. But these codes are only officially licensed to the original member and if Amazon ever check they won’t match your brand and company.
And they 100% do check this. Please don’t take any risks here as I’ve seen a number of businesses in huge trouble from using unlicensed codes.
The only place you can buy official barcodes is from GS1 UK.
GS1 UK Membership Options – Save 50% On Annual Fees
In order to get your barcodes you have to become a GS1 member and pay an annual license fee. Their membership plans start from £119 + VAT, which works out at £142.80 a year, and entitles you to up to 1,000 barcodes. If your turnover is above £500,000 annually or you need more than 1,000 codes, then there are other membership options:
You need a specific barcode for each SKU which means every colour, size, and variation needs its own code. So for some sellers this allocation can be used up fast (if you sell clothing for example) but for the vast majority of people, especially those new to Amazon FBA who are launching with just a few products, 1,000 is definitely overkill.
And thankfully GS1 have recently introduced a Starter 100 membership option which gives you 100 codes for £100 + VAT, so a small saving.
However, there’s a way to get this fee down even lower! And no I’m not talking about any shader resellers or other blackhat methods. All you have to do is go onto GS1’s website and click on their live chat box on the membership page and select “no, not yet” when asked if you’re already a member:
Then simply write in the chat “what if I only need a few barcodes” and a few offers come up!
The first one is the Starter 100 which we already covered but the second one takes you to this page:
And from there you can sign up to a £50 + VAT membership, giving you access to 10 codes a year. This is more than enough for most new sellers and costs less than half of the usual cheapest membership option.
How Do You Get A Barcode Image?
You may have also noticed that as well as the number of codes, each membership option also gives you access to a number of barcode images.
This refers to the actual black and white barcode that you see on all products. But you don’t need to create this “officially” via GS1. The number/code itself is what’s important and once you have that you can simply use any free barcode generator to create the image, click here for sample website.
You then enter your GS1 barcode and are given an image which you can then use on your product packaging.
Speaking of which, let’s cover the last question for today’s post:
How Do You Add The Barcode To Your Amazon Products?
There are 4 options for this, which I’ll cover from best to worst.
Include the barcode within your product packaging
This is the simplest, cheapest, and also best looking option. You simply include the barcode as part of your product packaging design and that’s it – you don’t have to do anything else.
With this option the cost is £0 and there’s nothing for you to do so the only reason not to go down this route is if you’re not using custom packaging or if you’ve already got your packaging designed and printed without the barcode.
In that case then the next best option is to:
Ask your manufacturer to label the barcode onto each product
Simply send your manufacturer the barcode and ask them to stick it as a label onto each product. Most manufacturers will happily do this for you for free so it’s the second best option.
Label the barcode onto each product yourself
If for whatever reason you couldn’t get your manufacturer to do it for you, then you can label the barcode onto each product yourself. The easiest and cheapest way to do this is if you already have a thermal label printer, such as a Dymo 450.
Then simply get some compatible label rolls, such as this:
10 rolls, which is 2600 labels, costs just £16 – giving you a cost per label of less than 1p as there is no ink with thermal printers.
Pay Amazon to label the barcode onto your products
The 4th and final option is to just pay Amazon to take care of the labelling for you via their FBA label service.
There’s a few reasons why I suggest only using this as a last resort:
It costs £0.15 per product
You have to use Amazon barcodes
From what I’ve seen there are more issues with missing inventory when you use the FBA label service
So if you can – avoid it! And really there’s no reason to need to pay Amazon to add barcodes for you rather than using one of the three much better options we’ve already covered.
And that’s it for today’s post. As always if you have any questions or comments leave them below or email me at email@example.com and I’ll personally get back to you.
But generally speaking, if you’re new to business then operating as a sole trader is an easier and more tax-efficient option. And really that’s the most important consideration by far – we all want to take home as much of our business’ profits as possible, not lose it all to taxes and the government!
When you’re a sole trader there’s not a lot you can really do about this – you have your personal allowance of tax-free income every year and then after that you pay income tax and national insurance on any further profit, exactly the same as if you’d earnt it as a wage.
It’s all very straightforward.
With a limited company however things start to get a bit more complicated, but that’s not necessarily a bad thing! It means if we do things properly and in a smart way we can reduce the amount we pay in taxes. Legally of course!
And that’s exactly what we’re going to go over in today’s post – the best ways to pay yourself as a Ltd Company to save tax.
But before we get started let me point out that I always recommend using an accountant for your business, especially if you’re at the level of profit where you’re registering a limited company. It really is a no-brainer – pay someone who’s an expert at what they do and not only will they save you time, which you can use to focus on the important, high-value parts of your business, they can even save you money.
Please don’t be penny smart, pound foolish when it comes to hiring an accountant. And I’ve actually arranged a special offer for my blog readers as I know a lot of people struggle finding a good, reasonably priced accountant. Read on until the end of the post to find out more!
Alright, so without further ado let’s get to it!
How Will You Define Your Role Within the Company When Deciding the Best Way to Pay Yourself?
This can really be split into 3 main roles:
Employee – someone completing work for the company who expects to be paid for that work.
Director – you must appoint a director when you form your company and by law, all UK limited companies must always have at least one director appointed at all times, whose job is to run the company, acting on behalf and in the best interest of the shareholders.
As a director, you’re legally responsible for your company’s records, accounts, and performance.
Shareholder – a business owner, expecting to be paid out a percentage of the business’ profits.
For the vast majority of Amazon FBA businesses, you’ll be acting as the director and won’t have any additional employees.
What are the Most Tax-efficient Ways to Pay Yourself?
Director’s / Employee’s Expenses
As an employee of the company, you can expect to be reimbursed for all reasonable expenses paid personally on behalf of the business. This reduces your taxable profit and is therefore a very efficient way to get money out of the business.
As an employee of the company, you can expect to be reimbursed for all reasonable expenses paid personally on behalf of the business. This reduces your taxable profit and is therefore a very efficient way to get money out of the business. These include:
Mileage for business purposes
Rather than buying a car or a van as a business expense, and then calculating the costs of the purchase and running of the vehicle (insurance, servicing, petrol, etc) while also having to take into account any personal benefit, it’s often more efficient to simply use the flat rate costs for business mileage at 45p per mile up to 10,000 miles per year and 25p per mile after 10,000 miles.
Now before you try and put your whole shopping bill down as an expense, this can only be used for food bought while completing work for the business. A company spending large amounts of their profit on food isn’t going to look right to HMRC so use common sense and be reasonable here!
You are also entitled to £150 a year for a staff party so take advantage of that as well.
Home office expenses
How far you push this really depends on you personally but there are many costs to working from home that you could reasonably charge your business. For example your phone bill, part of your electricity and gas bills, any equipment such as computers, printers etc. My home office has a nice big TV in it for example – strictly for business purposes of course.
But you can’t just randomly allocate amounts here, it has to be calculated as a proportion of the total costs based on the amount of rooms and overall time spent for business use. In order to properly claim these costs you should also create a rental agreement between you and the business. This is definitely an area where I would advise getting an accountant to help you as you don’t want to make any mistakes.
Overall you should try to maximize your expenses as much as possible, as they reduce your company’s profits and therefore tax liabilities, so they’re a very tax-efficient way of extracting money from your business.
What other payment options are there to consider?
The most tax-efficient salary to take as a director is £8,840 (the secondary threshold for 2021/2022) as you’ll personally pay no income tax or national insurance contributions on that income, and your company also doesn’t have to make any employer’s national insurance contributions either.
Now some people may not be completely comfortable using this ‘ideal’ salary as if HMRC ever looked at it they could reasonably ask if this salary is in line with the job the director is doing? Another way of looking at it is to ask if you would reasonably hire someone at this salary? The answer would most likely be no to that question.
However it is the most tax efficient income, which is what this post is all about! If you have any doubts or worries then of course discuss it further with your own accountant who’ll be able to advise based on your individual circumstances.
Alright so once you’ve claimed all reasonable expenses and paid yourself a salary, the last remaining method for extracting profits as efficiently as possible is:
Dividends are payments made to company shareholders, taken from the company’s profits AFTER corporation tax has been accounted for.
The company itself doesn’t pay any additional tax on dividends but it’s considered income for you and has to be included within your annual self assessment.
Each year you get a tax free dividend allowance, which for 2021/2022 is £2,000. You won’t pay any income tax at all up to this amount, and this is completely separate from your yearly personal tax free allowance, which is £12,570 for 2021/2022.
So that basically means you get £14,570 of tax free income each year if you properly utilise your director’s salary and then dividend payments.
Any dividends you receive above that amount will be taxed as income, with the amount depending on your personal tax band.
For the tax year 2021/2022 there are 3 income bands as follows:
Income Tax Rate
Dividend Tax Rate
£1 to £37,700
£37,701 to £150,000
Three income bands and Tax rates
As you can see the dividend tax rate is always less than the income tax rate.
But you have to remember that dividends are paid after corporation tax. That’s something that so many online articles and examples on this topic ignore when comparing income tax vs dividend tax as with dividends you’re effectively being taxed twice on your business’ profits!
Let’s go through an example so you can see how it all works together, using an Ltd company that made £65,000 in profit last year.
Tax to Pay
Tax Free Personal Allowance – 0%
Tax Free Dividend Allowance – 0%
Tax Free Personal Allowance – 0%
Basic Rate Dividend Tax – 7.5%
Higher Rate Dividend Tax – 32.5%
Tax table for the Director of an LTD Company
So in total as the director you’ll pay £7,464.75 in income tax.
But like I said, we need to include all the corporation tax paid as well to get a true figure.
From the initial £65,000 profit, you don’t pay corporation tax on the £8,840 taken as the director’s salary, which means 19% is paid on £56,160 which equals £10,670.40 in corporation tax.
And this gives a total tax paid of £7,464.75 + £10,670.40 = £18,135.15
This is a much more realistic cost of extracting £65,000 in profit from your business to you and gives you an effective tax rate of 27.9%
Let’s quickly see how this compares to a sole trader who makes the same £65,000 in profit. For them the tax would work out like this:
Tax to Pay
Tax Free Personal Allowance – 0%
Basic Rate Income Tax – 20%
Higher Rate Income Tax – 40%
Tax table of a Sole Trader
That gives a total tax paid of £7,540 + £5,892 = £13,432 and an effective tax rate of 20.7%
So you’d actually save just under £5,000 in income tax, which shows how the lower dividend tax rate can actually be misleading. But unfortunately, it doesn’t stop there as we haven’t included national insurance!
Does an Amazon Seller Need to Hire an Accountant?
I hope you’re starting to understand why I always say hire a good accountant and let them take care of all of this for you! There’s just too much to consider and it’s not worth my time to have to worry about all of this.
On top of the income tax, you’ll also have to pay £4,116.38 in national insurance if you’re a sole trader, unlike with dividends which attract no national insurance payments at all.
That means that at £65,000 profit you’re paying roughly the same amount in tax as a sole trader vs as a limited company.
My recommendation has always been to start thinking about incorporating a limited company once you hit £60,000 in income (profit from your business + any salary you have if you also have a job) as the pros start to outweigh any negatives at that point. And this example shows that as it’s roughly the tipping point between taking home more profit as a limited company vs a sole trader.
Is it Really Beneficial to Consider an Ltd Company?
Before we end today’s post I have one last tip for you, and this is a big one!
I know I’ve mentioned this a few times now, but with good reason, as one of the big benefits of having a limited company is the flexibility in how you structure your business and pay yourself.
A perfect example of this is taking advantage of your family and spouse’s dividend allowance.
Going back to our earlier example of a company making £65,000 – say it’s a family-owned business with a wife and 3 children also being shareholders – then they can each be paid £2,000 in dividends (£8,000 in total) without paying any tax.
Previously this £8,000 was taxed at 32.5%, so this immediately saves you £2,600!
And this can be taken even further if you utilise your partner’s / family’s personal allowances and structure your shareholdings and salaries so that you stay at the lower tax bands where possible.
Exactly how far you can utilise this will depend on your business, how involved everyone is and their own personal incomes, but I hope you see the possibilities here!
Once again, I suggest speaking to an accountant who can look into your personal situation and give you tailored advice.
Free Accounting Consultation for Blog Readers
Which brings me to the final point of today’s post and the special offer which I mentioned earlier.
It’s my pleasure to say that I’ve spoken to a UK based accountant, Robin Thatcher, the owner of By The Book Accountancy, who will be offering free consultations to blog readers and Amazon Sharks members.
I actually first came across Robin through a recommendation from an Amazon Sharks member and he offers a wealth of ecommerce knowledge. He gave a lot of useful info to help put this guide together and this is the main reason why I’m happy to recommend him as ecommerce and Amazon sellers make up a large part of his client base, which is incredibly useful compared to some of the more traditional accountants who don’t understand the ins and outs of running an Amazon FBA business.
Robin deals with both sole traders and limited companies and can help you at any stage of your business, so if you’d like to take advantage of the free consultation then contact him at firstname.lastname@example.org and mention Andrew Minalto.
I don’t receive any financial incentive at all for making this recommendation, it’s purely to help my blog readers
That’s all from me for now. I hope you’ve found this guide useful and most importantly that it saves you some money!
Until next time!
All the best,
Disclaimer – all information given in this article is strictly my own opinion and doesn’t constitute legal advice. Please always consult a professional if needed.
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