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 firstname.lastname@example.org 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 email@example.com 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 firstname.lastname@example.org 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 email@example.com 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.
One surprising thing about selling on Amazon is that they don’t require you to have any insurance, even when you’re registered as a business seller.
At least that’s the case when it comes to selling on Amazon UK, with Amazon US on the other hand once you reach certain turnover amounts, you’re required to have insurance.
You might be thinking “great!” – after all, why spend money on insurance when you don’t even have a store or ever come face to face with customers, it’s not as if someone can slip on a wet floor and blame you for example.
While that may be true, there are still many reasons why you need insurance as an online business, as you’re liable for any damage or injury caused by any product you sell, whether that’s from your own eCommerce store or via an online marketplace like Amazon, Etsy, or eBay.
For example, if you sell phone cases, someone could claim it caused their phone to overheat and catch on fire. If you sell silicone cutlery, someone could claim it caused them to become sick. If you sell blankets, someone could claim it caused a reaction on their skin.
Yes, Amazon FBA Sellers Need Business Insurance, Too
I hope you get the point! It doesn’t matter what the product is or how safe it seems, all it takes is one accident and one person to blame you and your products and you’re facing an expensive lawsuit that could potentially destroy your business.
And in fact, this can affect more than just your business! As I covered in our recent Sole Trader vs Ltd. Company comparison, one of the negatives of operating as a sole trader is that you’re personally tied to your business – you’re considered one legal entity. This means that any business liabilities are also personal liabilities and any personal assets are also business assets, so if you were found liable and ordered to pay £1,000,000 in compensation, that could potentially be recovered from you personally, even if your business doesn’t have the money.
I’m not trying to scare you with this horror scenario, but it’s important to understand how integral insurance is as an online seller – it’s not something you should just leave for later and hope nothing goes wrong in the meantime!
And one other important point – a lot of people mistakenly believe that it’s the manufacturer’s responsibility and as resellers we don’t have anything to worry about, but this is completely wrong and doesn’t apply to private label products!
When you’re ordering products from China and importing them into the UK or EU, you’re considered the manufacturer and are 100% legally responsible. This is exactly the same thing when it comes to product testing and certification, you can’t simply leave that to the manufacturer in China and accept whatever they tell you as it’s your responsibility.
What Type of Insurance Do You Need?
Now that I’ve gone over why you need insurance, let’s talk a little about the different types of business insurances for amazon sellers and what you need to cover yourself as an online seller.
Product Liability Insurance
Product liability insurance is the main type of insurance you need as an Amazon FBA seller and covers you against claims made for personal injury or damage to property caused by a product your business designed, sold, or supplied.
The insurance covers you for both the cost of any compensation you have to pay and also for any legal fees involved in defending yourself against any claims.
Public Liability Insurance
Public liability insurance is the main type of insurance for traditional retail businesses and covers you against claims made for personal injury or damage to property caused by your business. For example, if someone slips in your store due to the floor being left wet. Public liability insurance also covers you if you’re carrying out work at a client, for example if you’re a plumber or electrician.
As an online, seller you don’t really need public liability insurance as obviously you / your business don’t come into contact with the public but most insurance providers bundle together product and public liability insurance as a package and you can’t just get one or the other.
What Level of Cover Do You Need?
There are no real set amounts for this and it will depend on the type of business you’re running and what products you sell.
However, most providers offer cover starting at £1m, going up to £5m and above. These may seem like high amounts but it’s better to be safe and you have to bear in mind that any claims can include medical costs and loss of income so personally, I would suggest looking at £1-£2m in cover as a minimum.
More Insurance Types for Amazon FBA Sellers
While product and public liability are the main types of insurance there are also some additional options which you can include. Some are only really needed in special circumstances, some are a waste of money, and some are definitely worthwhile having – all in my opinion of course. But so you can make your own mind up let’s quickly run through them one by one.
For me stock insurance is a must have for any online business as it covers your products if they’re stolen or damaged.
This is especially important if you store stock at home before sending it to Amazon’s fulfilment centres as this won’t be covered by your home insurance. What happens if a water pipe bursts and destroys your stock? Or someone breaks into your home and vandalises it, damaging stock?
In fact, on a separate point it’s very important that you inform your insurance provider that you’re storing products at home as they may use it as an excuse to reject any claim you make, even if it’s unrelated to your business/stock!
Employers’ Liability Insurance
Employers’ liability insurance covers you against any injury or illness of an employee, caused by working for you. For example, if you hire someone to do the final quality control and prep your shipments to be sent to Amazon’s fulfilment centres and they injure their back while moving boxes.
Whether or not you should get employers’ liability insurance is very simple, and in fact you don’t even have a choice as it’s a legal requirement if you have anybody employed by you / your business. And if you don’t then of course it’s not needed!
Business Interruption Insurance / Business Income Insurance
Business income insurance covers you against any loss of income due to damage or theft. For example, if your laptop is stolen and you’re unable to trade, losing sales and income as a result.
Personally, I don’t see the value in this insurance as it’s hard to imagine a scenario where it would be needed.
Legal Expenses Insurance
Legal expense insurance is different to the legal cover which is already included within your product and public liability insurance and it specifically covers your business if a claim is made against you by an employee or you’re subject to an HMRC investigation.
Again, this isn’t something that I feel is needed for me and my businesses personally but it’s an option nonetheless and should be considered if you have employees.
So there you have it. Those are the main types of insurance options for UK businesses. For most Amazon FBA sellers and e-commerce sellers, product liability and stock insurance are all you need, especially when just starting out when you don’t want to be spending large amounts every month.
Who is the Best Insurance Provider for Online Sellers?
Most people I speak to are put off from getting insurance because they’ve heard stories about how difficult it is to get covered if you’re buying products from manufacturers in China and they expect it to cost a lot.
But I’m happy to say that from my experience, both personally and from helping countless Amazon Sharks members, both of those fears are unfounded.
In fact, it’s getting easier and easier as before you had to speak to traditional business insurers and get special customised quotes, but now there are a number of brokers who specialize in insurance for online sellers.
Once again they offer a specialised service for online sellers and you get quotes from multiple insurance providers and I’ve had very good feedback from people who’ve used them, including Amazon Sharks members:
How Much Does Insurance Cost for Online Sellers?
As we’ve already covered, this depends on multiple factors, such as your turnover, what products you sell, where they’re manufactured, the level of cover required, etc.
But generally, for Amazon FBA sellers with one or two product lines, you can expect to pay something around £30-£40 a month. This fits in pretty well with the example quotes given by Simply Business:
Of course, there are other factors to consider such as the excess and specific terms and conditions, so don’t simply go for the cheapest quote straight away!
And that brings us to the end of today’s post. As always if you need any help or have any questions about getting insurance for your own business, then email me and I’ll do my best to help.
Or if you have any suggestions for other blog readers on good companies to use then feel free to post them below.
Otherwise, until next time!
All the best,
Disclaimer – any recommendations or advice given are purely my own opinion. Please always seek professional legal advice if needed.
Understanding Amazon’s Small and Light and New Selection Programmes
One common misconception is that if you’re selling low-cost items on Amazon, their fulfillment fee makes FBA unviable and you have no choice but to instead use FBM – Fulfilled by Merchant.
And this is often true and why I usually suggest looking for products priced at £9.99 and above, as the starting fulfillment fee of £1.38 really eats into your margins at the lower price points.
I personally hate FBM – to me it’s a big reminder of the eBay days which I just can’t go back to. When you’re used to Amazon fulfilling orders night and day without you having to lift a finger, it’s too hard to go back to packing and posting yourself. And yes of course you can hire staff to do this, which is what I did for my eBay businesses once they reached a profitable enough point, but this comes with countless headaches in itself.
That’s not even talking about all the other benefits FBA gives you, the main one being increased trust with customers, which means more sales and profit for us!
So does that mean you should completely ignore any product priced below £10? Well not exactly, as there is one big exception to this rule and that’s if your product qualifies for Amazon’s FBA Small and Light.
What’s Amazon FBA Small and Light?
It’s a programme offered by Amazon which gives sellers reduced fulfilment costs for eligible items.
There are 4 simple requirements:
Price: The product must be £9 or less.
Size: The product must not exceed 30 x 22.4 x 2.4cm .
Weight: The product must not exceed 225g.
Sales: The product must have a minimum of 10+ sales per month.
£9 or less
< 30 x 22.4 x 2.4cm
minimum of 10+ sales/month
These are the 4 simple requirements
Small and Light Amazon Eligibility Requirements courtesy of Amazon.co.uk.
The 10+ sales a month only applies to existing listings so we can safely ignore that for our private label products as of course we’ll be creating the brand and listing so there’s nobody else to compete with.
And for the size requirement the product can’t exceed any of those dimensions on any one side, so for example 25 x 25 x 2cm wouldn’t qualify.
What’s the savings for products that qualify for Small and Light?
Well there are two different fulfilment fee options for FBA Small and Light, depending on the overall size and weight of the product.
As already covered the max size and weight is 30 x 22.4 x 2.4cm and 225g and if you meet these requirements the fulfilment fee is £0.82.
But further than that there’s also a lower fee for even smaller items. If you have a product that is 92g or less with max dimensions of 23 x 15 x 0.4cm then you’ll pay just £0.61 in fulfilment fees.
As a comparison, without Small and Light the small letter would have a fulfilment fee of £1.38. And the large letter would cost £1.66. That’s a saving of 56% and 51%, which is not bad.
With a £9 item, £1.66 in fulfilment fees is a large 18% whereas with Small and Light it comes down to 9%.
But don’t forget that this 50% reduction in fees is only for the fulfilment and you’ll still pay the same referral fee, which in most cases is 15%.
Let’s save money instead of complaining about Amazon FBA Fees
Off topic but it always amazes me the amount of people that complain about Amazon’s fees! 15% for the amount of customers and sales that they bring to you is insanely good value in my eyes and I’m sure anyone who’s run an e-commerce store and knows how much marketing and PPC advertising costs will agree with me!
Yet still you see constant threads about how Amazon are robbing sellers with “their insane fees”, it’s crazy!
But back to the topic at hand and while I still do suggest looking at slightly higher priced items, if you do qualify then FBA Small and Light offers a very nice discount which can mean the difference between going back to the days of fulfilling orders yourself and letting Amazon take care of all the hard work for you.
Also if you use Small and Light, check out Shopkeeper.com, a really useful FBA profitability tracking tool for sellers of all sizes, which will adjust your FBA fee estimates for SnL items as soon as your orders come in – even though the order is pending Shopkeeper will already be able to give you correct fee estimates which is a handy, unique feature.
What’s FBA New Selection?
And while we’re on the topic of saving fees, Amazon also recently announced that they’ve extended their New Selection programme for 2021. This Amazon FBA program gives you free monthly storage, free removals, and free return processing on eligible new FBA products. This offer applies to Amazon UK, Germany, France, Italy, and Spain.
You can enrol in the FBA New Selection programme here.
What are the eligibility requirements?
If you’re already selling on Amazon then the requirements are fairly simple – you just need to be a Professional seller and have an Inventory Performance Index (IPI) score of 400 or more, and it needs to be a new to FBA ASIN.
If you’re completely new to selling on Amazon then you’re automatically eligible, and in fact you actually get even more benefits, such as £80 in shipping credit when using Amazon partnered carriers to send stock to Amazon’s warehouses, and £160 in sponsored ads credits to advertise your listings!
There are a few more terms and conditions, which you can find here, but they’re all pretty straightforward and self-explanatory.
So this really is a great way to get started and launch on Amazon while saving on a lot of the usual costs.
We’re nearing the end of April now which means there are about 6 months until Q4 and the packed Christmas season, so it’s the perfect time to launch your own Amazon FBA business.
If you want an in-depth, 10-week course in which I cover everything you need to know to research, launch, and grow your own Amazon business, then take a look at Amazon Sharks.
In it, I take you behind the scenes to look at my own Amazon business, showing you exactly what I did to reach £57,000 of profit in one month, and all the mistakes to avoid along the way!
And of course, I also have plenty more guides and tips planned for the blog over the upcoming months, so stay tuned for that!
How to Compete with Listings with 100s of Reviews? How to Compete as a New Amazon Seller in 2021?
You may wonder, “Is Amazon FBA business profitable?” Well, let’s look at the numbers. 2020 was a phenomenal year for my Amazon FBA business. In November alone I hit just under £200,000 in sales with a NET PROFIT of £57,020.50 – without spending a penny on PPC! I did a full blog post going over exactly how I achieved this, including how I actually left a lot of money on the table by not being optimistic enough with my inventory planning, which you can read here.
And many of my Amazon Sharks members have been setting their own sales records throughout 2020 as well as I describe here.
Now I’m not saying this to brag but to illustrate the huge growth that e-commerce and Amazon FBA in particular have seen in the last year or so.
This, coupled with the fact that many people have seen first hand how risky it is to rely completely on one source of income, has led to huge interest and an influx of people looking to start their own online business.
But this growth also brings a big question, and it’s something I’ve been asked countless times already this year – “can I still compete on Amazon as a new seller or am I too late?”
Too Many Amazon Reviews Does not Mean too Late
Here’s a recent email I received about getting started with Amazon FBA:
Hello, I purchased the secret fba products course way back in September! I have been looking at the products and have decided I’d like to pursue the[EDITED]– I have done the product research etc that you suggest. My only problem is I’m worried about the amount of reviews the rival products have 3 or 4 have 400 plus reviews. Would I be able to compete with them? Thanks! Peter
And my honest answer is – absolutely you can compete as a new seller! BUT only if you do things the right way.
I’ve always prided myself on being honest and upfront with my blog readers, so much so that I started warning people when I thought eBay was dying as a platform for UK sellers, even though my whole business was built around it.
I’m not one of those fake online gurus posing next to a rented Lamborghini with their photoshopped screenshots, telling you how if you follow these 5 simple steps you’ll be an Amazon FBA millionaire overnight.
I wish it were that easy but nope, it’s not. You do have to set yourself apart from the other sellers, many of which are much bigger than you or are even Chinese companies cutting out the middleman and selling directly on Amazon.
If you’re expecting to just go onto Alibaba, click on the top ranking list, order £1,000 worth of stock and then sit back and watch the money roll in, well then I’m sorry to say you’re in for a rough surprise.
Let’s take a second to think about it logically.
Say you’ve found a product you want to sell on Amazon. And it really doesn’t matter what this is – we’ll just call it widget X for our example.
Now widget X sells for £14.99 on average on Amazon with a Referral fee of £2.25 and an FBA fee of £2.57, leaving you with a net sale price of £10.17.
After checking on Alibaba and speaking to a few suppliers you can get it for £3.50 with a MOQ (minimum order quantity) of 500 pieces.
So £3.50 x 500 = £1,750. Shipping is £500. So, all in = £2,250. And then finally 25% in import tax (VAT + import duty), which gives you a final landed cost of £2,812.50 and a per unit price of £5.63
For simplicity’s sake we’ll ignore any shipping costs to get your products to Amazon’s fulfilment centres, which means:
Sale Price – £14.99
Amazon Fees – £4.82
Product Cost – £5.63
NET PROFIT – £4.54
So you’re left with just over £4.50 profit for every unit sold, giving you a good net margin of 30%.
Not bad at all right?
But not so fast…
What happens when another company finds the same product on Amazon, goes to Alibaba and finds the same supplier just like you did. But instead of ordering 500 pieces they order 5,000 and get a reduced price of £2.75
And then even though they’re ordering 10x more, for shipping they only pay double what you did, so £1,000. Add on the 25% import tax (as that doesn’t change) and they get a final landed cost of £18,437.50 and a per unit price of £3.69
At the same sale price as you, that leaves them with:
Sale Price – £14.99
Amazon Fees – £4.82
Product Cost – £3.69
NET PROFIT – £6.48
That £6.48 profit per unit sold is a huge £1.94 more than you. And this is why I always stress how important buying power is! Even though initially the difference didn’t seem huge – you were getting £3.50 vs their £2.75 – and you might think ah that’s just 20% it’s not that big a deal…
But as you can see in the end it meant a 43% higher net profit!
And it doesn’t stop there! The real problem comes when seller B decides that they can reduce their price down to £11.99, cutting their net profit per unit to £3.93, which still gives them a respectable 33% net margin.
But what does that mean for you?
With a £11.99 selling price your figures now look like this:
Sale Price – £11.99
Amazon Fees – £4.37
Product Cost – £5.63
NET PROFIT – £1.99
Reducing your price to compete with seller B has cut your net profit in half, leaving you with a tiny and unworkable 17% margin.
Now this part is very important as I don’t want you to take away the wrong message from this example. A lot of people who hear this automatically think it means you need a huge starting budget to compete – but that’s completely wrong!
The key point wasn’t seller B coming in and undercutting your price, it was the fact that you had to match them. And why was that? Because you were both selling the exact same product which you found from the same supplier on Alibaba!
And this is the whole key to success on Amazon and in e-commerce in general. You have to differentiate and improve the product you’re selling.
I can’t stress enough how important this is – it’s the key to my entire model for creating a successful Amazon FBA business and exactly what I teach in my Amazon Sharks course.
If you’re selling a product which you have a personal interest / knowledge in then the improvement process is very intuitive and straightforward.
For example let’s say you’re a big golfer and the product you’re interested in selling is golf club head covers:
Then maybe you know that people want longer covers, or covers made from a different material, or they’re bored of the usual black and blue and want something more fun and colourful.
There are many different ways to improve and differentiate a product and this is something I personally love. It’s safe to say I have the “tetris effect” hard when it comes to selling on Amazon! Basically every item I buy I check the Jungle Scout data and start thinking about how I can improve the product and compete with the current listings.
This is one of the reasons I always suggest selling products in a niche you’re personally interested in as it just makes both product research and product improvement so much easier.
But if not and you’re selling a product that you don’t personally use, that’s not a problem at all. It’s 2021 and you have access to more market data than you could ever need…
Forums, Twitter, Facebook, Amazon itself – everything you need to know about a product is there. What people like about it, what they don’t like, what can be improved.
Say you’re interested in selling dog beds and you notice a lot of people saying they wish the cover was removable and washable – there you go! A simple improvement you can make.
Or you’re selling paper like iPad screen protectors and a lot of reviews on Amazon mention it was hard to install – so you can create an installation guide to be sent with every product.
There’s really no excuses here. Take any product there is and within one hour of research you should have a list of ideas on how to improve it – setting you apart from the competition on Amazon and allowing you to charge higher prices.
And what I love about Amazon is that it’s the perfect platform to be able to do this.
Good products are rewarded and quality is emphasised. This isn’t eBay where it’s a race to the bottom and all about the lowest price wins.
Having a better product with better reviews is what matters on Amazon.
Do Listings With More Reviews Get More Sales?
I know that’s what you’re thinking. But, no! There are so many factors and for me the number of reviews just isn’t as important as people think. There are countless listings on Amazon pulling in thousands and thousands in sales every month with no reviews!
Would they sell more with more reviews? Yes of course…
Reviews are important, especially those first few when you’re just starting out. It goes without saying that the difference between having 0 reviews and 1 review is a thousand times more important than having 99 or a 100.
But there are a few different highly effective methods to getting those crucial first reviews in, which I’m planning to cover in detail in a future blog post.
Just remember that while reviews are important, they’re far from the be all and end all, and in fact there are other factors that are way more important. When I’m doing product research the number of reviews is only the 3rd or 4th most important piece of data for me.
I know I’m repeating myself now but this is so important to understand.
The Amazing Amazon FBA Cycle of Profit
Create a better product = your listing converts better = you get more sales = your listing gets better search ranking = you get more sales!
It really is an amazing cycle of profit when you get this right.
Take the time to create a better product – outdo your competition where it matters and you can easily compete with established listings on Amazon and get your share of the growing Amazon sales pie!
And on that note we’ll end today’s post.
However there is another part to this amazing business model. Not only do you have to improve the product but you also have to show customers that it’s better, which you do with branding! And this includes your packaging, product photography, listing and more – all of which will be covered in detail in future blog posts.
It does shock me how many Amazon FBA sellers let their account status get jeopardised from not following the simplest of rules and making sure they maintain their metrics.
Now with something like the Inventory Performance Index, I can at least see why there could be problems. But with the upcoming Invoice Defect Rate there are absolutely no excuses!
There really is so little for us to do…
That’s one of the beauties of being an Amazon FBA seller and probably the main reason I switched over from eBay all those years ago — a decision I haven’t regretted at all! Amazon literally takes care of most of the work and it really is hard to fall on the wrong side of their metrics and performance indicators.
So please, I don’t want to get any emails from people saying help me my account is in trouble because of this. You’ve been forewarned!
Now, rant over. Let’s quickly go over:
What is Amazon’s new Invoice Defect Rate?
It was first introduced on Amazon.co.uk last summer because “Amazon Business customers require timely invoices for tax and accounting purposes” and Amazon wants to make sure you “deliver the invoicing experience this fast growing segment of customers expects”.
And I have to say that personally I am surprised by the amount of orders where the customers request an invoice / VAT receipt – especially as the product I’m selling isn’t something you would necessarily think of business customers for.
So I do believe it when Amazon says this is a growing segment, after all they usually know what they’re talking about with this kind of thing. And I for one definitely won’t say no to some additional sales!
Since Amazon introduced this new metric they’ve been recommending Amazon FBA sellers maintain it under 5%. But from April 5th 2021 this becomes part of the Amazon invoice requirements to sell on Amazon.co.uk, Amazon.de, Amazon.fr, Amazon.it, and Amazon.es.“
Failure to comply with this upcoming performance requirement may result in account deactivation.”
How is the Invoice Defect Rate calculated?
It’s the percentage of orders for which you didn’t upload an invoice by midnight on the first working day following the day of confirmed dispatch.
For example if an order has confirmed dispatch on a Monday, you need to upload an invoice by 23:59 on Tuesday. For orders that are confirmed dispatched on a Friday, you’ll have until 23:59 Monday the following week to upload an invoice as it only takes into account working days.
You can check your current Invoice Defect Rate by going to Seller Central > Account Health > Customer Service Performance. At the moment it only calculates it based on the last 7 days of orders (if it shows N/A that just means you didn’t have any orders from Amazon Business customers in the last 7 days) but presumably this will change by April…
Now to the main point:
How do you reduce your Invoice Defect Rate?
Well there’s a number of different options depending on your VAT status and if you decide to use Amazon’s VAT calculation service. Let’s quickly go through them one by one:
Enroll in Amazon’s VAT Calculation Service and let Amazon create invoices on your behalf automatically. IDR is 0% when Amazon’s VAT Calculation Service generates an invoice on your behalf.
Enroll in Amazon’s VAT Calculation Service and choose the settings to upload your own invoices via your solution provider.
Upload your invoices via your solution provider without enrolling in Amazon’s VAT Calculation Service.
Upload your own invoices manually from the Manage Orders or Order Details page.
If you are exempt from VAT registration in both the EU and the UK, declare your VAT exemption status and let Amazon issue receipts on your behalf automatically.
If you want to use options 2 or 3 there are a number of different third party options but personally I recommend option 1 – that way Amazon automatically both calculate the tax for you and also generate the invoice.
There are a couple of other smaller benefits such as VAT-exclusive prices being displayed on your listings and the fact that business customers can filter their search results to only show listings for which invoices are automatically generated.
To enroll in Amazon’s VAT Calculation service go to Seller Central and complete your VAT registration details then click on Activate Amazon’s VAT calculation service.
And there you go – it’s all taken care of for you and you have nothing to worry about.
If you’re VAT registered then then I really don’t see any benefit to going with option 4, the manual method.
If however you’re not VAT registered then you’ll have to create and upload your own receipts.
This is not complicated at all and I’ll show you a very easy process to take care of it but it’s very important to get it right as you can’t provide VAT invoices when you’re not a VAT registered business.
So on the receipt you either need to state that you’re not VAT registered or better yet you should have “VAT – NA” as part of the receipt.
You can either make a stock template in excel and just edit it for each order or simply use a free online invoice generator.
They’re all basically the same so just choose whichever one you like.
Let’s quickly run through an example so you can see how simple it is to create an invoice. I’ll use invoice-generator.com, here’s the starting template:
And here are the steps you need to follow:
Add your logo and business details under “who is this invoice from”
Add your customer details under “bill to”
Change “invoice” in the top right hand side to receipt
Add an invoice no. (you can simply use the amazon order no.)
Add the order date
Leave “payment terms” and “due date” blank
Change the currency to GBP
Fill in the product details under “item description”
Put the sale price under “rate”
Put the sale price under “amount paid”
In “notes” add VAT – NA as not VAT registered
And that’s it. Here’s the final PDF which you can simply save and then upload via Amazon:
And that just leaves those of you who are exempt from VAT registration in both the UK and EU.
Again, this is a very simple process. You simply go here and declare your VAT registration exemption and you’ll be enrolled in Amazon’s automated receipt generation.
This is very important. Even if you’re not required to apply VAT on your sales, that doesn’t mean you don’t have to do anything (as I’ve seen a lot of people on Amazon’s seller forums saying!). You’re still required to provide a receipt for each order from an Amazon business customer, so please make sure you enroll.
And finally for anyone wondering, you also can’t send invoices or receipts by email. These won’t be considered and will count as missing towards your Invoice Defect Rate.
So there you have it. One new performance metric for us to monitor but once it’s all set up there’s really nothing to worry about. Of course we’ll see in practice what other problems pop up which will all be covered here and on our Amazon Sharks Facebook group.
As always if you have any questions post them below and I’ll personally get back to you.
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