While most people are enjoying their summer and the crazy hot weather outside, I have slowly and steadily kept working on the growth of my Amazon UK FBA business. And for a good reason!
This summer has been NOTHING but spectacular in terms of sales and profit! It may sound bizarre, but every morning, when I check my sales for the previous day, I get a buzz—or you could even call it even a high—from the numbers I see in my seller dashboard. Sales do boost my motivation, so the more money I make, the more excited I get to do even more.
Ok, I actually lied there. I’m working throughout the summer on my business, yes, but not on the actual Amazon FBA business. There are other projects. To be perfectly honest, I spent maybe three hours on my Amazon business in July, and that was mostly just to prepare for the shipment of two pallets (checking stock, projecting sales, printing labels, etc.).
I spent ZERO hours on marketing or customer support. In terms of marketing, since I switched off PPC ads, I don’t have much to do there anyway as my product images are great, all my listings have A+ content, and I’m not a huge believer in frequently changing titles, bullet points or descriptions for my listings as I don’t think Amazon likes that either (such changes can “confuse” the search algorithm and actually hurt your listing rankings).
As for customer support, I did answer two customer messages that were asking for an invoice. I simply had to download the invoice generated by Amazon and send it over to the customer. It seems that more and more people are now noticing the invoice feature that is built into their account because I get very few requests for invoices nowadays.
Oh, and I finally managed to fix the SPANISH VAT number! To make a long story short, for some reason, for MONTHS, I could not submit my Spanish VAT number for VAT calculation/invoicing because Amazon wouldn’t accept it. Why? Because it didn’t show up in the VIES validator system.
I don’t know what is going on in Spain, but it seems that they run a different back-up system for their VAT numbers. I have checked many Spanish customer VAT numbers in the VIES system and they often don’t show up. I don’t know how that is possible as all valid EU VAT numbers should show up there.
Anyway, a month ago, I received an automated email from Amazon that reminded me to submit my Spanish VAT number (which I couldn’t do because it didn’t show up in the VIES system). The email also said that if I didn’t submit my Spanish VAT number within 14 days, Amazon would TAKE BACK the money they paid for my VAT registration service and 12 months of returns in Spain (more than £1000).
At that point, I realised that it’s finally time to fix this issue for once and for all. I contacted the seller support VAT team and informed them that I have an active VAT registration in Spain but it isn’t showing up in the VIES system. They quickly replied and asked me to send them my VAT certificate. Once I emailed that, my Spanish VAT number was finally added to the system, and now Amazon invoicing works for me in all of the marketplaces.
So yeah, it’s all sorted now! I should have done this (contacted seller support) months ago, because for all this time, if someone from Spain asked for an invoice, I had to create it manually at my end. It wasn’t a huge volume, maybe five to seven requests in total, but still, I like to automate as much as possible to free up my time.
Going back to the sales results in July, I was totally shocked to see how well the month turned out. Usually, July is the slowest month of the year for me, but due to the coronavirus, demand has remained steady and even increased in the middle of the summer. In total, I managed to make £31,732.88 in sales by selling almost 4000 units of my product.
Let’s take a closer look at how the numbers break down.
NET Profit: £8,793.64
Before we get into the numbers, I want to give a quick shoutout to the team behind SELLICS. This is the software tool I use for my Amazon FBA business, and I think it’s absolutely amazing. While its core features focus on PPC management tools, I really like to use their PROFIT feature a lot! I can easily see all my sales and profit numbers on just one page, and it allows me to break down the numbers by country, item and date range.
What’s also cool is that, on the same page, it also shows my COSTS and gives me my NET profit—which is the most important number, of course!
The profit margin is also automatically calculated and there are tons of other useful features built into the application, like reviews monitoring, rankings and more! If you’re looking for an Amazon PPC automation tool for a reasonable price with many other great built-in features, I can’t recommend SELLICS highly enough. They have a FREE trial available, so you can test them out totally risk-free.
As you can see, in July 2020, my TOTAL sales were: £31,732.88
My TOTAL costs were: £22,939.24
Now, what’s interesting is to actually see how those costs break down. Sellics gives us this data in a very easy-to-understand format:
- VAT – £5,335.69 (17%)
- Cost of Goods – £4,942.58 (16%)
- AMZ Commission – £4,695.84 (15%)
- FBA Shipping Fees – £7,387.97 (23%)
- Promotion Costs – £437.19 (1%)
The other ones are very small amounts.
What can we learn from these numbers?
It’s obvious that FBA fees are the biggest expense in my business. But what’s more interesting is that PRODUCT COST is just 16% of my overall expenses.
I pay more in VAT than my products actually cost!
I wanted to show you these numbers to clearly illustrate that when you sell on Amazon, product cost is a tiny part of the overall picture. And in my business, it’s actually quite high right now because I lowered the prices of my products and paused all PPC campaigns. When I set my prices higher and use PPC, the product cost % goes down even further.
Why is this important to understand? Because you can clearly see that:
- Saving pennies by sourcing a lower-quality product is not worth it. It simply doesn’t make sense to sacrifice product quality over a super-small difference in the overall costs.
- Chinese sellers on Amazon UK don’t have a massive advantage over local sellers because the slightly cheaper product won’t make a HUGE difference to the overall numbers. Besides, taking into account that they have to register for VAT from day one, they’re actually at a disadvantage.
- Lastly and most importantly, it’s crucial that you do proper cost analysis/calculations BEFORE you decide to invest in a new product. You can’t simply look at the product’s price, say it’s £5, and think you will be ok selling it for £12. No, you need to use a spreadsheet (BEST option) OR Amazon’s fee calculator to get the exact numbers for all the costs involved when selling on Amazon.
Next, you can see that my FBA Storage fees stand at £127.68, which is a bit higher than I would like it to be. But then again, due to the whole pandemic thing, I have moved A LOT of stock to Amazon to stay on the safe side if any major disruptions are on the way. So, I have more stock at Amazon than I would ideally want, but £127.68 is not a huge amount on £30k+ sales per month and when I have to pay a VAT bill of more than five grand! 🙂
Finally, the NET profit number for July 2020—and this is for Amazon UK and the EU marketplaces: £8,793.64
Not bad for doing nothing, right?! Of course, all the work was put into the business in the beginning phase, but still, it’s so nice to have a passive income business model where the money basically prints itself without me lifting a finger. Of course, it’s all at Amazon’s mercy and how well they treat/rank my listings, but I guess there’s some risk in any business model, right?!
My overall NET profit margin was 33%, and this number is basically fixed now as I don’t have any variable costs (apart from storage fees).
If I scroll to the right side of the page, there’s some further information and stats:
- Units – 3842
- Orders – 3698
- Sales after refunds – £31,182.26
As you can see, my refunds stand at around £500, which, in my opinion, is a good/low number on an almost £32k turnover on Amazon.
We can always wish for a lower returns rate, but it is what it is. Unless I start to see any major problems in the Voice of Customer dashboard, I won’t be making any changes. There will always be returns in eCommerce (or any business for that matter), and from the reports, I can see that many of those returns actually come from un-deliverable addresses. So, the actual real-human refunds rate is even lower.
Lastly, on the same page, I get information about units sold, sales, returns and other data points down to each SKU I sell! I use this page all the time! I can clearly see how each item is performing, which allows me to more easily project sales and the amount of stock I need to send to Amazon.
Yes, I know that Amazon has its own inventory planning tool, but even though it’s more than a year old now, I still find it to be widely inaccurate in its projections. I don’t really know why Amazon can’t perfect it as the maths is very simple. You just look at the past sales and give me the number I will sell in the next month or two.
What’s also interesting is that even though I have 20 variations for sale, the majority of my sales come from just seven or eight products. The one with 1366 units sold is the clear leader. Although I would probably like my sales to be more evenly “distributed” across all variations, I can’t really control that. People will always like certain designs more than others. Still, it’s great to have at least seven or eight variations with strong sales.
Oh yes, four of my variations are Christmas-related and then one is Halloween-related, so out of the 20, five wouldn’t show any sales right now anyway. And the remaining seven or eight with very low sales numbers, I will probably discontinue once I sell off the remaining stock.
There’s no real point in keeping a listing active and managing stock for a variation that sells just ten or fifteen units a month—especially when Amazon is introducing new limits on the inventory management front. Let’s talk more about that now.
IPI CHANGE + Christmas TROUBLES!
Amazon has made a rather DRASTIC change in the way the Inventory Performance Index works. Well, not the system itself, but the minimum IPI score sellers need to maintain in order to have unlimited storage space at Amazon’s warehouses. Previously, this minimum score was 350, but from the 1st of September, they’re changing it to 500—which is a HUGE increase!
Currently, my IPI score stands at 607, and it has always been more than 550 or so. Hopefully, it will stay at that level and I won’t have to worry about storage limits.
I understand why Amazon is doing this, of course. They don’t want to become a place where sellers store their goods for months. With the increased demand created by the COVID-19 pandemic, their warehouses are currently running at very high capacity, even though they’re building new warehouses throughout Europe all the time.
To help sellers manage slow-moving stock, Amazon is now offering a FREE REMOVALS promotion!
So, if you currently have an overstock situation at Amazon, make sure to use this free removals promotion to get your stock out of the Amazon warehouse and improve your IPI score. This promotion started on the 24th of July and will run until a further announcement is made by Amazon.
The IPI minimum score threshold change is not something I’m personally too worried about. As I said, my IPI currently stands at 607, so I’m all good (for now). A much bigger problem is the new ASIN-level quantity limits that Amazon introduced two weeks ago.
What does this mean? Again, to keep their stock levels “lean”, Amazon will set a maximum number of units you can send in for any given ASIN. This number is based on its historical sales.
Basically, Amazon tells us that they want a maximum of three or four months of stock in the FBA program. DO NOT send more stock to us. Now, as FBA sellers, we won’t be able to do that anymore because of these new limits.
When you go to the Inventory > > Inventory Planning > Restock Inventory page and click on the number of units you have for any given ASIN, a new message is displayed telling you how many units you’re allowed to send to Amazon’s warehouses.
It’s called the Maximum Shipment Quantity:
You won’t be able to add more units than this number to your shipment plan.
Now, in general, I don’t see a big problem with this because the numbers are relatively high: three or four months of sales, which is totally reasonable by any means. The problem, however, starts with seasonal items. I can’t really see how this will work unless Amazon makes a change to this new system.
For example, I have FOUR Christmas-related ASINs. They do not sell throughout the year at all, so there is no sales history for them. Amazon shows that I can send in 136 units. WTF? How is that going to work?
I know that during Q4, I can sell anywhere from 5000 to 10,000 of these items. I also know that every year, there are massive delays at the fulfilment centres in October, November and December, so I plan ahead and send in all of my Christmas stock well in advance.
Now I won’t be able to do that. I can only send in 136 units. Let’s say I sell them in early November. Must I quickly send in new stock and simply hope that they will reach the fulfilment centres in time?
I don’t really know what Amazon is thinking here, and I hope that they will make a change. Otherwise, every seller who sells seasonal items will be screwed and Amazon’s Q4 sales will obviously also be affected. I can’t really imagine that they will let this happen, so let’s wait it out and see if there are any changes to this new system in August or September.
And that’s it for today. I hope that some of the stuff I covered today was valuable or at least interesting to read. I know that people like to get these monthly sales updates from me, but I often feel that such content is not as valuable as a how-to guide or something else. But I will probably continue to publish these posts every month as I can also pack in the latest Amazon news and updates, thus making the content more valuable.
I have been in this business (eCommerce) for more than 15 years now and it still amazes me how excited I get in August and September, just before Q4 kicks in.
This year, it will be the biggest Q4 ever due to the coronavirus and I can’t wait to see new sales records being made. That is, if Amazon changes the ASIN-based inventory limits.
If you’re thinking about starting an Amazon FBA business, now is THE BEST time to do it! eCommerce sales are booming, and if you work hard, you still have time to launch your product this year, right in time for the Christmas sales.
And if you need guidance, training and support from someone who is experienced in this game, check out my Amazon Sharks program. In more than 20 hours of video lessons, you will learn everything you need to know about starting a successful Amazon FBA business. PLUS, you get direct access to me to ask any questions you have throughout the whole process.
As always, I would LOVE to hear back from my readers! Leave your comments, questions and thoughts below the post and I will get back to you within 24 hours, Monday to Friday.