One of the things we’ve noticed while working with Amazon sellers is a recurring difficulty with assessing the overall viability of their operation. Our experience in managing catalogs for our various clients shows that some business owners focus solely on sales revenue and are missing a more important parameter that should not be overlooked – account profitability.
This blind spot usually stems not from a lack of knowledge but from a lack of understanding of all the variables that make up the Amazon Profit and Loss Statement and, often, a lack of time to dig deeper into its less obvious parameters.
We get it; there’s so much to do while running an E-commerce business, and the Profit and Loss Statement may seem complex and even overwhelming. However, this fundamental report is based on a basic formula that factors all your account’s income and expense variables. It includes both the expenses you can control and those you can’t.
The main goal of the P&L report is to identify the expenses that hurt profitability and address those we can control to maximize income.
In this article, we explain why your Profit and Loss Statement is crucial to assess the profitability of your Amazon store – and what you should include in yours. Most of the information we will analyze here can be found under Amazon Payment reports. We recommend running the report monthly, in addition to quarterly and yearly reports. Download the transactional date range report for the specific time frame you want to examine. As an agency focused on maximizing the profitability of our clients` stores, it’s a tool we constantly utilize and recommend others to do the same.
What to include in the P&L statement?
To start out, create a separate P&L report for each marketplace, calculate the % of total income for each field and combine the numbers for a global overview. This way, you can chart your numbers for each country and analyze which markets are profitable, which should be improved and which are not worthwhile for your business.
Marketplace View (For example US):
Some of the fields can vary from country to country, but you can aggregate the essential clauses for an overall analysis.
Here are the main variables we recommend including in your monthly P&L report to better access your profit from Amazon:
- Total Income
- Amazon Fees
- Landed Costs
- Related Costs
- Gross Profit
Let’s break these down one by one:
Income – all income, including – sales, credits (shipping, gift wrap), liquidation, etc.
Refunds – your expense on returned item
Amazon Fees – includes various Amazon costs (Selling fee, Fulfillment fees, Storage and Removal fees, Shipping, etc.). Diving into these costs is essential to pinpoint any unusual expenses that need your attention.
Marketing – includes the cost of advertising, Promotions, Deals, promo rebates, etc.
Landed Costs – to get a comprehensive overview, it’s essential to add the manufacturing, handling, and shipping costs of sold items to your report. Adding these numbers is vital to fully understand your Amazon profitability.
Sales Related Costs – you can factor in additional costs, such as software, accounting, campaign managers, VAs, etc
Gross Profit – the final profit after considering all the parameters.
How to analyze your P&L report?
Now that you’ve put down the numbers, what’s next?
If you’ve filled out your P&L report and concluded that your account is profitable and meets your profitability goals, that’s great! If it’s not … – is there anything you can do about it? Absolutely! Go over the numbers line by line and check where you can minimize costs.
Here are a few examples:
Refunds: If the percentage of refunds from all your sales is high, there may be a problem with one of your products. We recommend taking a deeper look at your customer returns report and examining which products are returned, why this happens, and how product quality affects them. It’s also a good idea to take a look at the Voice of the Customer page and examine the percentage of NCX for each product.
Amazon Fees – There are many expenses you can try to cut back here. If your storage costs are high, you can manage your inventory better, or you may need to redesign your optimal e-commerce packaging.
Marketing costs – Carefully optimize your paid advertising and set ACoS and TACOS goals that are right for your product’s life stage. There are no rules of thumb here; each business should adjust the ACoS to its goals and product margins. If you are running deals, make sure to choose the right products and that the deals are profitable and have good ROI.
Landed Costs – Shipping costs have constantly been changing over the last years, so this can be a great opportunity to examine what you spend and lower shipping expenses by finding another carrier with better prices.
Related Costs – Do we need them all? Maybe we can save here…
We will not be covering product-based profitability in this article, but the next step would be to analyze your P&L report for each product. That can help determine whether some products are profitable while others are not and understand how to cut losses on these particular items.
What can you learn from your P&L report?
Analyzing the P&L report will clarify whether you can meet your profitability goals and help adjust accordingly. Remember that even if your income seems high and you are selling loads of products, if your account is not profitable at the end of the day, the effort is not worth it.
Our final tip for you is to set clear and measurable goals. Your business results will improve if you’ll see the whole picture, analyze and follow the goals you set earlier.
For instance, setting up a TACOS – Total Advertising Cost of Sales goal will prevent unpleasant surprises due to excessive marketing expenses.
There are several tools available you can use to track profitability, but to make it easier for you to crunch your numbers, we made a customizable P&L report template that you can apply to your business. Insert your email below to get your copy.
If you are looking for an agency to help you grow your sales and profitability on Amazon, you are at the right place. fill your details in the form below or send us an email and let’s talk!