One of the questions we hear most often at Seller Accountant is “how profitable should my Amazon business be?” We generally hear this from sellers who are concerned that they are leaving money on the table.
As we talked to real sellers, we began to see patterns in sellers who routinely showed maximum profits, and sellers who were struggling.
And hey, we’re numbers people. We’re interested in hard numbers, not theories or generalities. So we conducted a study where we sliced and diced over $100 million in Amazon seller data and interviewed around fifty Amazon sellers.
From that data, here are handful of the 11 things the most profitable Amazon sellers have in common:
1 – They Keep Score
This is the big one. Profitable sellers know where their money is coming from and where it’s going. They understand not only how to read important statements like their Profit & Loss Statement and their Balance Sheet, but they also know how those documents (along with a Statement of Cash Flows) work together to reveal their Amazon business’s bigger financial picture. And they use accrual accounting to get there.
With this full picture, profitable Amazon sellers can:
- Quickly see problems and nip them in the bud
- Identify opportunities for growth
- Plan for big expenses without firefighting (such as taking on an emergency high interest loan)
- Position your business to sell
But when you don’t pay attention to accounting, you can miss big problems on the horizon until they’re too late to manage.
2 – They Recognize that “Sales are Vanity, Profit is Sanity”
One place we often see Amazon sellers get in trouble is when they are only looking at gross sales numbers. If you’ve ever asked yourself, “My sales are great! Why doesn’t it feel like I”m making any money?” then it could be because you are looking at sales, but not profit.
Profitable online sellers track and can easily pinpoint not just sales, but numbers like COGS, advertising costs, overhead and taxes. Top sellers have their finger on the pulse of how much it costs them to truly run their business, not just sales figures.
3 – They Run Lean and Mean Operations
It may surprise you to learn that the most profitable Amazon businesses in our study were simple 1 or 2 person operations. These Amazon businesses sold quality products while maintaining high margins and very low overhead.
On the flip side, one of the anchors we saw weighing many Amazon businesses down was scaling up too much too soon. Hiring too much help, renting warehouse space with the intention of “growing into it” or subscribing to too many seller tools can easily eat away at your bottom line.
We suggest evaluating your current spending often to ensure that every dollar you spend is working toward your business’s bottom line.
4 – They Focus
Wise Amazon sellers specialize rather than generalize.
They realize that while they may be good at one or two things, nobody can be good at every single thing. For example, we often see wholesalers wonder if they should expand into private label. Or home goods sellers wondering if they should expand into the baby category.
But we’ve seen over and over again that sellers who dig in and focus on their strengths excel, while sellers who try to do too much too fast crash and burn.
Don’t try to force a square peg into a round hole. If your strengths lie in making deals with wholesalers, but you’ve never signed into a social media platform in your life, then it may not be worth your time to become a social marketing expert. Leverage what you’re good at.
Of course that’s not to say that you may not want to expand your business model or marketing strategy in the future, but by focusing on your strengths you can create a cushion of profit from where you can branch out into new areas of business.
The Rest of the Story
Those four tips are just the beginning.
We put together the results of our study in a 38 page eBook. This eBook is chock full of tips, including 7 more things that profitable Amazon sellers have in common, and 6 anchors we typically see dragging an Amazon business into the red.
Click here to download your free “How Profitable Should My Amazon Business Be?” eBook.
Bonus: Are you uncertain about your business’s bookkeeping? Not sure how to generate a balance sheet or a statement of cash flows? We’re currently offering Seller Tradecraft readers the beta versions of our two eCourses for just $99. The courses increase to full price on May 15th, so check out “Amazon Accounting: How to Gain Visibility into your Business” and “CFO Tactics for E-Commerce Sellers” today. Use code TRADECRAFT to receive your deep discount.
About the Author
Tyler Jefcoat is the Co-Founder and CEO of Seller Accountant, a service that specializes in helping e-Commerce sellers gain true visibility into their business financials so they can achieve financial freedom. Learn more and schedule your free consultation at SellerAccountant.com.
