In Getting started with Amazon Seller Account – Part II, we covered the sensitive nature of listing your items from the standpoint of what to sell on Amazon and how to sell on Amazon successfully.
My definition of success is selling large quantities of the same item that yields a net margin of 10% or more with a minimum dollar value of $2 net yield per sale. If you select high priced items, achieving 10% may prove to be a challenge. On the other hand, if you select low priced items, you may not be able to achieve the $2 net profit per item even though you may achieve the minimum margin. This is something we will address as part of the topic of Amazon Buy Box and Buy Box strategies as we progress into managing your Amazon Seller Account. Your e-commerce strategy will be the driving force behind setting the parameters for your pricing policies.
Below are some definitions, which every Amazon seller needs to understand clearly:
|Item Price||The Price you assign to the item excluding shipping|
|Shipping Charge||The shipping fee you collect from the customer on each sale|
|Selling Price||The price you assign to the item including shipping|
|Referral Fee||The referral fee you pay Amazon on the selling price net of taxes and discounts|
|Fulfillment Cost||The cost of pick/pack, storage and shipping (postage) on each sale|
|Item Cost||The landed cost of the item(s) sold per sale|
|Gross Profit||Selling Price – Item Cost|
|Gross Margin||Gross Profit/Selling Price|
|Net Yield||Selling Price – (Item Cost + Referral Fee + Fulfillment Cost)|
|Net Margin||Net Yield/Selling Price|
Amazon usually collects 15% referral fee on most categories. Either way, it is a fixed cost in terms of % of your sale. This puts your Fulfilment Cost right in the center of your make/break decisions. If you estimate your fulfillment cost incorrectly, you will have a flawed pricing strategy and you will bleed cash. On the other hand, if you are too conservative, you will have anemic sales volume.
Therefore, I always recommend focusing on Amazon FBA Business (Fulfillment by Amazon) rather than doing your own shipping. If you were to secure competitive fulfillment costs, you would have to have large shipping volumes and a warehouse operation that works like a clock. Most sellers don’t. Therefore, when starting an Amazon business, it is best to use the Amazon FBA business model and take advantage of the low fulfillment cost Amazon offers to FBA Sellers. If you follow this strategy, your Shipping Charge per item will be zero (0) and Amazon will list your item as Prime. Besides it will qualify for free 2-day shipping for Amazon Prime subscribers at Amazon’s expense. Nevertheless, your sale will consist of no Shipping Charge.
If you choose to do your own fulfillment, I would highly recommend setting your Shipping Charge at zero (0) and adding the Shipping Charge onto the Item Price, where your Selling Price will be a compounded price. Even though, your listing will not qualify for Prime service, a significant number of Amazon customers do purchase item if they have zero (0) or low Shipping Charge.
This is where the Amazon Shipping Settings will need to be set up accurately. As mentioned in my previous articles, the information you will find here does not provide step by step instructions. Instead, it will give you winning strategies and, in many cases, specific formulas. So here, you can figure out how to set up the shipping settings by yourself for your Amazon Seller Account.
However, a sound e-commerce strategy would employ the following methodology:
- Use the Per Item/Weight Based Model
- Either assign zero (0) charge or an extremely low fee as your Shipping Charge for Amazon’s Standard Service for Continental U.S Destinations, ideally including POs and APOs.
Below is a screenshot of what you should end up with if you do it the right way:
Setting up your Amazon shipping settings as described here will get you the highest return in terms of order volume. You still need to assign a viable fee added to your Item Price and display the total as your Selling Price. To do this, you will need to know how much your Fulfillment Cost is for every one of your SKUs. In addition, the fee you will incorporate into your Item Price would have to be a blended amount regardless of the shipping destination as your carrier will charge a different rate depending on where the package is going. Calculating such blended amount at SKU level, which will be a moving target, needs automated calculation of rolling averages.
As you can see, the profit formula directly determines that how you set up your shipping makes it the ticket to your profitability and selling successfully on Amazon. This is something you must set up after careful study and then conduct periodic reviews and revisions.
Finally, Amazon provides one more capability for Amazon Sellers. There is an XML Feed called “Shipping Override”. This feed enables the Amazon Sellers to submit the shipping charge they would like to collect at SKU level while the interface-based Shipping Settings on SellerCentral would be for every item. If you use the Shipping Override feed, Amazon System will basically ignore the settings you set up and use the Shipping Charge in your feed for your Amazon listings.
Needless to say, that if you go with Amazon FBA Business model, you do not need to worry about the shipping settings.
Sales Tax Settings
The current law mandates every seller to collect sales tax on orders shipped within their home state. Therefore, setting up your Sales Tax Settings correctly is key to complying with this law. Neglecting it may lead to receiving an assessment from the Department of Revenue of your home state on sales you forgot to collect sales tax.
This is easy enough by following the instructions Amazon provides but the critical thing to keep in mind is that it is not enough to just set up sales tax for your Home State. It is also necessary to select the local jurisdictions, in which local surcharge should be applied to the sale. If it is done correctly, the settings screen would look like the below screenshot:
Incidentally, the question of whether to collect sales tax or not on items such as shipping & handling and gift wrapping if you offer it is another uncertain area. The law says that if you itemize them, you have the right not to charge. However, Amazon gives you the choice to collect tax on every itemized charge as well. Based on your selections made on this screen, Amazon will collect the appropriate sales tax for the selected state(s) and jurisdictions. You will then receive the funds for every order that has a sales tax component with your bi-weekly payments. Every seller must then declare the amount collected for the State and the local jurisdiction surcharges to the respective Department of Revenue on monthly basis.
This is not all though. Sales Tax is another sensitive subject that makes every Online Retailer nervous as the US Supreme Court has the Sales Tax case under consideration. In the meantime, some states have already passed legislation designed specifically for online marketplaces such as Amazon. Such legislation mandates that Online Marketplaces such as Amazon MUST collect sales tax on every sale and remit payment on behalf of the seller to the Department of Revenue in the associated State. WA has taken the lead with such legislation and PA followed. There is no doubt other states are likely to join this initiative. This means that sellers would have to register with Departments of Revenue of the respective States as Amazon will be making payments on their behalf. The financial consequences Amazon Sellers may suffer if they fail to register remain to be seen as these local legislations went into effect at the beginning of 2018.
A Word of Warning
We have covered intense procedures that rely on processing and reporting data on real-time basis. Starting an Amazon business without giving these moving parts serious consideration could be hazardous. Unfortunately, setting up these procedures require more than basic knowledge. It is often recommended to hire an Amazon consultant. While it may come with a cost, it would help avoid bleeding cash due to flawed pricing strategies or getting in trouble for sales tax irregularities.
Setting up users for your Amazon Seller Account is another sensitive area. However, the most important thing to keep in mind is to make sure that you NEVER attempt to have multiple seller accounts. If you have a legitimate reason to have multiple seller accounts, it would be best to contact Amazon and let them create the additional account. If you try to do it yourself by using different corporate names, addresses, phone and email addresses with the assumption that it will stay under the radar, you will not only be caught but you will also lose all your Amazon seller accounts. In addition, Amazon will ban you for life from opening another account again.
Outside this point, it is best not to give Admin privileges to everyone in the company. Also, your main Amazon username and password (Super User) that are used when you sign up for the account will be used to operate your Amazon API for submitting and receiving XML Feeds. Therefore, create a generic username and password as your Amazon Super User, which don’t belong to any particular person. You can then create individualized usernames and passwords for each team member based on their roles. Once invited to Sellercentral, assign the User Permissions accordingly.
We have so far covered Shipping, Sales Tax and User Permission Settings. There are other sections that need to be set up within Sellercentral. However, they are not as significant as the ones mentioned above. Every seller should go down the drop-down list that appears under settings and complete the information required. You can follow the instructions provided on every screen and it will be good enough. You can always go back and revise your information if needed.
A few final points though:
- Take notice of your merchant token and make a record of it. This can be found under Account Info option under the Settings drop-down list. Your merchant token is required by the Amazon API every time you submit or receive data. Your developers will need you to provide it for the necessary programming.
- Turn off the following notifications by unchecking them:
- Merchant Order Notifications (Sold, Ship Now)
- Amazon Fulfillment Order Notifications
- Multichannel Fulfillment Notifications
- All Listing Notifications
- Uncheck all Reports until you study all of them
Note: Check the rest of the items. If you find them unnecessary after receiving a few of them, you can always revisit your selections.
3. Finally, try to complete the information for every option Amazon provides under “Your info and Policies” heading. The information you provide here, including your logo, will be displayed to Amazon customers when they review your seller information. This is your opportunity to brand yourself on Amazon.
These are just some of the important points, but there is much more to the story than we can cover in a few lines. Here’s where our Amazon experts come in should you have any specific questions. Ask for a FREE evaluation of your opportunity to start an Amazon Business HERE.
Also, since we tend to do a deep dive into specific and technical areas in my articles, if you have any questions, ideas or comments, reach out to me via Twitter, Facebook or LinkedIn. I would love to hear from you.
Next, we will cover the “Amazon Buy Box”, which is key to become one of the Amazon FBA Success Stories, stay tuned for our next blog post.