FBA merchants are often stuck between a rock and a hard place.
Is it better to focus on maintaining sales volume or preserving profitability?
Although an item’s uptick in popularity on the Amazon marketplace can lead to short-term profit growth, such an event also attracts new competitors. As competition increases, winning the Buy Box becomes a more difficult task. This ebb and flow in the market creates strategic challenges for the merchant, especially when it comes time to restock. There’s no simple answer to this conundrum, but merchants can find an equilibrium when presented with the right information.
In this post, we’ll explore four tips for better FBA profit tracking when using a tool like RestockPro.
Start with Accurate Data
Profitability is (obviously) the difference between the sales revenue you collect and the costs you incur. Sales revenue data is relatively easy to obtain. Cost information, on the other hand, can be more difficult to gather and quantify. For any given item that you stock, you may experience some or all of the following expenses:
- Inventory costs
- Inbound shipping fees
- Reshipping fees
- Repackaging materials & labor
- FBA fees
- Other overhead costs
What is your process for analyzing the costs associated with each SKU? For many merchants, the answer involves building spreadsheets with complex formulas. Spreadsheets can be somewhat useful, but they also have notable downsides. First, spreadsheets are prone to human error. One typo could lead to hundreds of inaccuracies, causing the seller to make incorrect restocking decisions. Perhaps more notably, spreadsheets create untold administrative work for the merchant (or his staff). Administrative effort has a tangible cost, whether the seller will admit it or not.
Compare the spreadsheet model to using our RestockPro tool. RestockPro automatically gathers the most timely market and Amazon fee data for each SKU, saving countless hours of number crunching. In addition, the system remembers your preferred assumptions for supplier-related costs. The net result is a profit analyzing machine.
Evaluate Each SKU on Its Own
Many merchants stock hundreds or thousands of SKUs. The benefit of this strategy is clear: maximize revenue potential by filling more orders. The downside, however, is also worth consideration: reduced clarity of per-item profitability. That is, unless you’re using RestockPro.
Since RestockPro knows all of your inventory, storage and fulfillment costs, the system simplifies the SKU profitability analysis process. In a matter of clicks, you can generate a SKU profitability report that is sortable by key criteria, such as:
- Estimated margin by dollar amount
- Estimated margin %
- Total profitability
Rather than exporting confusing fee data from your Seller Central dashboard and vendor invoices, you can now visualize which products are adding the most to your bottom line.
Speaking of profitability, RestockPro also helps you identify underperforming products in your inventory. Simply reverse the sort criteria to show those with the lowest margin percentage or profit. Instantly, you can see a list of SKUs that are not pulling their weight.
This type of report is especially useful when deciding to drop an item. However, before making any rash decisions, we encourage customers to consider these questions:
- Is the dip in profitability a short-term anomaly, or is it an actual trend?
- Could the drop be attributed to a seasonal fluctuation?
- Are similarly tagged items also experiencing downward profitability trends?
- Should I liquidate inventory now to hedge against further declines?
Build Higher Margin Kits
With each underperforming item you clear out of inventory, you may feel additional enthusiasm for your refreshed catalog. This renewed optimism might even lead you to get creative and build innovative product kits. As we’ve discussed, kits tend to offer higher margin potential for sellers. Unlike individual products, which can easily evolve into bidding wars, kits offer sellers a competitive advantage on the Amazon marketplace. Kits are usually more difficult for competitors to replicate, which is good news for your share of the Buy Box.
RestockPro makes it easy to identify logical product combinations. By analyzing a variety of data (such as purchase history, sales rank, tags, competitive and margin potential) in your RestockPro account, you can hone in on new margin opportunities via bundling.
Grow Your Profit with RestockPro
RestockPro is here to help you increase the profitability of your FBA business. With plans starting as low as $39.99 per month, the cost of not implementing our system greatly outweighs the nominal monthly expense. Take your profitability to new heights with better data, wiser decisions and a more margin-oriented catalog.
Free RestockPro Trial