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Mistake #1 – Overlooking Multi-SKU Profitability on Amazon (Wholesaler and Manufacturer Mistakes Series)

In the rapidly evolving e-commerce landscape, especially on platforms like Amazon, the importance of detailed financial insight cannot be overstated. Despite the wealth of data available, a staggering number of businesses—wholesalers, manufacturers, and multi-SKU sellers alike—operate without a clear understanding of profitability and return on investment (ROI) at the SKU level.

From my extensive experience, working with over a dozen companies, it's clear that only a fraction are adept at navigating this critical aspect of their business. This gap in knowledge isn't just an oversight; it's a significant barrier to scaling profitably and strategically focusing resources.

The Complications of SKU-Level Profitability Analysis on Amazon

The complexity of analyzing profitability and ROI by SKU on Amazon arises from several factors. Unlike traditional brick-and-mortar retailing, where profit per SKU is straightforward, Amazon presents unique challenges, including:

  • Returns: The impact of returns on profitability can vary widely by SKU, complicating the overall financial picture.
  • Advertising Costs: Ad spend needs to be tracked meticulously at the SKU level to evaluate its effectiveness and ROI accurately.
  • Varying Fees: Amazon's fee structure is complex, with costs fluctuating based on factors such as product category, size, and price.
  • Landed Costs: Understanding the total cost of getting a product to the customer, including shipping, handling, and any other fees, is crucial for accurate profitability analysis.

The Murky Waters of Amazon’s Reporting System

Amazon’s platforms, Seller Central and Vendor Central, notoriously offer limited and less-than-intuitive views into profitability, whether at a bulk level or even for individual SKUs. This design seems almost deliberate, obfuscating the true cost of doing business on the platform. The reporting interfaces provided do not lend themselves easily to a clear understanding of net profits, causing many sellers to underestimate the full extent of Amazon's fees.

 It's a situation that could lead some to speculate that the complexity is by design, intended to befuddle sellers about the true costs associated with selling on their platform. If sellers were fully aware of these costs, which often escalate to 45% of the selling price when including FBA fees, returns, and advertising, they might indeed shudder at the realization.

During my tenure at MrPrime.com, I have encountered a seller with over 9,000 SKUs, oblivious to the profitability of each. This is not an isolated issue; it's endemic among Amazon sellers. By undertaking a detailed profitability exercise, focusing on SKUs meeting specific net profit percentage or total net profit criteria, we dramatically improved operational efficiency and facilitated substantial business growth. A pointed comparison with a similar seller operating with a leaner, more profitable 500 SKU catalog, making 15 times more money, underscores the transformative potential of such strategic financial analysis.

Leveraging Third-Party Tools for Enhanced Visibility

In response to Amazon's opaque reporting, several third-party software solutions like Helium 10 have emerged as invaluable resources. These tools provide a granular, easily navigable view of profitability and ROI by SKU, integrating critical data points such as COGS, return costs, and PPC spend. This level of insight is essential for identifying profitable products, making informed decisions on pricing, product focus, and resource allocation, and ultimately, steering a business towards scalable, profitable growth.

Below is a blacked out for customer privacy view of per SKU reporting in Helium10.

The Importance of ROI and Managing Hidden Costs

ROI calculation at the SKU level is not just a strategy; it's a necessity for effective cash flow management. Understanding the return on every dollar spent is crucial, and SKU-level profitability analysis is key to this understanding. Moreover, hidden costs in logistics and packaging, if not properly accounted for, can significantly erode margins. Without a clear understanding of these costs, businesses risk wasting resources on unprofitable endeavors, becoming "busy fools" in the process.

Conclusion

The journey to profitability in multi-SKU selling on Amazon is fraught with challenges, not least of which is navigating the platform's complex and often confusing reporting system. The apparent deliberate obfuscation by Amazon, making it difficult to grasp the true cost of selling, underscores the importance of proactive financial analysis. 

Tools like Helium 10 are instrumental in demystifying this aspect, enabling sellers to make data-driven decisions that fuel strategic growth. My experiences, particularly the transformative success stories from MrPrime.com, highlight the undeniable power of knowledge in this arena. Understanding profitability and ROI at the SKU level is not just beneficial—it's imperative for any business looking to thrive on Amazon.

Author

Robert Prime

Owner at MrPrime.com Amazon Ranking, Growth and Support Services. Co-owner of LoveReading network the U.K.'s largest book recommendation site. 22 years in eCommerce business. Forbes Business Council member.

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