Amazon FBA Product Maths: Understanding Your Business

As with any business, you have to know your numbers in order to understand your performance and make improvements.

In this article we cover the most important numbers you need to check for your Amazon product especially before even launching it. 

Tip 1 Selling Price 

This is simply the price your product will sell for on Amazon. If the price is too low you won’t make any money as fees and costs will eat up all the margin. Setting the price correctly can make or break your business. 

Take the average of the top five products for your niche and expect that you will get 90% of what they currently sell for. By slightly underpricing it helps you to rank when you’re just getting going.

Tip 2 FBA Fees 

Amazon’s FBA fees are based on the size and weight of your product and they take an additional commission based on the price.

You can get an estimate of the fees for an item by checking the top five competitors. In this example, let’s assume Amazon’s fees are five dollars.

Tip 3 Landed Cost 

This is the cost of your product plus packaging plus freight to get it into the Amazon marketplace. 

It’s the total cost per unit of your product once it is in Amazon’s warehouse. For example, your product may cost three dollars, your packaging one dollar, and shipping into Amazon with all the labeling another dollar. So your landed cost would be five dollars. 

The easiest way to calculate landed cost is to add up all the costs of a product order and the shipping and divide by the number of units in that order.

Tip 4 Return on Investment 

This is a very important number to check before ordering a product. It tells you how much profit you can make on this product.

In this example, imagine you are selling a product for $20 but Amazon takes $5 in fees, leaving you $15 per item you sell. Your landed cost is $5 per unit, so in this example you make $10 profit on each sale.

Your return on investment is $10 profit per product divided by $5 dollars landed cost or 200%. That means if you buy 1000 units for $5 each (or $5000 investment), you should expect $10,000 back in profit. 

When selecting an item, your return on investment needs to be at least 100%. Otherwise, all the profit will go back into product orders when you are scaling your business. 

Tip 5 Break-even Date 

You want to know roughly how long will it take to get your original money back and start making a profit. This is the date when you get back your original investment. 

If your product takes 30 to 60 days to manufacture and deliver into Amazon, you’ll probably need 4 to 6 months before you get all your original cash back.

If you spend $2000 for your product you probably need to sell at least half of all your stock before you get your original capital back.  But the great thing is, once you get all your original investment back you can grow the business using additional profits you make. 

Tip 6 Initial Investment 

Before placing your first order, check the cost for a minimum order from your factory as well as the freight costs. That will tell you how much money you need to invest for that particular item. 

If you have a small initial budget, then stick to simple and cheap items. Larger items usually need more upfront investment to buy the product and also for the shipping costs.

Tip 7 Expected Monthly Profit 

If you expect to sell 600 units a month and each one makes you a profit of $5, then you will make around $3000 a month in profit. 

A tool like CashCowPro will calculate all of these numbers for you, including how much investment you need to make and how much profit you can get back per month for a product. Get it today to stay on top of these crucial numbers.


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