If you're thinking about fulfillment by Amazon you might want to use an FBA profit calculator before taking the plunge.
That's because one of the most confusing decisions booksellers have to make is estimating whether or not using FBA is going to turn your small profitable business into a large one.
The reason it's so confusing is because there are many variables that go into the decision about whether Amazon's fulfillment house resources are worthwhile. Just how do you evaluate such a thing? For example, how do you determine the equivalent Merchant price for an FBA book? How is labor calculated?
What's the proper way to compare "hard-dollar" costs against "soft-dollar" costs? What about fulfillment by Amazon shipping rates? What happens when Amazon increases FBA fees? What is your new listing sales rate? How about your residual sales rate? And the list goes on...
To muddy the waters even further, even if your estimates came up with valid assumptions that lead you to a reasonable estimated profit, you can still skew the outcome simply by changing the way you perceive the numbers.
"What do you mean?" You may ask.
Well, lets talk about labor for example. In FBA, labor is a hard-dollar cost. Meaning, Amazon charges you for it right up front. So is that annoying "weight based fee."
But for Merchant fulfilled sales, do you want to add in the fixed costs for labor and weight based picking that you’re forced to pay when your merchandise is sitting in an Amazon warehouse?
Aren't those cost "soft" in that you don't actually incur that expense until you make an owner withdrawal from the business? If so, then shouldn't those costs float down to the bottom line and add to your net profit until withdrawn?
If you allow the cost to float, you can add as much as $3.00 onto your net profit per item. That makes Merchant fulfilled merchandise far more profitable than fulfillment by Amazon.
But is it really?
Eventually you have to account for those costs. So why not follow generally accepted accounting practices and account for them at the time of sale?
One reason I often hear given is that the soft Merchant fulfilled costs increase cash flow whereas the hard FBA costs associated with retail order fulfillment reduce cash flow.
And since cash flow is the lifeblood of any business, shouldn't that be considered?
On the other hand, if all of the Merchant fulfilled costs are included, it suddenly makes most FBA sales vastly more profitable than Merchant fulfilled sales. So which way is right?
That's a question you'll have to hash out with your CPA. I'm just a bookseller, not an accountant. So I urge you to seek out professional advice.
However, if you have a FREE membership to my Internet Booksellers Forum you'll find a really cool FBA profit calculator in the download area that can help you make some sense out of all the confusing numbers surrounding fulfillment by Amazon.
Amazon has one on its website, but it's a little cumbersome and slow. So I wrote my own. And it's the one I use in my own ecommerce business every day.
However, nothing is perfect, so if anyone sees room for improvement, please feel free to post your suggestions in the forum.
Honestly, all things considered equal, if FBA did nothing but just save me time I'd consider it worthwhile.
But what about you? I'm anxious to learn what you think about having Amazon as your shipping suppler. Please use the comment form below to tell me about your experiences with FBA.
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