Amazon FBA – Chapter Four

Chapter 4

ROI vs Margins

The biggest rule

One of the biggest lessons we took away from a mastermind group was to look for a product with good ROI, and not necessarily margins.

Let us illustrate this for you

Cost of Product = $10
After sales price, shipping & FBA fees you make a $7 profit.
This is a 70 percent ROI

Another scenario is
Cost of Product = $10
After sales price, shipping & FBA fees you make a $10 profit.
This is 100% ROI, not bad right? It’s not enough.

The above is not enough to scale. Only when you’ve sold 100 percent of inventory will you have enough to reinvest in your business.

Find a product with 300 percent to 400 percent ROI as the golden rule if you want a fast scaling business.

This allows you to recoup the cost of your inventory when you’ve sold half of it. You can then reinvest in the business for another order as opposed to waiting to make 100 percent ROI or selling out before you get the chance to reinvest. This is the biggest difference between companies who can scale slow and those who grow quickly.

In this example
The product costs 68 cents per unit.
The shipping costs are 32 cents per unit.
The total cost of goods to Amazon Warehouse is $1.
Fulfillment by Amazon Fees total $2.91. This estimate was pulled from a competing product.
The net profit is $3.73.
That’s a 373 PERCENT ROI!

Here is where the fun really begins. Remember when you calculated the average number of product sales per month through Jungle Scout’s Chrome extension? Let’s say you rise to the No. 3 spot, selling 900 items a month versus the no. 1 product at 2,300 units a month. You can plug this in and see how much profit you’ll be attaining per month.

Not bad right?

In this scenario our ROI is 373 percent. For every $1 we spend, we make $3.73 in profit. With this, we can reinvest the profit into a larger batch of inventory and continue scaling up the business. We don’t have to wait until we recoup our initial investment. This is the secret to how the big player’s scale.

Only a few sellers can attain high revenue and profit in their early months of selling. FBA is not a get rich quick scheme, though people try to treat it that way. Over the course of time, with hard work and diligence, you’ll increase your sales if you keep at it. Continue learning and figuring out different ways to improve sales. Imagine your listing is ranked in the No. 1 slot and can match the top ranking product’s sales volume.

Let’s walk through an exercise. Let’s say we change the selling price to match the No. 1 listing from $8.99 to $10.99, which increases profit from $3.73 to $5.43. We match the sales volume going from 900 to 2,300 sales a month. That is $25,000 in revenue and $12,489 net profit per month. That’s more than six figures a year. The potential for Amazon FBA is endless.

Tools Mentioned in This Chapter