EP 87 - Vladi Gordon - Benefits of Using Profitability Analytics Tool in Your Amazon Business Part 2

Awesomers Authority - We'll talk to subject matter experts that talk about various topics that would be of interest to other Awesomers who are listening including, but not limited to, starting a business, running a business, best marketing ideas, sourcing in China, organizational development, tools to help your your business more profitably and much more
Vladi Gordon is a co-founder of sellerboard.com (formerly known as azcotrol.com, world’s most accurate profit analytics service for Amazon sellers. Prior to founding Sellerboard, Vladi worked in the software business for many years, building and managing various software products and projects for e-commerce companies and also earned some practical experience as an Amazon seller. Vladi is a speaker and a guest on popular FBA podcasts, talking about management accounting for Amazon sellers, minimizing effort on accounting and saving time for growth hacking.

Benefits of Using Profitability Analytics Tool in Your Amazon Business Part 2

Today’s episode is part two of a three-part series with Vladi Gordon, co-founder of sellerboard.com, a profit analytics service for Amazon sellers. Vladi has worked in the software business for many years. Here are more amazing lessons on today’s episode:

  • Why bookkeeping is crucial to your Amazon business.

  • Why quality assurance or some sort of inspection process is vital before shipping out.

  • The profit killers that a lot of times entrepreneurs tend to overlook.

So listen, enjoy and become inspired by Vladi’s amazing Amazon success story.

03:18 (Always do your bookkeeping if you’re an Amazon seller.)

05:04 (Always make sure your business model is healthy.)

07:27 (Steve gives an example of when items gets tagged as oversized causing excess charges.)

09:32 (Steve talks about how important it is to do quality assurance or some sort of inspection process before shipping out.)

12:27 (Vladi talks about the biggest profit killer for an Amazon seller.)

17:41 (Vladi talks about the second biggest profit killer for an Amazon seller.)

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Steve: You are listening to Episode Number 87 of the Awesomers podcast series. And for those keeping score home just run on over to Awesomers.com/87 and you'll find today's show notes, details and even some links that we talked about. With today's featured guest, coming back to us for part two of three is Vladi Gordon. And we talked to Vladi about some of the important things that I think a lot of times entrepreneurs overlook and that’s these profit killers as Vladi calls them. I sometimes call them black holes or other fun titles because any time you don't know where the money is going it can be a very destructive situation in your business. So it's really important to get that financial house in order. And I know, if you're anything like me that doing the financials and doing the bookkeeping that's kind of like, “ I'll get to it when I get to it” or maybe you've even hired somebody and you’re like yes, they’ve got the monkey, I don't really want to interface with it that much. I started out like that. I can assure you it certainly is not something that I would recommend. Don't find yourself scared about finance and your lack of understanding can be overcome. It's something that you can absolutely solve and we talk about that a lot in today's episode, looking for some of those profit killers. Go ahead and jump into this episode and learn some more about how to get your business running right.

Steve: Okay here we are back again everybody on Awesomers.com podcast with Vladi Gordon. This is Steve Simonson and we are talking about kind of Vladi’s journey, how he came from the software side, got into the Amazon side and now he's kind of back into the software for Amazon. He's put those two things together, which is a good combo. Vladi, let's talk about those profit killers that I teased before the break. First of all, let's frame the problem for entrepreneurs out there. What do you think is happening that maybe they don't necessarily realize when it comes to the profit of their businesses?

03:18 (Always do your bookkeeping if you’re an Amazon seller.)

Vladi: Yes, well the thing is as an Amazon seller you've got the Seller Central, right? And it shows you how many items you sold and shows you the revenue and it also shows like I guess number of items and sales by category, but it doesn't really show you the profit and it also doesn't show you a lot of fees that Amazon is charging sellers. So you can find all those things because basically all the data is there, but you need to download some reports and some of them are tricky to interpret. But also even if you know where they are, if you need like to download a file and convert it to Excel and then do some filtering and delete some lines and then like look at the data and make some sense of it, it just takes too long so sellers do not do it too often. And it's also not fun you know to calculate basically all those negative fees and add them up, it's not fun so sellers tend to think about growth and growth-checking the fun part and not about  bookkeeping. So yes, that’s basically--.

Steve: And once again, I don't know anybody like that. Everybody who is listening on Awesomers loves bookkeeping. So no, I think you're totally right and again this is an important point to reinforce with the Awesomers out there. You know, when you start thinking -- we all do the math in our head and every day is like, here's how much I sold and then you think to yourself well here's how much it costs, so you kind of do the rough math well then here's how much I made. But that's definitely not the full picture, not even nearly the full picture and I think that's what you're talking about, right?

05:04 (Always make sure your business model is healthy.)

Vladi: Exactly, exactly. When I was a seller, I always had this strange feeling or anxiety that I didn't really account for everything. So, I was seeing okay, I sold maybe 30 items  on a specific day, so $5 per item or €5 per item profits, so 150 and then you multiply it by the number of days per month and say, “Okay, that's my profit”. But I had a feeling that I didn't account for everything, so it was making me nervous. Because you know, if you have a huge margin or a big enough margin then this is just maybe a bad surprise at the end of the month. Okay. Amazon also charged me storage fees, all right, but I'm still making money, right? But if I'm working with a low margin then it might actually you know change the way you think about your business or your products in a strategic way.  Maybe you want to discontinue some of the products, right? So you want to make sure your business model is healthy. So, you're making money on every item that you sell, maybe except for launch. And if that's the case and then you're good, but you know you’ve got to have a system in place to evaluate that basically now and then or even in real time.

Steve: Yes. So, I think it's fair to say that this problem has existed from the time that a seller gets on Amazon until they have a really good process of understanding the full accounting view of their business. Is that true in your opinion?

Vladi: Yes, for sure, for sure, yes.

Steve: Yes. So, I do think there are a bunch of profit holes or profit killers, however you want to think of it and the problem that creates in the market in my opinion is that people make decisions about products based on the emotion of, “Oh, I sold a lot of stuff of this particular item.” They're excited by it, but they don't necessarily know the full profitability of that item versus their next seller. You know, maybe there's a,-- I've seen this before, I wonder if you've seen it where you know one item gets tagged as a oversized item and they didn't really notice and now their profitability is just upside down entirely. Do you see that?

Vladi: Losing money, yes, for sure.


Vladi: You can request a remeasurement on Amazon. They will measure your item again and if you win then they will even reimburse you. But yes, you got to know that. right?

07:27 (Steve gives an example of when items gets tagged as oversized causing excess charges.)

Steve: Yes, you sure do, so this is a great example by the way. So, for the Awesomers out there, one example, we shipped some stuff to the UK 20 different items, all of them at the exact same box. There were different items in the box but the exact same boxes and we knew that because we wanted to ship and do a big print run of these same boxes so every single one was the exact same size. But if we went into Amazon, they had 18 different sizes for those 20 boxes.

Vladi: Wow.

Steve: Well, at first we contacted Amazon and by the way, some were very subtly different and some were very far off. So, we contacted Amazon in the UK and Amazon  basically came back at first and said, “Hey, we have 3D scanners that scan these things. We're not wrong. Don't worry about it.” And we said, “We sent pictures with you know a tape measure over the box and go, “All of these 20 items have the exact same box, fix it.” They did the remeasure request, which by the way I think we had to do like five items at a time. We couldn't send one ticket for 20 we had to do like five at a time so four different tickets.

Vladi: Okay.

Steve: And that's an Amazon thing. But when we got all of those tickets resolved, they ended up going back, I don't remember if it was 18 months or two years or whatever it was, and by the way, we hadn’t caught it for this long and it was something like 5,000 pounds that we've been overcharged over the course of that time. And just think about how much money that is and it was all just a little, you know, sometimes I call it phantom profit, right? We thought we were making money and we should have been making money, but Amazon in this case had made a mistake. And happily they, you know, they rectified it and made the appropriate returns, but if people are not looking at that, they're making a mistake. Do you agree with that premise?

Vladi: Yes, absolutely, absolutely, yes. And yes, as we talked before, it's hard to see this because you don't get a notification or something you know you just keep selling and the money. You see the revenue numbers, the world looks nice. Yes, and but that's a really really mean problem.

Steve: Yes.

Vladi: And it's cool that you won this case because I also heard about some guys who didn’t or you know, just did not win the battle basically, right?

09:32 (Steve talks about how important it is to do quality assurance or some sort of inspection process before shipping out.)

Steve: Yes, for us it's -- so part of the thing that complicates those particular situations is like if there have been multiple shipments over time because they won't necessarily, they’ll only refresh the current shipment, right? And so we had to go back and prove and we're able to show photos. So when we ship out, every shipment we ship out has inspection photos. So, we had inspection photos, you know the box is open, so we had all of our ducks in a row to illustrate that regardless of how many shipments it's all been the same you know, box, and that's a lesson for Awesomers out there. And you talked about this earlier Vladi that having, “QA” Quality Assurance or some sort of inspection  process is critical to making sure you don't get what VR goggles or whatever else, right?

Vladi: Yes, absolutely, absolutely. So, never never ship without any inspection, so if it’s–

Steve: Yes. If you're doing that first order of 10 things off AliExpress, fine, knock yourself out, you're the inspector when it arrives. But if you're shipping you know any $1,000 or higher in value, you really should spend the money on inspection because you could risk 100% instead of you know 10 or 20% of the shipment. And by the way, it could be 1% of the shipment for larger shipments.

You know what defines capitalism, commercial breaks. Let's take one right now.


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Vladi: Yes. The problem is if you ship bad items or maybe damaged items to Amazon and Amazon does notice it and you don't notice then you're going to get a lot of returns, so it's going to get even more ugly because they can suspend the listing, this can suspend your account, so all kinds of troubles.

Steve: Yes, not to mention all the potential negative reviews all from that you know lack of inspection, that lack of quality assurance as Vladi said earlier. So, let's talk some more about these profit killers. Have we gotten into any of the five yet or what are your files–

Vladi: So, let me give you the biggest one.

Steve: Tell me.

12:27 (Vladi talks about the biggest profit killer for an Amazon seller.)

Vladi: And the one that is mostly underestimated from my experience. So, I've talked to a lot of sellers in the last two years and so these are the returns. And you know the way that a lot of sellers think about returns is okay an item will be returned to Amazon and I'm just going to sell it again. So, what's the big deal? And of course you know you kind of understand probably they will charge me something, but you know who cares. And that's a big big problem and let me tell you why. So, imagine that you sell one item for example in September and now we’re in October like three weeks later or two weeks later the item gets returned. So, what most of the sellers don't realize that this one return kills the profit of this one sale in the previous month right. So, we're in October, I sold back in September, I sold in my Seller Central, I sold I don't know 100 items right and I know my profit per item is 5 bucks, so 500 bucks profit right. So, when I get this return the next month, what I have to do is I have to go back in my Seller Central and basically cancel one of the sales from September, but that's not happening. If I look at my numbers from the previous month, I still see the 100 items right. So, the fact that one of them was returned does not cancel it, cancel the item from you know the number of items sold. So, if you're like calculating your profit by multiplying the number of items sold with some average value then you don't account for this. So, basically this one return it kills your profit, but it kills also a couple of other things. So, for example, the FBA fee right. You paid the FBA fee when you sold. When the item gets returned, you don't get reimbursed for the FBA fee. So, basically this is the profit plus FBA fee and if your profit is 5 bucks and if the FBA fee is 2.5 then it's 7.5 bucks that are missing on your bottom line, so that's pure net profit right. But that's also not all because there is also a chance that the unit is broken right or the custom damaged the packaging. So what happens then is Amazon tags this, tags the item as not sellable and basically for you it means you lose the cost of goods. So maybe it's another 2.5 bucks, so we're already at 10 bucks right. And if the item is sellable then you're lucky. It depends on the category of course. Some of the items tend to be you know okay after returns, so they can be sold again then you're good. But if it's broken then you pay the cost of goods, but it's also not all because then you will have to dispose the item right. So, you either have to send it back to your prep center, this will cost you money or you will have to dispose it, so Amazon will throw it away, this costs you money. And Amazon also charges for every refund. I don't know, it's not a lot of money, but this is also something that I noticed that only a few sellers are aware of. So, Amazon charges per refund or per basically per return, but also per unit within this return. And this is the money that is also totally missing on your bottom line. So, if you look at it this way then basically one return kills the profit of maybe three units sold right. So, a day where you have a return basically – well, it you need to calculate this, this depends on the margin and the you know basically the profit per unit, but in my experience the profits are getting you know tighter. It's harder to find high profit items because of competition. So, normally a return kills a couple of sales.

Steve: Yes. So that's a very important point. So, to drive that home one could use that general math that you know if one return is the same as losing three sales, if you get 10 returns on those 100 sales you actually just wiped out 30 of those sales right. It's a massive impact to the bottom line and–

Vladi: It's crazy.

Steve: –not to mention all of the subsequent intangible potential problems. For example, Amazon saying “Oh no, this is good to sell again” and it sold again and then the next customer complains that they've got a used item right. So now you got another return on the same thing by the way, which doubles the pain and you get a negative review you know and the cycle keeps going. So, a lot of folks that I know we say don't mark anything as you know if a return comes back, just return it to our center or destroy it, whichever way it works on the economics of that individual product.

Vladi: Yes.

Steve: But man oh man, it sets off a series of things that people don't fully realize. So, that's a big killer of profit there. What else do you have for us?

17:41 (This is the second biggest profit killer according to Vladi.)

Vladi: Absolutely. So, I think this was the biggest one. The second biggest one is the storage fees. And I think most of the sellers or almost all of the sellers know about storage fees, but we're getting – in fact we're getting asked a lot about this one so. The guys ask us okay, I do pay FBA fees for shipping, but what are the storage fees. Like guys you're paying for you know for putting your products into the Amazon warehouse just for the fact that they're sitting there and I think part of the reason is that Amazon does – that the Seller Central doesn't show them to you in a good way you know. So, you log in, you see your feedback stars, how many items you sold, you see your messages, but you know you have to dig to see the storage fees. And yes they're pretty crazy especially around winter like starting in October they kind of quadruple the storage fee, so you need to make sure that you have you know low or as little as possible in the Amazon warehouses, but also not too few items because of the Christmas time because it's the best time to sell right. So, you need to manage it very accurately, but yes this is the institution.

Steve: I think storage fees are often overlooked because people are so focused now they've become educated to looking out for long term storage fees and they're like “Oh, as long as I'm not in long term then I'm okay,” but really the amount of storage fees and I have had you know larger sellers who are friends of mine that are spending tens of thousands a month in the storage fees, not long-term storage, regular storage fees, during the surge pricing of the fourth quarter. And I'm not sure that that's applicable this year or not. I thought they were going to hold the line on storage fees, but now they're assessing long-term storage after the first six months they give you a big hit and then you go monthly, which is like well you should get that stuff out of there. And this is a big reason why I talk about using staging warehouses and using third party logistics centers, which have significantly lower, in some of the cases I used 10 times lower every day storage costs and they're able to send in orders on a just-in-time basis.

Vladi: Yes.

Steve: And you change that based on your forecasting of how much you're going to sell, so for those keeping score at home the Empowery E-ecommerce cooperative at Empowery.com they have some third party logistics centers and I think they've already developed those for Australia, America. If the UK is not published yet, I know it's in the works, so getting those as part of your system, the staging warehouse is where you land your product especially when you deal in volume. By the way, not only will that help your Amazon cost, but it can also help you sell to other marketplaces and other channels if that's what you want to do, so a big one. So those are two great killers so far, what else do you have for us?

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Steve: And there you have it. That's part two of our three-part series with Vladi Gordon. Don't forget to join us tomorrow for part three. This is also Episode Number 87 of the podcast series Awesomers.com and just run on over to Awesomers.com/87 and you can find today's show notes and details.

Now, one of the things I want to call special attention to here at the end of today's episode is the idea that you know profit killers are found in any business and they can come from any source, so whether you're selling on Amazon or you have a different kind of business, the general concepts that we've covered today are things that you need to consider and things you need to really pay close attention to. Again, looking for profit killers, looking for things that may be hidden and you start doing that by paying close attention at least on a monthly basis to your financials and regardless of whether you use tools or Excel or just you know pencil and a pen you've got to figure out a way to do that and get control of your business. The objective people should have as entrepreneurs is that you own the business. The business does not in fact own you.

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