Optimizing Amazon Vendor Agreements and Pricing
Transcription
When calculating your MSRP and MAP for your initial and future listings with Amazon, you can either use margin or markup to do this, to understand margin versus markup. We first need to know these three terms, revenue. This is the income you earn by selling your products and services. Revenue is the top line of your income statement and reflects earnings before deductions cost of good sold.
show moreThis includes the expenses that go into making your products and providing your services. Calculating cost of good sold could include materials and direct labor costs. And for Amazon, as mentioned in a previous video, their agreement deductions gross profit. This is the revenue left over after you pay the expenses of making your products and providing your services.
That is gross. Profit is revenue minus cost of good sold. Knowing the above, we can now understand how to calculate margin and markup and understand the difference between the two, a margin or gross margin shows the revenue you make after paying the cost of good sold. To calculate margin. Start with your gross profit.
That is revenue, less cost of good sold. Then find the percentage of the revenue that is gross profit. For example, you sell your ASIN for $200 each, each ASIN costs you $150 first find your gross profit or the difference between the revenue and the cost. That is $200 minus $150. Is equal to $50 gross profit to find the margin divide the gross profit by the revenue that is $50 divided by $200 is equal to 0.2, five margin to make the margin a percentage multiply the result by a hundred.
That is 0.25 multiplied by a hundred is equal to 25% margin. The margin is 25%. That means you keep 25% of your total revenue. You spent the other 75% of your revenue on producing the ASIN margin measures. How much of every dollar in sales you keep after paying expenses. In the example, given you keep 25 cents for every dollar you make the greater, the margin, the greater percentage of revenue you keep, when you make a sale.
Generally speaking, a rule of thumb would be to aim for a hundred percent return on investment or ROI or profit when creating your MSRP. That is if your product cost to Amazon is $150, then you should be able to sell it for $450 to the consumer off of Amazon. Your MSRP should ideally be $450.
This is commonly known as a three times rule and is useful for first time sellers on Amazon. This gives you a margin calculated as follows $450 less $150 equals $300 gross profit, which works out to $300 divided by $450. Equals a margin of 67%. Of course, calculating the map rarely depends on the business vendors have been abusing the list price or MSRP.
So, that consumers are mislead and think they are getting a huge discount. The greater the factor, the greater the gap we recommend calculating your MSRP by a three or three and a half times factor.