What Are My “Real” Product Costs?
The eBay & Amazon Seller's News ~ January 24, 2018 ~ Volume 19, Issue No. 2
Tips, Tools, News and Resources for eBay and Amazon Sellers
Important Reminder : If you use Amazon FBA, February 14th (Valentines Day) is the last day to send Amazon product removal instructions before you start incurring penalties on the 15th. Even if Amazon doesn't actually ship the items back by the 15th, as long as you place the order before then, you will be spared the penalty. If you have items you plan to remove, be sure and do that on the 14th or before. Doing a removal order on the 15th is too late.
I explain FBA and fees in great detail in my Amazon Training Course, The Complete Amazon Marketing System.
One of my best-selling books has been - Make Money with The Amazon Affiliate Program. The book was updated last year, but since then there have been some new developments. Therefore, I have just uploaded a Special Bonus Report - Ten Tips to Make More Money with The Amazon Affiliate System.
When you bought the book, I recommended you add the download page to your favorites. That is where you will find the bonus report, and where you can download the most recent copy.
Are you aware of the new eBay policy on copyrighting your product images and text? In the old days, sellers could protect themselves with watermarks and copyrights, but recent eBay policy changes say, when you post an image or description on eBay, just like Amazon, it becomes community property for all sellers.
I used to copyright all my product descriptions and watermark my images, but it looks like that may not be OK any longer. I am checking into details and hope to write more about this shortly.
The Sales Tax Nexus issue could be settled soon. For years, the Supreme Court decision of Quill Corp. v. North Dakota, prevented individual states from collecting sales tax from out-of-state sellers without a physical presence (nexus) in the state. However, the Supreme court will take up a new case soon that may overturn that. This could expose small online sellers (like us) to registering, collecting and paying taxes from 46 states with over 9,000 separate taxing jurisdictions.
Large chains, the US Chamber of Commerce and the National Retail Federation are strongly supporting the overturn. Their main concern is large online sellers who compete with them, but about a million small online sellers will be swept up in this.
The only major online company lobbying against the new rules is eBay. Amazon rolled over years ago.
Will Voice-shopping be problematic for sellers in 2018?
If you haven't yet bought an Alexa, or Google Assistant, then you have at least seen one of the many TV ads in the run-up to Christmas promoting these devices. Both products (and others coming on the market soon) will become ubiquitous in 2018. Although both systems promote other helpful services, let's face it: The main application will be shopping (It looks like Apple's Siri is getting into the game also).
When it comes to re-ordering your favorite brand of dish soap or Laundry detergent, I don't see a problem. But, what happens when a user tries to buy something that requires some level of decision-making (model, accessories included, color, size, etc.)?
As a seller, I see these devices leading to a lot of unhappy buyers and increased return rates for sellers.
We all saw those problems when buyers went mobile. The truncated information available to the shopper, led to lots of misunderstandings that impacted third party sellers (us), and led to increased customer dissatisfaction and higher return rates.
Will the same thing happen with the growth of voice shopping? The honest answer is: I think so, but really have no way of knowing. This means we just have to wait and see.
All of these devices rely on Artificial intelligence (AI), formerly known as fuzzy logic. The future of AI could be stunning, but let's face it, AI algorithms are just not accurate yet. They work fine in applications such as thermostats, home lighting and toaster ovens, but it will be a long time until they are accurate enough for buyers to make shopping decisions with the limited information they provide.
The other issue is privacy -remember, Alexa-type devices can hear everything you say -and Amazon has recently said they may be adding video cameras soon.
As large as online sales are (almost $400 billion), that total only represents 11.7% of all US retail sales -so it seems we still have a lot of growth ahead of us. I read one report that surmised Amazon could double its yearly sales within just 10 years. If that is true, we (sellers) are sitting on the cusp of some astounding growth.
Several of the wholesale suppliers I list this month offer licensed products (Pixar, MLB, NFL, Coca Cola, John Deere and so on). Just because a supplier claims to be licensed, does not mean its true! Before you buy any licensed product (especially from China), always ask to see a copy of the licensing agreement.
This is common practice in the industry, and legitimate license suppliers will have no problem doing this. If a company refuses, or makes excuses, then run the other way. Selling improperly licensed products is the same as selling fakes, and it could cost you your eBay or Amazon account.
Almost every business forecast I have seen lately, says the trend towards customization and personalization will not only continue, but could explode in the next couple years. Personalized products obviously don't work for FBA, or sellers who use 3rd-party shipping services. They take more time, and buyer returns can be highly problematic and require special policies. However, they can be highly profitable because customers will pay premium prices and have shown they can be patient when it comes to how soon they can get the product in their hand.
Some interesting facts about Amazon
Did you know
You can read more about these, and many other facts about Amazon buyers in a special report -Amazon User Study, done by our friends at Feedvisor - our favorite algorithmic repricing system. Click here to download the full report.
Help Finding new product manufacturing online.
Be careful buying products from Chinese suppliers. Do a trademark search first. I bought 500 sets of Nessie soup ladles from China. They were selling quite well and very profitable until I got an intellectual property complaint made to Amazon who blocked my listing. Amazon told me to contact the company who complained, but of course they never answered.
I did some research on my own, and it looks like the product was designed by a company in Israel that my Chinese supplier just knocked off and then sold to me. My fault for not doing my research first. This ended up being a $4,000 mistake.
I have featured several articles about preventing Amazon Account suspension, but here is a good blog post on the topic by Emily Ralston of Linnworks. Please click here to read.
As many of my regular readers know, I am not a fan of Amazon Advertising, but this is something I might get behind. Amazon has introduced digital coupons you can attach to your products. Digital coupons can provide badging for your products in Amazon Search by displaying the coupon amounts to the buyers. Choose the products you want to promote, set your discount amount, define your budget, and schedule your coupon. Amazon has a great information page with a very short video here. (This is a Seller Central page, so you may need to log-in to view it).
Amazon is running a test that could help it add some transparency by encouraging reviews in video format, and at the same time, help it combat Google's YouTube dominance in video product reviews. Read more on eCommerceBytes here.
Lets get started with this month’s articles:
When I speak with my book customers by email or telephone, one thing I always notice is a large number of sellers do not understand their true product costs. This is a great topic for a newsletter article because it really relates to online sellers.
The last issue of my newsletter had an article that explained how sellers calculate profit. One of the first items you need to know is your true Cost of Goods Sold (COGS). That is what this article deals with.
How you do this can affect your taxes. Whenever the subject of taxes comes up -I always remind people that I am not a tax professional, and when it comes to tax matters, you should always seek professional advice.
Obviously the first cost you have to take into account is: "What did I pay for the product I bought to resell?" But, then it gets a little more complicated. Ask yourself: "Where and how did I buy the product?" Let's look at some of the answers and how they affect product cost:
NOTE: These may be minor costs, but they are real costs and they do add up over the space of a year. So why not take them into account? Let's continue:
Those are the key points to keep in mind when trying to determine your real costs. Don't stop here. Spend some time thinking about your business model, and you may come up with other costs I haven't thought of.
Before I get deep into the timing issues, let's take a moment to review some important issues regarding incorporating for online sellers:
Types of Corporations:
Benefits of incorporating:
OK - So why is now the best time to incorporate? The main reason has to do with taxes, but record keeping is also an important reason.
If you start your corporation in January, you only have to file one tax return for your business. For example, if you were to incorporate in July, then you would have to file a Schedule C - Business profit & loss form, for January through June, then a separate corporate tax return for July through December.
The other reason is record and bookkeeping. Set up your corporation now and you will only have one set of books and bank records to deal with for the whole year.
Another reason is state fees. Some states (not all) us a calendar year for corporate fees. If your state does this, your fee will cover more months if you file early in the year.
I know many of you are thinking: "Skip, why didn't you tell us about this a few weeks ago?" The truth is - I didn't think about it -so my apologies for that. However, not all is lost. Talk to your tax person. If you set your corporation up right away, there are ways to do things retroactively.
If you use a CPA to set up your corporation, it will cost you between $300 and $500 plus your state filing fees. Instead, I suggest you use the online service My Corporation. It works fast and is far less expensive. They typically cost about $100 plus your state filing fees.
This is a guest article by Jared Vineyard of Universal Cargo. Universal Cargo is the company I use and recommend for my importing needs. In addition to providing freight forwarding services, they are great at hand-holding if you are new to importing.
What you need to know about freight forwarders
By: Jared Vineyard of Universal Cargo
You want to import goods to sell on marketplaces like Amazon, eBay or maybe even in your own physical stores, to make money. The problem is you've heard horror stories about importing: hidden costs, cargo held up in customs, shippers having no clue what's going on with their shipments… Even cargo being lost altogether!
Here's what you need to know about freight forwarders and customs brokers to make sure you don't end up the next horror story.
What Is a Freight Forwarder?
The Cambridge Dictionary defines a freight forwarder as "a company that arranges for goods to be transported, especially to another country"; however, a freight forwarder is more than its definition.
A good freight forwarder handles the considerable logistics of international (often multinational) importing and exporting of goods, including but not limited to, the navigation of international and nation-specific legalities; road, rail, ocean, and air carriers; and often even storage and warehousing.
Ancillary services freight forwarders arrange for their clients include freight insurance and customs documentation and clearance.
Ultimately, a good freight forwarder has the experience and industry relationships to not only see shippers' goods move from point of origin to destination, but also be an expert on the process and routing of said goods, ready to handle the plethora of challenges that can and do arise along the way.
What a Freight Forwarder Is Not
A freight forwarder is not a carrier. It does not actually move cargo itself. Instead, the freight forwarder acts as an intermediary between the shipper and various transportation services from ocean shipping lines, air freighters, truckers, and rail companies.
A freight forwarder is also not a customs broker. However, experienced freight forwarders will have customs brokers, possibly in-house, that they regularly work with on behalf of shippers.
What Is a Customs Broker?
Again, you can look at the Cambridge Dictionary definition: a customs broker or customs agent is "a person or company that is paid to make sure that all necessary taxes are paid and rules are followed so that goods can be imported into a country." But again, the textbook definition doesn't do the job justice.
Customs brokers don't just need to know about classification, valuation, entry procedures, admissibility requirements, duty rates, applicable taxes, and fees for imported merchandise, they must be up-to-date experts on all of these constantly change-susceptible things.
To even become a customs broker, one must undergo testing, licensing, and registration approval from U.S. Customs and Border Protection (CBP). Even still, that does not mean all customs brokers are a good choice for shippers.
What to Look for in a Freight Forwarder
The requirements for becoming a freight forwarder are not as strict as those for becoming a customs broker. It's been said that all one needs to become a freight forwarder is a phone and an internet connection. However, it takes much more than that to become a good freight forwarder. Obviously, not all freight forwarders are created equal, or there wouldn't be those horror stories out there.
Shippers should know that most delays in shipments are not the fault of the freight forwarder. Many things can delay goods in transit including severe weather, labor disputes at ports, carriers changing ship schedules, equipment breakdowns, and many more factors. A good freight forwarder knows how to handle these situations and get the goods delivered as quickly as possible. A bad freight forwarder could increase delays in such situations or even create delays of their own.
Here's what you need to look for in order to choose the kind of freight forwarder you want handling your international shipping needs.
What to Look for in a Customs Broker
According to the CBP, there are about 11,000 licensed customs brokers active in the United States. Just like with freight forwarders, not all customs brokers are created equal. To get a good one, make sure they have the following:
Where to Find a Freight Forwarder & Customs Broker
Usually, when you find a good freight forwarder, that company will already work with excellent customs brokers and can package your customs clearance with your cargo importing or exporting. This way, you can focus your energy on finding a good freight forwarder, and the customs broker will fall into place.
Skip McGrath imports through Universal Cargo, a one-stop-shop freight forwarder and customs broker that has over 30 years of experience.
You can also look through online lists of freight forwarders and customs brokers, like the Directory of Local Forwarders and Brokers provided by the Port of Los Angeles and apply the things to look for in these companies listed above to choose a freight forwarder and customs broker that's right for you.
[A final note from Skip: If you Google freight forwarder you will get pages and pages of results. But how do you know they are any good? And you can't go by price. This is very much a situation of: You get what you pay for.
That is especially true if you are inexperienced at importing -a situation where you need the best.]
Before I get started, a lot of sellers do not realize that Amazon FBA can become their personal dropshipper for products they sell on eBay, and other sites, including your own website. This is just one of the things I cover in detail in The Complete Amazon Marketing System.
Do you use Amazon FBA to fulfill orders on other sites? (such as eBay, Etsy, Wal-Mart, or your website). Note: Some of these sites have policies against using FBA to fulfill orders on their sites, but many sellers ignore this and do it anyway.
Besides selling on Amazon, I use Amazon FBA to fulfill my eBay orders. However, I have encountered a serious problem: Although Amazon charges sellers an arm and a leg for fulfillment service, they usually do not ship when they say they will, or post tracking as soon as they can.
When they do not do that, it can cause sellers major problems with not only our customers, but other websites we sell on as well. The worst part about this is: Amazon has received plenty of complaints from Amazon sellers about the problem and they have yet to address it. (That statement is based on info I received from a middle-management employee).
Let me explain: Both Amazon and eBay have policies that require sellers to:
When you create a fulfillment order, Amazon, however, often waits up to 4 or 5 days to ship the product, and can take even longer to post tracking. They will not publically admit they do this, but I have had several Amazon support reps privately admit they do.
Here is what is going on: Let's say you have an order going to an eBay buyer in Illinois and the product they purchased happens to be in an Amazon warehouse nearby.
As an example, let's assume an order is placed on January 31st. When you look at your fulfillment order, it says Amazon will ship on February 1st with an estimated arrival date of February 9th. OK so far? The problem is, on Feb 3rd or 4th you get an email from your buyer that says: "Why haven't you shipped my product?"
When you look at your fulfillment order, you see that it says it will ship on Feb. 1st, but now that it's Feb 4th, you notice it still hasn't shipped yet. What gives?
Here is what is going on: Remember above where I said: "…you have an order going to an eBay buyer in Illinois and the product they purchased happens to be in an Amazon warehouse nearby."
You see, Amazon doesn't care about your account status, or seller reputation on other selling sites . They only care about your seller reputation on Amazon. But they did promise an arrival date of Feb. 9th, so as long as it gets there by then, their attitude is - you have nothing to complain about.
Since your buyer's shipping address is in Illinois, and the product is in a nearby warehouse, Amazon knows they can wait until Feb. 6th to ship and it will still arrive by the 9th. It doesn't matter that they said they would ship on Feb. 1st. They just don't care.
I am not sure why they do this, but I have two guesses (just my opinion):
I know that second bullet sounds cynical, and I don't honestly think a bunch of managers sat down to decide this, but as Amazon hears complaints, I wouldn't be surprised if the relevant people see the complaint's, shrug their shoulders and say something like, "Hey, that is their problem, not ours."
When I raised this issue in a support ticket, this was Amazon's official reply:
They also referred me to their policy instructions on fulfillment orders which you can find here (log into Seller Central to access this link).
I have no idea how, or if, we can solve this problem, but I do know that Amazon rarely acts on input from third-party sellers (that's us) who complain -but they do accept input from their support staff. So, the only advice I can give is to open a support ticket every time this happens. If they start seeing a lot of tickets, they just might take action.
Whenever I look at Community posts in Groups, Blogs, or on social media (FB, Twitter, Linked-in, etc.), fees are one of the most-often talked about, complained about -and, misunderstood issues.
I get it. We all hate fees -and most of all fee increases. Why do online selling venues keep raising fees? The selling venues claim it is because of rising costs, but that is just BS. The truthful answer to that question is because they are not very good at managing their growth.
I have always been amazed that successful entrepreneurial companies such as Amazon, eBay, PayPal and others, discover early on that, although they are good at engineering rapid growth, they are very poor at managing it.
There answer is always the same: Create a bureaucracy and hire a bunch of completely inexperienced MBAs who know nothing about their business. Inevitably, the bureaucracy just keeps growing -increasing costs day by day. Rather than simply strangling the bureaucracy and getting rid of a few thousand MBAs, they just raise fees.
Eventually a few of the smarter MBAs realize their company has become bloated and overstaffed, so they recommend a reduction in force (RIF). But, instead of riffing unnecessary people, they cut back on really important folks like customer service folks and support staff. This hurts their service and does almost nothing to reduce their costs.
Every time a company raises fees they claim one of two things: 1) they are responding to increased costs, or 2) they plan to make service better and that costs money. Whenever I see that, I always laugh. The truth is what I explained a few paragraphs above.
But, back to the subject of this article: How do fees affect my business?
Fees are an expense. The biggest problem with fees is that individually they tend to be small, so we don't always look at them individually -but we should.
I tried an experiment last year. I carefully tracked my fees on both eBay and Amazon for 2 months down to the penny -and guess what? I found dozens of mistakes, and Amazon charged me for refunds where the customer never returned the product, and Amazon never reversed the fees.
In almost all of these instances, the mistakes were small, but this is a situation where pennies start adding up to dollars. Remember what Ben Franklin said: "Watch the pennies and the dollars will take care of themselves."
The other thing you want to look out for is: Are eBay and Amazon charging the correct fees? Here again, the mistakes are often pennies -but they do add up.
Another area sellers often misuse are the special feature fees. Amazon doesn't have anything similar, but on eBay, are you really getting your money's worth when you use Bold, Subtitle or List in two categories? The trick here is to perform split tests and calculate the ROI. The Bold feature costs $3.00. Do your final values, or sell through rates, increase enough to make up that amount when you use the bold feature?
Be careful of fee shopping for categories. A few categories on Amazon charge a lower sales commission than others, but most of those categories also have increased competition and higher return rates. Paying a lower sales commission is great, but will the returns kill your profits?
I wish I could give you a fixed set of rules regarding fees, but the subject is complex and every seller has a different business model.
The one thing I can say is: Pay attention to your fees -and think about them. And, don't trust the automated robots on Amazon, eBay, or any other site for that matter. They may not be human, but they make mistakes too.
Compared to other places I sell; Amazon's seller support has always been a bright spot. Amazon support reps are usually willing and eager to help, very patient and polite and highly knowledgeable. At least that used to be the case.
Lately, however, I have run up against support reps who obviously do not fully read -and take the time to understand your issue. Instead, they see one or two words in your request, jump to a conclusion that often has nothing to do with your issue -or they just copy/paste the Amazon policy on the topic and send it to you. This has been my experience on a high percentage of support cases I have opened in the last few months.
The other thing the support reps have a bad habit of doing is responding by telephone at odd hours. They almost never call during the business day. I have received calls at dinnertime, on weekends, and once at 2:00AM. Since I am in the same time zone (Pacific) as Amazon's headquarters, you would think that would be easy to calculate.
I had one discussion with a supervisor from India who told me that because of Amazon's rapid growth, they have been hiring a lot of people and not had sufficient time to train them. If that is true, then this problem may be solved in time. We can only wait and see.
In the meantime, I have some suggestions:
This works most -but not all of the time. If I get another non-responsive answer, I just keep reopening the case. I find if I do that at least twice, I usually get an answer from someone (often a supervisor) who actually takes the time to read my issue thoroughly and respond appropriately.
Even with these issues, I still think Amazon's seller support is better than eBay. Its not that eBay's support is that bad once you get a hold of them -it's just that they make it so difficult to do so.
Madly Deeply sells a large line of licensed stickers and patches for children including Frozen, My Little Pony, Star Trek and more.
Axiom International, Inc. is a direct importer of pet supplies, party supplies, and eyewear.
The Extra Mile sells collectibles, lighters, mugs, NFL Merchandise, licensed sports products, licensed novelties, MLB, Nascar, NCAA, NHL, NBA and more.
Final Score Products offers a unique variety of Sports and Entertainment memorabilia
Hot Belt Buckles makes and sells a wide variety of both belts and buckles including, contemporary fashion, western and others
Continents Apart, LLC is an independent sales organization that specializes in working with drop ship accounts in home furnishings, gift and licensed sports products. They state they have no membership fees and no drop ship or handling fees. As with any drop shipper, check them out carefully, compare their prices and do a test buy.
GLASS-U is licensed at hundreds of Universities and Greek organizations across the country. They sell NCAA licensed products and also offer customization.
CA Trading, LLC sells wholesale jewelry, belt buckles and some Hip Hop jewelry. They also carry some sterling silver jewelry, body piercing jewelry, fashion jewelry, costume jewelry, gifts, giftware and hair accessories.
Surefire makes all types of lights from flashlights to headlamps to pistol lights. These are not the cheap kind you usually see being sold online. Surefire products are professional quality used by the US Military and Law Enforcement. They also sell ear protection and other accessories.
LIBRA is a business-to-business wholesaler dealing in brand name closeout goods. They sell closeouts of all kinds, including: excess and obsolete inventories, premium overstocks, buy backs and stock lots. As with any closeout dealer, check them out carefully before ordering and always consider the shipping cost when you buy.
Shine Company, Inc. makes and sells a wide line of solid wood outdoor furniture and garden accessories.
Toritako is a wholesaler of outdoor products with a large selection of Flags, Windsocks and kites.
Garden Sun Light is a manufacturer/distributor of hundreds of products in a range of categories including garden solar light, solar garden decor and more. I have written about this company before. They offer drop shipping service direct to your customers and shipping program available for FBA sellers. They have no minimum order size, but prices are better when you order by the case.
Specialty Bottle makes, sells and imports glass, metal and plastic bottles and containers of all types including: Glass Bottles, Plastic Bottles, Glass Jars, Plastic Jars, Tins, Metal Containers, Glass Vials, Pet Bottles and Candle Jars. You can order one bottle or a pallet, but the larger your order, the better your price will be.
Warehouse Craft Supplies sells wholesale craft and floral supplies with volume discounts up to 62.5 % off on over 3,600 items.
See you again in a couple of weeks,
P.S. If you missed the last issue, click here to read it.
© 1999- Harry McGrath, Inc., DBA Skip McGrath, Auction Seller's Resource and Vision-One Marketing. All Rights Reserved.
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