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Posted on September 21, 2016 How Amazon advertising cost can hide the REAL profit that sellers are making…

It’s not uncommon to see massive numbers being thrown around the Amazon experts arena, but what are people really making at the end of the day?

In this blog post, I uncover one of the biggest smoke screens that many info marketers use to hide what they’re really making.

The image in this blog post is my Amazon PPC advertising in the UK month-to-date (we are 21 days into the month at this point).

3,319 pounds sold @ an average of 10.6% ACOS. That’s about USD $4,300 in sales from a $430 ad-spend (10% of $4,300).

This is only a small portion of my total sales for the month in the UK but look at the ACOS number. 10.6% average.

My net profit (across these 6 products) averages at about 45% WITHOUT advertising included.

So when I deduct the 10% ACOS for advertising, I am still making 35% net profit on sales that came from ads.

A vast majority of my revenue comes from organic sales (natural ranking) but this 10% ACOS number is exceptional. In the US it is 3X higher because the market is much more established and competitive.

ACOS stands for “Advertising Cost Of Sale”.

It is important that you understand this concept because it’s a number that a lot of Amazon sellers hide. It’s easy to get around town quoting a top-line sales number and net profit margin, but without knowing what percentage of sales come from advertising and what the ACOS number is on those sales, top line revenue means nothing.

Let’s say they’re doing $50,000/month at 30% margin. You could easily think, “Oh wow. This guy is making $15,000/month profit”.

BUT – If 70% of their sales come from ads and their ACOS is 20% (which is still low), it means that on 70% of their revenue they’re only making 10% profit.

In other words, 70% of $50,000 = $35,000. On that $35,000 in sales (which came from paid-ads) they are making only 10% profit = $3,500.

Then they make their 30% margin on the remaining 30% of their revenue that DIDN’t come from ads. So 30% profit on only $15,000.

Let’s break that down…

$3,500 profit on $35,000 + $4,500 on $15,000 of their revenue = $8,000 profit.

That makes their real margin $8,000 on $50,000 in sales or 16%. That’s still not terrible but it’s literally half the 30% margin they thought they were making.

I know this might make your head hurt but read this ten times if you have to.

We are here for left over people – not turn over.