Throwback: Transform Your E-Commerce Business - Key Metrics Every Amazon Seller Must Track

In this episode, host Josh interviews Tyler Jefcoat, founder of The Seller Roundtable, about financial strategies for Amazon and e-commerce sellers. Tyler explains key metrics like COGS, Amazon fees, and advertising costs, and shares actionable tips on optimizing profit margins, managing inventory, and preparing for business exits. He emphasizes the importance of accurate accounting, SKU-level analysis, and disciplined habits for long-term success. The discussion also covers useful tools and resources, including Merchant Spring and the book "Atomic Habits." Listeners gain practical advice to build more profitable and acquisition-ready e-commerce businesses.

Chapters:

Introduction to Tyler Jefcoat and Seller Accountant (00:00:00)
Tyler’s background, experience, and introduction to his work with e-commerce sellers.

Key Financial Metrics for Amazon Sellers (00:00:38)
Breakdown of revenue, cost of goods sold (COGS), Amazon fees, and advertising expenses.

Profit Margins and Targets for Sellers (00:01:44)
Discussion of ideal net profit margins, advertising spend, and benchmarks for healthy Amazon businesses.

Net Profit Margin Benchmarks and Market Trends (00:03:59)
Analysis of average net profit margins, market headwinds, and acquisition readiness.

Preparing for Exit: Case Study and Best Practices (00:05:01)
Advice and case study on preparing for business exit, including accounting and inventory management.

Return on Capital and Product Portfolio Analysis (00:06:54)
Explanation of return on capital, product-level profitability, and portfolio optimization.

FBA Fees and SKU-Level Analysis (00:10:18)
Importance of monitoring Amazon FBA fees, SKU-level analysis, and correcting fulfillment fee errors.

Automating FBA Fee Audits (00:11:45)
Discussion on automating FBA fee audits and best practices for large catalogs.

Three Actionable Takeaways for Sellers (00:12:59)
Summary of three key actions: solid accounting, SKU-level profitability, and price testing.

Book Recommendation: Atomic Habits (00:15:40)
Tyler recommends "Atomic Habits" by James Clear and discusses its impact.

Favorite Software Tool: Merchant Spring (00:16:46)
Recommendation and overview of Merchant Spring for multi-channel sales integration.

Closing Remarks and Contact Info (00:17:28)
Final thoughts, recommendation to contact Tyler, and episode wrap-up.

Links and Mentions:

Tools and Websites 
"Merchant Spring": "00:16:46"

Books 
"Atomic Habits by James Clear": "00:15:49"

Transcript:

Josh 00:00:00  Today, I'm excited to introduce you to Tyler Jefcoat. Tyler is the founder and CEO of Stellar Accountant, where he exercises his passion for helping sellers maximize their businesses. Tyler provides financial coaching for sellers totaling more than 100 million per year in e-commerce sales. Tyler also leads the Sellers Roundtable, an exclusive mastermind group for seven and eight figure sellers. Before founding Seller Accountant, Tyler was the co-founder and managing partner for Care to Continue, a home health care company that grew from 0 to 100 employees in four years. So, Tyler, welcome to the show.

Tyler 00:00:36  All right, Josh, thanks for having me.

Josh 00:00:38  So you have your top line revenue. The next thing we have is you're going to have your cost of goods sold, right? So with your cost of goods sold, you said the average is about 30 to 35% is what you're seeing right now.

Tyler 00:00:52  And this kind of landed cost. So if you kind of think about what it costs you to satisfy your Chinese Po and then do the duties freight into the states, I think.

Tyler 00:01:01  Across the board, we're seeing literally pretty close to a third 33, 34%.

Josh 00:01:05  So if you're below 30% or so, that's a good indication then. Right. Okay. Looking good. All right then next you have your Amazon fees that are going to come up. Right. And I think I'm going to split these up with the advertising separate. So what is your Amazon fees that your 15% commission plus the pick and pack. All that goes into the Amazon ecosystem. You're saying 30 to 35% is what you're seeing there. Is that right?

Tyler 00:01:34  To keep the numbers easy is probably another third. So you got about a third in your unit cost to Google. You got about a third and normal Amazon fees.

Josh 00:01:44  okay. Cool. And then so all right. So at this point we have 66% right of our revenue going to Cogs in Amazon. And so what you're saying is that the last remaining portion for that POG number that you were talking about is your advertising expense specifically on Amazon. So with your advertising expense, you said ideally you want to be between that 20% to 25%, you know, net gross margin, including the advertising costs in there.

Josh 00:02:16  So that means you're going to be needing to sit around somewhere between 15 to 20%. Correct.

Tyler 00:02:22  So if we if you think about it, we've got it split into thirds, a third in cogs, a third name is on fee. So we've got 33 points left. I can spend between, you know, roughly 10% on tacos in that model. Let's assume that your cost of goods sold model. Then I'm really going to. So so right. Take another 10% away for ads. That leaves me with a 23% P&G or post advertising gross profit. And I would say that's a really good target. Like, again, I would rather aim for 25 and hit 23 than really flirt with 20 constantly. But yes. So that would be that would be a fairly prototypical private label or kind of brand building seller on Amazon is third, Amazon fees. Third product cogs are about a dime, about ten points going to tacos. And then I've got 22, 23, 24% after ads that I can put towards my overhead.

Tyler 00:03:08  And mama wants a boat, you know, whatever it is, that's the money I want.

Josh 00:03:12  Makes sense. Makes sense. So with that, and then the other thing you mentioned is, hey, if you have really good cost of goods sold, right, you know, you might be 10 to 20%, right? Well, then you could ramp up your advertising spend. Right. So you can kind of offset those things, but the more profitable you are, the better. Like you said, some people were 30 to 35% that were really getting some premiums, with all the acquisitions that were going on. So this is awesome. This gives us a lot to think about and great targets to shoot towards, especially like net profit margin. You said, you know, ten is kind of the average. You said, right. 15 means that you're really good. You know looking good. You're a good candidate to be acquired. Is that correct?

Tyler 00:03:59  Yes. And honestly, coming out of like 2022, I would actually say that, you know, 10% was actually probably pretty good because we did see a lot of headwinds.

Tyler 00:04:09  So give your give yourself some grace. Like if you're looking at your piano right now, you know, here in the middle of 2020 and you're like, well, boy, I got 5% last year, I must be dead. That actually might be more normal than you think it is. But don't don't think that that's going to be normal forever. I think we are we're, we're we're continuing to want to see the market get better and we want to we work too hard and we risk too much to take a 2% profit margin for too long. And so getting a 10% is really crucial. And then I think if you're going to exit, getting it closer to that 15% net profit. Yeah.

Josh 00:04:38  Awesome, awesome super valuable content. Tyler thanks again. All right. So with that, let's talk about maybe some of the levers that people can be pulling, you know, as they prepar...