Originally published on March 27, 2023, updated March 27, 2023
Menu
Join Our Email List
- Receive our monthly newsletter.
- Stay up to date on Amazon policies.
- Get tips to grow your business.
The early years of eCommerce were all about marketing, advertising, and making a sale. In the last couple of years, business owners’ focus broadened to include operations as they saw colleagues exit with high multiples as a result of the high level of aggregator buying activity. Top-line revenue quickly took a backseat to profitability.
Focusing on profitability means you have many more levers to control. It's easy to get confused about what is driving performance.
That's where Amazon business planning comes in. One of my favorite ways to ensure all levers are being managed appropriately is to predict or design the future. Stephen Covey said it best with Habit 2 in his book Seven Habits of Highly Effective People, "Begin with the end in mind." That doesn't just apply to a vision board, it applies to your numbers as well.
But before we get to the numbers themselves, the plan should start with utilizing your imagination and creativity. As an entrepreneur, you probably have these thoughts all the time. But now we're going to put some rigor behind them. Take a few minutes and think about your biggest opportunities for the year. This may include:
Jot down your top three; these goals will be the drivers for your yearly forecast.
On to the fun part, at least for those of us that love numbers! Let's determine how each scenario impacts you financially.
For each opportunity, think about how much it will add to your revenue and what it will cost you. I like to do this on a monthly basis because it allows me to see the timing involved. I can show when the cash is going to be spent and when I will start to receive revenue.
Typically, there are some upfront costs before you start to reap the rewards. By looking at the scenario in monthly terms, you can understand the impact on your cash. This is important because the scenario may generate a lot of income, but if you don't have the cash to launch it, your entire business could be in jeopardy.
Develop a tab in a spreadsheet for each of your three scenarios. This will allow you to isolate your activities and start to understand their priorities. Focus on the "low-hanging fruit" first and ensure that you don't get overwhelmed by doing too much. You can manipulate your scenarios easily with less confusion if you isolate them. Once you have these new initiatives mapped out, you are ready to apply them to your baseline data.
The previous year's financial information is your baseline data. You will set up a tab in your spreadsheet for baseline data and pull your Profit and Loss from your accounting system as an Excel file and copy it into this tab. Then, look at each line of activity and apply an adjustment. In general, will revenue stay the same or will it slightly increase? Is a product going to be discontinued, signaling a drop in income?
Ask the same sort of questions about your expenses. Were any expenses a one-time thing? Will your vendors be increasing their pricing on your standard products? Are there any rent increases on the horizon?
I like to call this exercise "considering your changes to maintain your operations." What will stay consistent and what will change? (Note: don't add in your three initiatives for the year just yet; this is just about taking a look back and asking yourself if this were a standard year, what would need to be adjusted to "repeat" that performance?)
Now you are ready to start looking at the baseline data with the new projections. I suggest creating a summary tab where you're just pulling the totals in to see your baseline revenue, cost of goods sold (COGS), gross margin, operating expenses, and net margin. Your summary spreadsheet will be set up with the information below.
Once you have gathered this information, you can begin to track your performance during the year against these activities. This can be a challenge with spreadsheets. There are some forecasting tools available that integrate with your accounting system. Your accounting professional may be able to recommend one.
At bookskeep, we use and love a tool called Fathom. It allows us to forecast and monitor our client's progress and generate graphical reports that help us spot business trends.
You can see a couple of the pages we produce below.
If you're just getting started with your Amazon business planning, a spreadsheet will take you a long way down the road. The thought processes and monitoring/adjusting are the most important pieces. These things allow you to take the data from your business performance and use it to make good operational decisions.
As your business grows and gets more complicated, the software's forecasting and reporting tools will help you continue this important activity without spending multiple hours lost in spreadsheets.
If your profitability isn’t where you’d like it to be, check out my book, Profit First for Ecommerce Sellers.
You can also sign up for the Profit First for Ecommerce Sellers online course.
Originally published on March 27, 2023, updated March 27, 2023
This post is accurate as of the date of publication. Some features and information may have changed due to product updates or Amazon policy changes.
These Stories on Business
We Are Virtual!
But you can still send us mail:
14321 Winter Breeze Drive
Suite 121 Midlothian,
VA 23113
Call us: 800-757-6840
Copyright© 2007-2023 eComEngine, LLC. All Rights Reserved. eComEngine®, FeedbackFive®, and RestockPro® are trademarks or registered trademarks of eComEngine, LLC. Amazon's trademark is used under license from Amazon.com, Inc. or its affiliates.
No Comments Yet
Let us know what you think