Amazon Profit First: Strategies for High Profits

Have your Amazon sales been riding high during the pandemic? If so, how have you managed your cash?

During a time when things are booming, it’s easy to become overwhelmed with the increase in sales and all that goes with it. Or maybe you had to pivot some aspect of your business and focus on carrying out that new strategy.

Either way, often it seems that there just isn't enough time to manage the money closely, and with the arrival of a new year there's likely to be a fresh new set of uncertainties. So, let's take a moment to get your rules of operation in place with these Amazon Profit First strategies.

Determine Your Setpoint

The strategy that I want you to develop centers around your operating expenses. During the busy season when more cash is coming in as deposits, your operating checking account tends to grow. You want to ensure that you do not allow that account to grow beyond a typical monthly setpoint.

This setpoint will be the balance you maintain in your account. When you think about it, your monthly expenses stay consistent. Rent, utilities, insurance, software apps, etc. all have a monthly cost that doesn’t vary much by season. For this reason, you can estimate these expenses based on prior months and use that information to develop your setpoint.

The reason you want to keep your balance low is to ensure that you are careful with your spending. When your bank balance starts to increase, you may become less frugal, less efficient, and less innovative.

During a time when you are already stressed, it is tempting to throw money at your problems, and soon your excess balance starts to dwindle. The way to keep your eye on the ball is to move the excess money to a savings account.

Take Action

Look back over the last three months. What are your typical operating costs? Say you have been spending $25,000 each month. This will be your bank balance "setpoint." Basically, you are always keeping one month of reserve in your checking account. As you receive deposits for your sales, make sure that any amount over $25K gets moved into the savings account.

If you are using Profit First as a cash flow methodology for your eCommerce business, you will allocate your deposit per your usual allocation percentages. Then look at the balance of your operating expense account and move the amount in excess of your $25k balance over to your profit account.

If you don't use Profit First, open a new savings account for your business or use an existing savings account to hold these funds. Basically, when you receive a deposit into your operating checking account, any amount over your setpoint will be moved into the savings account.

Simple Steps, Big Results

By simply moving the extra funds, you will not be tempted to use them. This will allow you to develop a healthy reserve that can be put to work when orders slow down and you have time to consider options and develop a plan.

For example, you may want to grow inventory over the next year or launch new products. You may like having that reserve on hand and want to preserve it for an emergency fund.

If you have debt in your business, you might want to consider using the reserve to reduce your debt. The fact is, there will be a time to make a good decision around those funds, but it is not when you are under a lot of pressure during your busy season or around the holiday rush.

Learn More About Amazon Profit First

If your Amazon business isn’t where you’d like it to be in terms of profitability, check out my book, Profit First for Ecommerce Sellers. You'll learn how to implement Profit First for your Amazon business.

You can also sign up for the Profit First for Ecommerce Sellers Online Course. As a Mastery Level, Certified Profit First Professional and founder of bookskeep, I will teach you why Profit First works so well for eCommerce businesses. Discover how your behavior drives your money management habits and how you can set up your business bank accounts to work with your habits