Most people think of Amazon as an online retailer, but an ever increasing aspect of their business is as an online platform for other business owners. If you own a business, Amazon wants to help you. The expertise they have developed in order fulfillment, secure payment processing, and website design. This is something you can use in your business, provided you give a small cut to Amazon. In this post, we'll cover the different options for selling on Amazon as well as accounting systems for Amazon sellers.
If you think your business doesn’t need Amazon, your opinion is certainly in the minority. Everyone from Apple Computers, to 3M, to Pilot Pens, to Rubbermaid, to Microsoft is using Amazon’s massive customer base and business platform to sell their products. Amazon takes a little percentage of their sales and everyone is happy – especially Amazon! A little percentage of hundreds of billions of dollars adds up quickly.
To get your products in front of people who have never heard of you, to open up global markets for your products, to continue making money after the doors are locked and the lights are turned off each night, you should offer a small fraction of your sales revenue to Amazon and they will sell your products, too.
Any Amazon seller can feel confident in understanding the systems and growing their profits. Our team is here to talk about the facts with you. Learn more about the necessary solutions on a 20-minute call with a member of our team.
Amazon Sellers, Let's Dive In!
How much you will pay Amazon to sell your products depends on a number of factors. One of the primary considerations is the type of account you set up with Amazon. Even though Amazon plays nicely with the big boys, they are not snobs and treat the little guys well, too.
If you are just selling the items you found when you cleaned out your closet, you can open an Individual Selling Plan account. You should think of this like an electronic garage sale. As long as you aren’t selling more than 40 items per month, this probably makes the most sense. (I’ll tell you more about why 40 items per month is the magic number in a moment.) You can probably use a bookkeeping service like GoDaddy or FreshBooks as a hobby seller and do just fine.
However, if you hope to make a little money to save for a vacation, or a new car, even if you are just working your Amazon business a few hours each week, you probably want to open a Professional Selling Plan account. This account used to be called a ProMerchant account and you may still hear that term bantered about. You will especially want this type of account if you are a full-time seller.
One of the main differences between the Individual Seller Plan and the Professional Seller Plan is a $0.99 transaction fee charged for each sale on the Individual Seller Plan. This per sale fee is not charged on the Professional Seller Plan, but there is instead a monthly charge of $39.99.
This is why the 40 items per month is significant. With a Professional Seller account, if you sell more than 40 items, it is less expensive to pay the monthly $39.99 charge. If you have an Individual Seller account and you sell 35 items in a month, your transaction fees will cost you $34.65. If you sell 45 items you pay $44.55 in transaction fees. With a Professional Seller account, if you sell 10,000 items each month, your monthly fee is still just $39.99
Other differences between the Professional and Individual Sellers are:
- There's no sales tax computed, collected, or reported on Individual Seller Plan accounts.
- Professional Sellers can access bulk listing and reporting tools not available to Individual Sellers.
- Professional Sellers can offer custom shipping rates on products, except for media items which have fixed shipping rates for everyone.
- Professional Sellers can offer promotional pricing (put items on a discounted sale for a period) and offer gift wrapping services.
- Professional sellers are eligible to have their products featured (given top placement) on product detail pages.
If you do become a Professional Seller, you will want to have a clear distinction between your personal finances and your business accounts. You should register your business as an LLC (Limited Liability Company) or an S-Corp (a small business corporation, established under subchapter S of US Tax Code).
You will also need an accounting system that gives you more than just income and expense statements. You need to depreciate assets, generate a balance sheet, and maintain a full chart of accounts. A balance sheet is necessary for business returns and for coding asset purchases. Such as startup costs and equipment purchases over $500. You will need a full accounting system, not just bookkeeping software like GoDaddy Bookkeeping or FreshBooks, to track everything properly. The accounting system we recommend is Xero.
It is not necessary to record every transaction individually. The sales invoice that Amazon provides contains all the data you need to report. There is even an add-on app called A2X that will automatically pull the information from your Amazon invoices. Once you have entered the data from the first invoice, A2X will remember the accounts and taxes for each entry and use those categories for future invoices. If you choose not to use A2X (there is a $19/month service charge), you can enter the information manually in a matter of minutes.
Initially, you may find Xero more difficult to navigate than a bookkeeping system, but once you have gotten past the setup learning curve, you will find the day-to-day data entry similar to GoDaddy or FreshBooks. Which system should you use? We really can’t answer that question for you. You must choose the system with which you feel comfortable. Just be aware of the limitations of bookkeeping systems, especially if you have an LLC or an S-Corp.
It is important to keep backups of receipts and invoices. In case of an audit by the IRS, some of your expenses may be disallowed if you don’t have the proper documentation. We advise our clients to a tool called ReceiptBank to store these documents. ReceiptBank also integrates seamlessly with Xero.
As most business people know, understanding your numbers is essential to your success. Using the proper tools goes a long way to this understanding. You need the correct numbers to assess your business’ health, to accurately file your taxes while minimizing your liability, and to protect your assets. Don’t spend your hard-earned dollars in an attempt to save a few pennies.
The Bottom Line
If you sell products on Amazon as a hobby or very small side business, something like GoDaddy Bookkeeping may be sufficient, but if you sell products on Amazon as a business, you should invest in a full accounting system like Xero.
Your Turn
Are you an Amazon seller? If so, what accounting system do you use?
