4 Questions to Start Auditing Your Amazon Payments Report
- Jan 8, 2016 | Marcus DeHart
In a perfect world we would take everything at face value and never question the powers that be. Unfortunately, the powers that be are far from perfect, and we tend to dole out trust in small amounts to protect our best interests.
Take Amazon and the payment report it provides. Wouldn’t it be nice if you could download your payment report every 14 days and know that everything you see there is spot-on? Considering the millions of transactions (including sales, returns, refunds, etc.) that Amazon processes on a daily basis, the odds are that some transactions will be in error. It’s not that they are sloppy or malicious. It’s just a matter of statistics.
That leaves you with a choice. You can hope that Amazon’s errors will somehow balance out in the end; after all, some errors may appear in your favor. You can accept any losses as part of the cost of doing business. Or you can take the time to perform an audit on Amazon’s payment report. Here are a few questions to ask yourself when it comes time to begin an audit.
1. Are your records accurate?
An audit will only be successful if you have accurate records of your inventory and all associated transactions. That means that at the beginning of your settlement period (14 days for most sellers), you must diligently track every product in your inventory, every shipment to FBA, every sale to customers, and every refund or replacement made. If you don’t keep accurate records of your transactions, you might as well accept Amazon’s payment report at face value.
2. Is the product in the right category?
When listing a new product, you have some influence over which category the product is listed in. However, Amazon has algorithms that evaluate products based on UPCs and keywords that you include in the title or description. The category to which they assign your product will result in you owing differing amounts of money. For instance, if you list a product that gets classified under Amazon Device Accessories, you will be paying a referral fee of 45 percent. The same product listed under Electronics Accessories will only be charged a referral fee starting at 15 percent. If your product is not in the right category, you could be paying more for referral fees than you should. You can learn more by reading up on Amazon’s Fees and Pricing.
3. Are all you products accounted for?
When you add up all your products sold, returned, damaged, and lost, do they equal the number of products you had at the beginning of the settlement period. This can be tricky, since for every order there can be multiple transactions or rows in your report. So for one item sold, you could see a row for the item price and more rows for various fees. Each will indicate that the quantity purchased was 1, but all those transactions are for the same unit sold, so you have to ignore the fees and only count the principal item price. It’s also good to know that while sales are tallied as positive numbers, returns are not indicated with a negative value. You’ll need to do the math yourself to align items as incoming or outgoing.
4. Do your fees add up?
If your sales are coming from orders that you fulfill from your own warehouse, you will typically only see two item fees: commission and the variable closing fee. For some categories, commission (or referral fee) can be tricky to calculate because Amazon uses a tiered rate. The first $100 might be charged at 15 percent, while any amount over $100 has a reduced referral fee.
A simple calculator can be built in Excel that will help you quickly identify your referral fee based on these category tiers. In contrast, the variable closing fee is a flat rate of $1.35. For products that you ship with FBA, you’ll have a few more fees to validate. Per-order fulfillment, per-unit fulfillment, and weight-based fees are all subtracted from your principal item price. Oh, and since you didn’t do the actual shipping, Amazon will first credit the shipping fee charge to the buyer and debit it, so it is canceled out.
I recommend getting really familiar with FBA fees by visiting Amazon's pricing overview. And just a heads-up that the FBA fees are going to be changing on February 18, 2016. Go to Fulfillment by Amazon Fee Changes for more information.
The questions above only scratch the surface of a full-on audit. If you have modest sales or a narrow selection of products you sell on Amazon, an audit might not be such a daunting task. But if you sell high volumes with a broad selection of products in multiple categories, you might find an audit overwhelming and benefit from the services of a business analyst.
Larger sellers might also want to explore the option of integrating your systems with Amazon’s APIs using the Amazon Marketplace Web Service to automate the heavy lifting involved with managing your inventory and auditing your payment reports.