Doing a billion dollars as an Amazon FBA seller is not the biggest challenge in the world. Doing it sustainably and while maintaining profitability is. Today, we’re looking at 3 things third-party Amazon sellers (and their suppliers) need to understand and have a system in place to offset. Specifically, we’ll be looking at sales tax, slippage, and chasing the buy box to manage debt.
1. Sales Tax
Relying on a misinterpretation of federal case law (Quill Corp. vs. North Dakota) to avoid collecting and remitting sales tax is not a good business strategy. At the end of the day, a seller’s responsibility to collect and remit sales tax is a straightforward question: do they have inventory in the state? If a seller is utilizing Amazon’s FBA (Fulfillment by Amazon) service, then they can be assured they have inventory across many states, regardless of where they originally sent the inventory or where their business is located. Inventory in each one of these states means the seller has tax nexus, which means they have a legal obligation.
Determining nexus is not complicated. Amazon has provided the resources for any seller to identify where their inventory is located since the inception of the seller’s account (Monthly or Daily Inventory reports). This is where it gets complicated: with every day the seller does not contact each state and get right with the state, the seller’s liability is growing. That liability – including taxes owed, plus interest, plus up to 25% in penalties for each year that nexus was established – is something that every state will come looking for.
When it comes to those sellers who’ve invested in the process, not only registering to collect and remit but also getting right with the states for past sale taxes owed, the ability to invest in the future may be bright. Those sellers who continue to misinterpret case law to serve their lack of sophistication, or believe that they can outwit the states, will soon be very familiar with how knowledgeable about and hungry the states are for what is owed to them.
What Can You do?
Log in to your Amazon Seller Central account and download a full report that shows the location of your inventory in each Amazon Warehouse. Take a long, hard look at your sales territories, and then go to your accountant or directly to the Multistate Tax Commission (MTC.gov).
2. Slippage (Or “reconciliation”)
We have a saying at NetRush: Slippage Happens. It does. Slippage is what we call stock that is lost in motion.
With a highly responsive process that allows us to track inventory from manufacturers to Amazon’s Fulfillment Centers, goods will still occasionally end up in the void that exists between customers and Amazon. Between returned, damaged, and undelivered items, slippage is unavoidable at times. Sellers and suppliers have to accept this.
As a retailer in a highly competitive environment, you need a very clear idea of the product you’re ordering (forecasting) and a realistic understanding of supply chain time frames. Gaps in the supply chain are part of the reason nearly 80% of retail businesses fail.
What Can You Do?
Invest in a process that gives you a sound understanding of your true profitability versus what you’re losing.
Virtually managing your inventory is not an easy process, but it’s a worthy investment of your time. Create a system that allows you to reconcile what you’ve shipped into Amazon’s Fulfillment Centers, what has been received, what has been sold, and what’s left. The balance doesn’t always add up.
Slippage is a subset of inventory. You can have horrible slippage that could put you out of business, or you can put yourself out of business by not being able to provide audited statements.
3. Chasing the buy box
Storage fees are a part of being an FBA seller.
“Chasing the buy box” means putting yourself in the position where you have to clear out inventory to make those storage payments, dropping your price down to the floor or offering 3 for 1’s, just to cover your fees.
When it comes to Amazon, there will be rainy days. If we can look back at point number 2, knowing the state of your inventory is about more than having enough stock to meet demand. It’s about a long-term, sustainable Amazon strategy that allows you to turn a profit, not simply exist.
Buying today for sales that will be made weeks down the line, with no indication of what your inventory levels are doing in the interim, makes no sense in the long run. You will eventually nickel-and dime-yourself out of business.
What Can You Do?
Your entire strategy cannot be reactive: to storage, to payments, to chasing sales to cover fees.
Bring the sales to you – stop chasing them. Get a clearer idea of your strategy and how to reach customers without using price and gimmicks to get ahead. Think long term. Work with brands and businesses you resonate with, so that you’re able to provide a valuable customer experience through value-based relationships, and help to create a more sustainable marketplace.