All of these things have cost me hundreds of thousands of dollars. My first mistake was not understanding Amazon's fee structure and pricing my products properly. So I could actually make money. Second mistake. I didn't understand how Amazon's advertising worked specifically my advertising cost of sales or ACOS and I lost money underestimated the seriousness of shipping. I didn't ship on time. I shipped in too little or I shipped in too much and I lost money.
And fourth, I didn't understand how the buy box worked, made a lot of mistakes, cannibalize my own sales. And I lost money. So let's break down each of these four mistakes in detail so you don't have to suffer the same consequences I did, which is losing thousands of dollars because you just don't know what you're doing. So let's say you've invented a product. You're selling it for 100 bucks. It cost you 20 to make it. That's a 20 percent cost of goods. That's an 80 percent margin.
That's really good. In fact, that's what you need in order to make money on Amazon. But let me explain why. You see, Amazon's going to take about 40 percent of your sale. 40 percent right off the top. That's their money. Whoa. Okay. But what about the cost to make the product? It's not free. Remember? 20 bucks. All right. So now 40 of that 100 sale is profit. Not so fast. We haven't even talked about advertising. You see, if you're anything like me, you've listed your product on Amazon.
You've got a few sales coming through, but you want to scale up and you want to make more money. So you decide to start spending money on advertising. Amazon wants you to spend your profits with them. That's their goal. So what does it cost? The best Amazon companies out there that are scaling and efficient with their ads spend about 20 to 30 percent on advertising to get a customer. That's what your ACoS figure is. Advertising cost of sale.
What percentage of the sale did you have to spend to get the customer? So let's say your ACoS is 30%. That means it costs you 30 to get that customer. But Evan, we only had 40 left over in gross profit. Yeah, I know. Subtract 30 from it.
That leaves you with 10 bucks, a hundred dollar item after Amazon's fees, the cost to make the product, the advertising costs, you are now left with 10 percent left over as your profit, and you still haven't even paid for your salary, your employees, your legal expenses, and everything else. So what does this mean and how do we avoid it? You can increase your price, therefore increasing your margin.
Or you can lower your cost of goods or lower the amount of money that you're spending on advertising by making it more efficient. Let's talk about all three really briefly. The first is raising your price. A lot of people don't understand how to price their products correctly, and they will just double what it costs to make the product. They're, Oh, it cost me 10 to make this bottle of shampoo, so I'm going to sell it for 20. You're going to lose money. That's a 50 percent margin.
After Amazon's fees, you're only have 10 percent leftover. You haven't even paid for the product. Oh God. Yeah, this doesn't work. It doesn't work. The math doesn't math. So you need to make sure that you build in at least an 80 percent margin into your products. How you take whatever it costs to make your product and you multiply it by five, that will give you an 80 percent margin. And margin is just a way of saying what percentage of your sale price is actual profit.
So, you're selling a 100 item that costs 20 to make. You multiply that 20 times 5, it gets 100. That gives you an 80 percent margin, which means 80 percent of that 100 is profit. 80 is profit. I have a whole worksheet that will help you calculate this, I'll leave it in the description below for you. It's just a Google sheet. So that's one way you can solve the pricing challenge. is by increasing your price so that you have greater than 80 percent margin.
Second thing you can do is lower your cost of goods. You can figure out how to manufacture your product cheaper, whether you get it manufactured in China, or whether you change some of the materials, or if you decrease the expenses on packaging, or if you put it on a boat instead of air freighting it in, all of these things can reduce your cost of goods, which will therefore increase your margin, which will therefore increase your profit. But there is another way that you can enhance this.
And that is getting more efficient with your advertising advertising cost of sale. ACOS, what percentage of the sale was spent to acquire the customer? If you have a 30 percent ACOS and you sell a hundred dollar item, that means you had to spend 30 to get a customer.
If you can get more efficient, if you can get better at ads, if you can make better videos, if you can make better keyword recommendations or do better branded search terms, you can drive that ACOS down, which will then increase your profit margin and the amount of money you put in your pocket. I didn't understand this when I started. I lost a lot of money because I just, I just didn't get it. I was like, yeah, we're making sales. Holy cow. We hit a hundred grand.
And then I didn't even get a payout. I literally lost money making a hundred thousand dollars a month because I didn't understand this. I, it is so important to know your numbers. It is so important to understand your margin and how it all fits together. And all of these have to make sense if you're going to make profit on Amazon. So if your margin is not greater than 80%, I would be very cautious and wary of selling my products on Amazon.
Uh, fix that before you list your products there or you will lose money, just like me. Okay, let's talk about the third thing, which is shipping. I messed this up in every way you could possibly mess this up. So the first thing that happened was around in 2020, we had a viral TikTok video. It was like 30, 40, 000 worth of sales in like a day or two. It was insane. And I was over the moon, but we were sold out. And I'm like, Oh, that's okay. I'll just swap the listing to merchant fulfilled.
I'll start making some sales. They'll stack up. And as soon as the inventory comes in, I'll ship them out to them. They'll be fine. No, Amazon was pissed. What I failed to realize is that Amazon prized themselves on shipping quickly to the customer and offering the lowest price. But we'll talk about the lowest price thing here in a minute when we cover the buy box. Ah, they chewed my ass. They were so upset with me and they almost shut me down. Literally almost shut me down.
They're like, why, if you don't have inventory, why are you making sales? Why are you selling? You need to be shipping these products to the customer. I was like, oh, it'll be here in like a couple of weeks and then I'll just ship it in then. They're like, you can't do that. Why are you doing this? They were pissed! The lady was literally raising her voice at me, and I was just like, oh my god I'm so sorry. What do I need to do to fix this? So I need to stop selling.
I needed to refund all the customers. I needed to make sure that I shipped within that 48 hour window for merchant fulfilled. Now, merchant fulfilled and fulfilled by Amazon are two different things. Merchant fulfilled is when you make a sale on Amazon and you ship the product to the customer. Amazon fulfilled or FBA is you ship all your inventory into Amazon's warehouses. They split it all up across the country. And then when Amazon makes a sale, they ship it for you.
Okay. That's what most people do. That's how you get the prime badge. And that's what I recommend. And so I really learned a powerful lesson here and I needed to better manage my inventory and stay in stock. So I didn't mess things up. But that leads me to the next problem, which is low stock fees and overage fees. If you send in too much inventory, they're going to charge you money. If you send in too little inventory, they're going to charge you money.
In fact, I was prepping for Q4 in 2024 and come July, we start to gather all of our stuff and ship everything in by September, latest October 1st. So it can be available for Black Friday, Cyber Monday, Q4, Christmas, et cetera. You got to ship your stuff in early. And I'm thinking, Oh, Hey, we're going to turn advertising back on. We're going to increase velocity. Everything's going to go great. I'm going to send in a bunch of inventory.
17, 000 worth of storage fees, 17 grand is what they charged me because I sent in too much inventory. Oh, there goes a bunch of profits. I'd be lucky to make money now. You know what I mean? It sucked. I've also had situations where we have sold out our fulfilled by Amazon listings, and I've only sent in what I had and they charged me money because I didn't send enough inventory. Duh. I've even had situations where I've had a bunch of boxes sent into Amazon.
They want me to split it up and send it to a bunch of different distribution centers so it can be more efficiently distributed across the country to, you know, save money on transit times. Yeah, cost me a bunch of money. So understanding Amazon's shipping policies and what they are trying to achieve for their customers is really important because I didn't get it and I lost thousands, tens of thousands of dollars just by making these mistakes.
So if you do decide to do fulfilled by Amazon, you need to pay attention to the recommended inventory restock levels. You need to monitor your inventory like a hawk every week. At the very minimum, you need to check it and make sure. That you're on pace, your sell through is good and or whether you need to send in more or less inventory. And just remember when it comes to shipping to Amazon, if you want your stuff to be available for sale by Q4, you need to ship it in by the latest September.
It takes sometimes 30 to 60 days to get all of your inventory intaked into Amazon. They're a giant company. And so you really got to be on top of this stuff. And this brings me to my fourth and final point. But before I go there, I want to talk about. The sponsors of today's podcast, because they're very fitting.
If you're anything like me, you've probably invented a product or found a product that you like and enhance it, made it better, and you want to sell it so that you can make money while you're sleeping. This is e commerce. This is the draw. This is what drew me in. I love waking up to Shopify notifications or Amazon seller central notifications when I get that little ding in that sale. But in order to get to that point, I first had to form a company and get properly sent up.
And that's what I want to talk about really quickly. Because if you haven't gotten yourself set up as an LLC, you absolutely need to. If you don't have an EIN and a business bank account, you absolutely need to. The good news is that it's a really simple process and it's very easy to do. You really only need three things. And that's an LLC, an EIN, and a business bank account. You can get the LLC by using your home address and filling out the application on Zen Business.
It takes like 10 minutes, and it's very quick. You can even get the EIN through them as well, and as soon as it's all processed, it'll be in your portal and available for you to look at. They'll save it for you. They even have banking and all kinds of stuff like legal documents and tax prep and all the other things that we need to operate our business. You can set up your own LLC using your home address. There's nothing wrong with that. I did it for years, and everything was fine.
In fact, that's how we started our first Amazon Seller Central account. I was just using the address of my rental house, and it was great. But there is one other thing that you're going to need, and that's a business bank account. Now, there's a lot of different options out there, because all you need to open a business bank account is your LLC paperwork and your EIN paperwork. Those are the two things. But not all banks are created equal, and that's why I want to talk about Relay.
The combination of these two businesses for getting things set up is really quite powerful. See, I've opened 11 different business bank accounts with different institutions, searching for the right one, searching for the one that had the debit cards, the credit cards. I was able to ACH do wire transfers, pay internationally, write checks, deposit checks, pay myself, open multiple accounts and all of the bells and whistles from the comfort of my home, only having to use a computer.
I didn't want to go walk into a bank and have to do that whole song and dance. I just wanted to get it done. I wanted the money that I was making from Amazon to get paid to this company, to this business bank account. So I could make it official and be legit. And that's why I'm bringing it up now, because if you haven't started an Amazon seller central account, you're going to need to. And when you fill out the application, they're going to ask for your LLC. They're going to ask for your EIN.
They're going to ask for your business bank account, your address and everything. So you need that stuff set up. And out of everything that I've done using Zen business for the LLC and EIN, and then using relay for the business bank account is the best way to go. Now, full transparency, these are two companies that I use, I actually reached out to them and I was like, Hey, you guys want to sponsor my podcast because you make a great product and I would love to talk about you.
And, um, so here we are. Big shout out to Relay and Zen Business for sponsoring this episode because they make a great product. And if you're anything like me, you don't want to waste time. You just want to do it once you want to do it right. So that brings me to my last and final point, which is the buy box. I lost so much money because I didn't understand how it worked. You see, Amazon wants to sell the cheapest product and wants to get it to the customer in the shortest amount of time.
So how do you think they would feel if they found out that I was selling scorch markers for 2 less on my website because I made more money there? They'd be pissed. And rightfully so. So what they've decided to do is scrape all of the data out there on the web. This means Amazon's bots will crawl your website, eBay, Etsy, Walmart. Tick tock shop, everything, they'll crawl all of it, searching for the same product, the same UPC and monitoring the price.
And if they find out that you are selling your product cheaper somewhere else, they will remove your buy box from your Amazon listing. That means the buy now button will go away. And all you can see there is see all buying options, hanks your conversion rate. It doesn't even really give customers a chance to purchase. Nobody clicks on that. You won't. I won't. I learned this lesson the hard way. You see.
There was somebody that purchased Maker's Magic in bulk and then split up the packages and sold them individually at a discount cheaper than what we were selling them for on Amazon. We were selling it on Amazon for 20 bucks, they were selling it on eBay for like 18 or 19 dollars. They were still making a dollar or two profit, yet they were undercutting us on Amazon. Well, Amazon scraped that data and it said, hey dude, there's a new listing on eBay, you're selling it cheaper somewhere else.
Goodbye BuyBox, we're going to take that from you until you fix it. You can't sell here until we are the cheapest. Oh, it's awful. How do you get attorneys involved? I had to go through eBay's intellectual property, and they weren't even selling it new. They were selling a used product and calling it new and misrepresenting and tarnishing our brand. And there was very little I could do about it.
So now I'm very strict about who we allow to sell our products because I don't want to lose the buy box on Amazon. It's 50 percent of our company's revenue. Which we will talk about at the end of the episode. I'm going to go over all of our sales figures so you can see how much money we've made in the last 30 days. Now, that being said, there are ways to solve this challenge. Here's what we're doing in 2025.
First of all, we're simplifying all of the SKUs and the products that we're selling in Amazon. We're only going to sell the most popular stuff, the hero SKUs, the best products. And what that's going to do is going to simplify our product offerings. And then. Instead of selling the same products on our website, we're going to just change up the offer just a little bit. So you'll see a bottle of maker's magic on Amazon for 20.
But when you go to our Shopify store, you're going to see a bottle of maker's magic and a paint brush for 19. And that's okay because it's a different offer. It's not the exact same thing. Can have a different UBC code. It's going to have a different skew. It's going to be a whole completely different offer at a different price. So by splitting up your offers and making Amazon specific offers and Shopify and everything else specific offers, you can avoid the pitfalls of losing the buy box.
I have cannibalized myself multiple times. I mean, just this last Q4 in 2024, um, Amazon was scraping our website and they did the math and they figured out that the Scorch markers were cheaper to buy on our website. So we had to drop the price on Amazon to keep the buy box. We had to lose 3 in profit per unit in order to maintain our sales velocity and not tank our listing.
It's a whole game, man, it's a whole game and it's not easy, but hopefully by me sharing some of these mistakes with you, you won't have to make the same ones because all of these things combined that I've talked about have cost me hundreds of thousands of dollars, hundreds of thousands. I mean, we only do a few million a year.
We're not a big company, but we're big enough for me to feel these mistakes and really, really feel the gut punch when I have to pay out 17, 000 in storage fees or realize that my business bank account deposit was a hundred dollars after making a hundred thousand in sales or seeing how advertising is so inefficient because I spent too much money and didn't pay attention that it cannibalized all of our profits or shipping in too much inventory too late. So it's just.
These are like the four big mistakes. And obviously there's a lot of other stuff that we can go into because Amazon is an entire beast in and of itself, but we're going to save that for another day, another podcast. Let's talk about how much money we made over the last 30 days. So you get an idea of the size of our business and what we're going through. So you can do some future planning to make sure that you don't lose money.
Like me over the last 30 days on Shopify, we did a total of 29, 072 and 17 cents. That's at a conversion rate of 1.76%. On Amazon, we did a total of $83,922 and 63 cents. That's at a conversion rate of 13.91%, and retail total income for the last 30 days is $43,604 and 78 cents, which brings our grand total to $156,599 and 58 cents. That's how much money Scorchmarker made over the last 30 days, starting on December 2nd.
Now remember, these are sales figures, this is the big number, cost a lot of money to make that money. So our net profit is around 10%, which would be about 15, 000. And that's how much money the business actually made. I'll update you with our most recent figures on the next podcast. I'll see you over there.