Amazon Accounting Meetup Summary: Atlanta, Georgia - June 6th
Estimated reading time: 13 minutes.
On June 6th, 2018, we hosted a meet-up for Amazon sellers, accountants, and people involved in the ecommerce space. This meet-up was held after the first full day of Xerocon in Atlanta, Georgia.
We were privileged to have Brandon Wasser and Cat Fogarty present as guest speakers.
Brandon Wasser is a Senior Account Manager at Bookkeeper360. Through this role, he has learned a great deal about emerging technologies and trends that are shaping the way we shop, and how businesses need to evolve in order to thrive in an ever-changing environment. Bookkeeper360 is a modern accounting firm that places emphasis on using technological solutions to make payroll and tax accounting easier.
Cat Fogarty is the Director of Accounting Technology at HPC. She is responsible for a wide range of functions within the organization - from supporting and overseeing the bookkeeping team to helping with onboarding new clients. HPC is an established accountancy firm that has embraced the culture shift to remote workplaces - employing bookkeepers, accountants and CFOs throughout the United States without the need for physical offices.
After a brief round of introductions and an explanation of what A2X does for Amazon businesses, Brandon took the stage to talk about the emerging eCommerce and bricks and mortar retail trends that are becoming more prominent, and how they are changing the way we shop and do business online.
Emerging ecommerce and technology trends that are shaping the retail landscape
Shoppers are moving more towards purchasing products in brick and mortar locations again, which is contrary to what people would think in this day and age.
When shopping for clothing for example, millennials like going to the store to try items on and see how it fits and if it suits their body type and style. Perhaps this might be partly due to shoppers being disappointed when they order items online only to find that they aren’t a perfect fit, or don’t look as good as they did in the photos.
This ‘buyers’ remorse’ has long been a problem with shopping online. Augmented reality is an interesting new technology that is beginning to be used in order to help people visualize what products will look like in their home. At the moment, this is mostly being used by furniture stores. However, it is only a matter of time before a wider range of industries adopt this technology.
“This is gonna be a good step in the right direction where, if you purchase something, you know it’s gonna be a good fit for you.”
Competition drives markets and helps consumers to get the best deal.
Now that ecommerce infrastructure is well established, we are seeing many more B2B businesses such as manufacturers going direct to the end user rather than taking the traditional retail route.
AliExpress is a prime example of this disintermediation activity in action. Mobile checkout is becoming much more prominent in the retail environment. Apple Pay allows people to make payment for goods without even opening their wallet. This helps to streamline the checkout process and reduces queues in shops.
Amazon is the largest ecommerce platform in the world, and they are moving into many new industries at breakneck pace. For ecommerce stores, it is almost necessary to sell on Amazon just to keep up with the competition and have a presence where shoppers are looking. Brandon recommends selling every single stock item you have on Amazon.
“50-60% of people, the first time they go on[line] and look for something, the first place they go is Amazon.”
In order to continue expanding, Amazon needs to develop a physical retail presence. Through their recent acquisition of Whole Foods for $13.7 billion, Amazon has made inroads into the bricks and mortar retail space.
They are developing all sorts of machine learning and AI technologies to change the way that we shop in the physical retail space. Voice ordering is becoming more prominent thanks to smart devices such as Alexa:
“You can actually order a pizza just by saying ‘Alexa, let me get a pizza’ and you can track the process of it.”
The last piece of technology that Brandon spoke about was a new category of apps and companies which help you with finding products to buy online based on photos of what you want.
For example, if your friend has a cool tee shirt and you want the same one, you can take a photo of their shirt, and these apps will find the product for sale online, then take you directly to the checkout where you can buy it and have it delivered shortly thereafter.
Technologies are constantly evolving and presenting a wide range of opportunities for those who are attentive. Another technology which wasn’t mentioned is digital currencies. They are changing the way we invest, spend and send money around the world.
In our latest eBook, ‘how to sell your Amazon FBA business’, we discuss a few practical ways that Amazon sellers can embrace automation and innovative technologies to make their business more efficient and easier to operate. Get your free copy here.
Strategies for taking your business to the next level
To begin formulating a strategy for growth, you first need to set goals about what you want to achieve and work out where you want to be in 3 years, 5 years and 10 years from now.
By understanding why you are here, you can develop an effective plan to help you realize your dreams.
“You cannot succeed without a plan in place. If you don’t have a plan, you will fail ultimately.”
Everyone has different goals and aspirations, but if you know what you want, then you can chart a course in the right direction. This is where advisors come in.
Finding the right advisor
Cat recommends that you partner with an advisory firm rather than choosing an individual. When you deal with a firm, you have the combined knowledge of a team supporting the person who is advising you, which tends to result in better decisions and guidance.
“So when you’re shopping for your advisory firm, I recommend you take the two date policy before you really jump into it. The first date is just getting to know the product. Are you a good fit for one another? Are they gonna work with you? Are you gonna work with them the same way? It’s okay if you don’t, there are plenty of advisors out there. You really want to be careful about who you pick because you’re gonna be spending a tonne of time with your advisors, and if you’re gonna do this right, you don’t wanna settle [for less].”
Ecommerce is a very complex industry, and things are changing all the time. Regardless of which industry you operate in, you want to find an advisor that understands the playing field. If you decide to take advice from a firm that isn’t involved in ecommerce, you might find that it hurts your business.
Cat spoke about a client that she had in Carolina about 5 years ago who sold home mobility equipment. Her accountant at the time said that they were ‘medical products’, and that she didn’t need to collect sales tax. The business owner withdrew her 401K, rolled it into a loan and opened up a franchise. When the tax authorities caught up with her a few years later, the cost of backdated taxes, penalties and interest forced her to close her doors.
Taxes for Amazon sellers are especially complex, and require expert advice to avoid getting caught out. Due to the fact that inventory is dynamically moved around Amazon’s warehouses, sellers have nexus in up to 26 states. Each state has different filing requirements for sales tax, and the applicable laws differ greatly.
Think of your advisor as a personal trainer of sorts. They are here to keep you accountable, to cheer you on, and to help solve problems in order to get your business to the next level.
“Once you’ve found an advisor and you get them onboard, you need to share your goals with them - realistic, unrealistic, long shot. You need to share your feelings with them because ultimately, they are the ones that are gonna help you plan for growth.”
Your advisor can tell so much from the financials of your business. It is important to share the good, the bad and the ugly.
Developing a plan
Now that you have a suitable advisor, it’s time to craft an effective plan that will get you to where you want to be.
“The great thing about writing things down is that it allows you to step outside yourself and evaluate “is it realistic? Does it make sense? Is there maybe a better way from here from point A to point B?”
When you set goals, you want to break them up into manageable phases. It’s important to think about the long term. For example, if you want to increase your bottom line by 30%, it is very easy to think ‘okay, let’s bump up our ad spend’, but to achieve growth you need to think more strategically.
“So you need to think about not only the financial side, but also when you’re thinking about how to increase your bottom line, what can you fix operationally, what can you fix in your supply chain, what can you fix on the sales and marketing side.”
This brings us to the next topic - deciding which metrics to track. Once you’ve formulated an awesome plan, you need to have a way of measuring success otherwise there is no way of knowing if you are achieving the right results.
Metrics that matter
Average order value (AOV) is one of the more common metrics to track. Another one is ad spend as a percentage of revenue.
Whilst these are great metrics when used in the right context, they don’t paint the full picture on their own. For example, if your AOV is extremely high, but your purchase frequency is really low, that could hurt your business - or it could be okay.
It really depends on a range of factors.
One of the key metrics that Cat and the team at HPC places emphasis on is ROI on advertising spend. This metric treats advertising spend as an investment and gauges its returns in the form of sales.
It is calculated as follows:
ROI on advertising spend = (customer lifetime value / acquisition cost) - 1
The resulting figure is displayed as dollars returned per dollar invested. To get a percentage ROI, simply multiply the value by 100.
Bundling products together is a great way to increase the average order value. There are apps and plugins that can be added to online stores to suggest complementary items when a shopper adds something to their cart.
Creative promotions and discounts are also great for increasing the average order value. If your current AOV is $35, you could offer free shipping for orders over $50 or $100. This will impact margins, but if you’re doing the volumes, shipping costs tend to be manageable.
Another way to improve your bottom line is to increase average purchase repeat rates. This one is a little harder to measure, and involves developing a relationship with clients. Email campaigns, special discounts and loyalty programmes go a long way towards getting there.
“But when you’re crafting all of these, you need to keep in mind that Americans on average get bombarded with media on average 12 and a half hours per day. If you’re not creative, the message is lost. Just 10% off that really doesn’t do that much anymore. People are used to seeing that everywhere.”
Keeping your customers interested
There are a wide range of ways that you can rise above the noise, stand out from the crowd, and keep your customers coming back for more.
One of the clearest methods of doing this is rolling out more SKUs. Shoppers love new products, especially when they are the first ones to know about them.
Another way to foster loyalty is to support projects and missions that are important to you and your customer base. Some of Cat’s clients give 1% of their top line revenue to worthy causes such as charities that help to clean up the environment.
Millennials love to get behind companies that do good for the planet.
In summary, Cat’s advice to businesses looking to optimize for growth is this: set your goals, find an advisor, make a plan and measure your progress.
Question for Brandon:
What are the most common mistakes you see people make with Amazon accounting?
- The most common one is probably not accounting for everything. When Amazon deposits money into your bank account, they transfer you the net amount after taking out all their fees.
- Sellers that are new to Amazon accounting, and advisors that don’t have domain knowledge in this area often record the net amount received as sales revenue, which skews everything.
- Amazon takes a range of fees - sales commissions, selling fees for individual plans, monthly fees for professional sellers, FBA storage fees, fulfilment fees etc.
- This all needs to be recorded and accounted for. A2X is custom built to solve this problem. By automatically reconciling transactional activity with Amazon settlements, then posting this information as invoices and journal entries in your cloud accounting software, A2X makes Amazon accounting simple. Click here to find out more.
Question for Cat:
Will state tax authorities notify me about my sales tax obligations if I’m not one of the big multi-million dollar sellers?
- This question is related to economic nexus. Currently, a big case - South Dakota vs. Wayfair is being tried in the Supreme Court. The answer to this question will depend on the outcome of that case.
- If it wins in the favour of South Dakota, you are definitely gonna be caught out. Smaller sellers might be able to slip under the radar for a little bit, but they will eventually hit a point where economic nexus applies to them.
- Afternote: this case has been ruled in favour of South Dakota. For more information about sales tax for ecommerce sellers, check out our guides here (general info) and here (Amazon sellers specifically).
Question for Brandon:
You’ve mentioned augmented reality pieces for Amazon sellers. Do you find that some of your clients might have opportunity there?
- Brandon said that he does have clients who will benefit from the use of augmented reality in online shopping.
- Clients that sell furniture and things like that will find it very useful.
“They’re not gonna go in there and purchase something and walk it back to their apartment. So if they’re gonna purchase in the first place, they wanna know what it looks like in the house before.”
Question for Cat:
Is there a general rule of thumb for how you go about registering for state taxes?
- Every state is different. The registration process is different. Every filing frequency is different.
- You really want to have someone who knows what they’re doing to get registered.
Question for Cat:
Do FBA sellers who are outside of America have any different tax issues, particularly in terms of sales tax compared to people who are residents in America?
- Sales tax is all based on the concept of nexus, which generally means that there is no preference or different treatment for foreign sellers compared to domestic sellers.
- If you are selling internationally without a US entity, and you do not have an EIN, then you will need to file what’s called a 120F at the end of the year to declare any income or loss.
Question for Brandon:
How important is it to be able to reconcile Amazon sales to Amazon settlement payments?
- It is very important. If you’re not doing it, you are not going to have accurate accounts, which makes it hard to plan for growth or have an accurate picture of what’s going on in your business.
“At the end of the day, we’re all here to watch our clients grow and grow and grow. If you don’t care if your client necessarily grows or not, then you are doing them a disservice.”
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