What is the difference between Amazon's gross profit and net profit?

Because everyone will calculate their own profits when doing business, then everyone who opens a store on Amazon should know that Amazon's profits are divided into gross profit and net profit. What is the difference between Amazon's gross profit and net profit?

1. What is the difference between Amazon’s gross profit and net profit?

Gross profit refers to the profit obtained by deducting the main business costs from the main business income. Net profit refers to the profit retained by the company after paying income tax in accordance with regulations from the total profit, which is generally also called after-tax profit or net income. The amount of net profit depends on two factors, one is the total profit, and the other is the income tax expense.

Gross profit refers to the percentage of gross profit to sales revenue or operating income. Gross profit is generally divided into comprehensive gross profit, classified gross profit and single commodity gross profit, which respectively reflect the price difference level of all, major categories and certain commodities operated by the enterprise, and are the basis for calculating the operating results of the enterprise and whether the price setting is reasonable.

The formula for calculating gross profit is: Gross profit = revenue - cost

Net profit (income) refers to the company's retained profit after paying income tax in accordance with regulations in the total profit, which is generally also called after-tax profit or net income. The calculation formula for net profit is: Net profit = income - cost - expenses - business tax and surcharges + (-) net non-operating income and expenditure (net expenditure is expressed as a negative number) - income tax

Gross profit is pre-tax profit, and net profit is tax profit.

The amount of gross profit is greater than the amount of net profit.

2. How many parts does profit have?

1. Product cost ratio: This is generally set at 22%-25%. You can calculate and fine-tune it based on your company's definition of gross profit. The algorithm is: product cost/selling price*100%. This value can directly determine whether your pricing is reasonable. For example, if my profit and loss statement shows that my product cost ratio is 35%, then it is obvious that I may be a new product or clearing inventory, and I need to rely on low prices to boost sales. At this time, combined with your other data, you can comprehensively determine whether to adjust the price.

2. First-leg freight ratio: We usually set this at 5%-7%. The calculation is also simple: first-leg product/selling price*100%. This shows whether your first-leg is reasonable. Generally, it is best to ship a product by sea and air. Of course, this is still related to your gross profit requirements. It is just that shipping in this way will be a better measure for your capital turnover, etc.

3. Refund fee ratio: We usually keep this figure within 5%. We usually look at two things here: one is to help us improve our products, and the other is to rethink whether this product is suitable for us.

4. Proportion of promotion expenses: This can be the total proportion of advertising and evaluation, or it can be calculated separately. Generally, the total should not exceed 10 points. Here we suggest you calculate it separately. For example, you spent 8 points on advertising and 3 points on evaluation, but the actual gross profit is not ideal and the keywords are not on the homepage. Then you have to adjust your promotion ratio. For example, reduce advertising to 2 points and increase evaluation to 8 points. Then your actual effect will definitely be much better than the previous one. After all, evaluation can relatively achieve the desired effect.

5. The proportion of storage fees: This can be basically ignored if you are dealing with small products. It is mainly for products with slightly larger volumes. However, no matter what product it is, the savings every month are profits. Generally, we control it at 2.5%. If it is too high, we will speed up the turnover, that is, reduce the price, etc., and adjust the subsequent delivery plan to avoid excessive storage due to too much goods. Here we also recommend that you do not ship one month's worth of goods at a time for one batch of goods with multiple frequency words. If you need to ship by sea and it is a very stable hot-selling product, it is recommended to ship half a month's worth of goods at a time, and then continue to ship. If it is a small volume that can be shipped by air, you can ship once a week. This will make your turnover very good and achieve a very high capital utilization rate.

6. Sales days: This depends on your delivery time and logistics time. Generally, I can get about 10 orders a day, but the delivery time is 2 months, and then the sea freight is another month. This kind of product will basically be abandoned by me later, because your sales days will basically be more than 120 days, which is very hard to do and will occupy a lot of your funds. So generally, our sales days are 30 days for sea freight and 30 days for delivery, so my sales days can be up to 90 days. If your product has a fast delivery time and does not need sea freight, then you can increase the requirements for the sales days.

7. Inventory age: This must be taken seriously. If your inventory age exceeds 120 days, it is actually quite dangerous. You must make a decisive move and improve your sales rate. Either you have too much inventory or the product is unsalable. If you have too much inventory, it is okay, at least it can be sold. If it is unsalable, then you can get 5 orders a day now, but in a few days you may not even get 5 orders. So in this case, the same principle as clearing the inventory, sell it out quickly. After the goods are sold out, you still have money to get, but you will make less money or lose a little. But if you leave it alone, then the goods will not be sold, and you will lose everything, which is a big problem for your use of funds.

The above explains the difference between Amazon's gross profit and net profit. If you open a store on Amazon, you must learn to calculate your own profits so that you can know how much money you can earn and understand the operating status of the entire store.

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