Amazon as a company continue to grow (2017 seeing Jeff Bezos founder/CEO becoming the richest man in the world), along with the number of independent Amazon Sellers. In 2016 there were over 2 million seller accounts, with more than 100,000 of these businesses with net sales over $100,000. This number will continue to rise as Amazon expands to more markets (Australia set to launch this year) and as more existing retail, wholesale and ecommerce businesses begin to add Amazon as an additional sales channel…
The number of Amazon Sellers are growing by the day and these companies are looking for a seamlessly connected accounting and operational system. Powered by the API and Inventory Add-on Apps, Xero is the perfect platform for this. Providing Advisors with opportunities to help (and earn fees from) these clients to reduce admin, improve management information and inform business decisions.
In this article, we will discuss the different types of Amazon Sellers, the available apps and integration options and when accountants should recommend each solution.
What type of businesses sell on Amazon?
There are a full range of businesses who utilise Amazon, from part-time sellers and side-hustlers looking to flip products to make some additional cash, to fully established businesses and international brands, who are looking for more avenues to sell their products. With over 4300 unique page views every second, the appeal of Amazon to these businesses obvious.
For the purpose of this article and software selection advice we will break down Amazon Sellers into 4 categories. Each category is often larger and more complex than the previous one (moving from 1-4):
- Infrequent sellers
People who sell on Amazon and other marketplaces as a small supplementary income. Often shipping these items personally and with occasional use of Fulfilled by Amazon (FBA) for larger bulk purchase investments.
- Amazon only sellers using FBA only
Selling purely on Amazon outsourcing all fulfilment to FBA. While this is often still a “passive” side income for most, the revenues generated and FBA fees tend to be large enough to justify establishing a limited company.
- Amazon only sellers
Full scale B2C ecommerce businesses who use Amazon as their sole, or primary sales channel. Managing the shipping and logistics internally or outsource some or all the fulfilment to 3rd party logistics companies.
- Ecommerce businesses
Or multi-site ecommerce business, sell across many platforms and channels that can include; other marketplaces (eBay, Etsy etc), ecommerce websites (Magento, Shopify etc), retail stores and trade counters. These businesses (the majority of our clients at BlueHub) are more complex from an accounting/inventory software perspective, as we need to consider how data will be gathered and shared between all channels and systems, growing more complicated with each additional integration.
With these classifications in mind, let’s look at the different requirements, solutions and benefits for each business type.
1) Infrequent sellers
As the revenues generated are usually small and irregular, full-integration and systemisation often won’t be required or financially appropriate. Most will be classified as sole traders and will have limited inventory to manage, so a simple spreadsheet or Xero Cashbook will suffice. In reality, most won’t require an Advisor and would have limited potential to generate significant fees for one, so no need to focus on this group.
2) Amazon only sellers using FBA only
These sellers will generate larger net sales and will often sell multiple products. As they have a volume of sales to account for and need to consider Amazon’s fee structure, they will require a direct integration with an accounting systems. Amazon charges several itemised fees to sellers, and for FBA there are further standard and optional fees. With a direct integration, we can map the chart of accounts in Xero to ensure there are no errors.
While there are multiple products sold, there may not be a need for an Inventory App, as one of the main benefits of these systems is the order processing functions. As the fulfilment is completely outsourced there is less benefit to this. However, this doesn’t mean an Inventory App is pointless, far from it, these apps provide improved visibility over sales KPIs, procurement, accurate costs of goods sold and landed costs. This provides reliable data that can be used to improve management reporting.
The best solution for most in this classification is a direct integration that covers not only the sales but also accurately captures and maps the fees. A2X is the current leader in this category, it consolidates a full day of sales and fees before entering it as a single invoice in Xero (great for high volume FBA sellers) where the total accurately matches the daily payment from Amazon. This obviously makes reconciliation incredibly simple, allowing for real time accounting, which along with the account mapping provides a reliable and accessible data set to produce management reports.
Wanting a little more? If the client is interested in increasing the amount of management information, lookat using one of the inventory apps. For Amazon only sellers that use FBA for 100% of their sales, DEAR is the most suitable solution. DEAR, like A2X, grabs the daily sales and consolidates them into a single invoice (which can be an issue for our next group of sellers as it can make order processing more complex). But for those who only us FBA this not an issue as they don’t have orders to process, just purchasing decisions to make, so they would benefit from the reports, landed costs and purchase order functions of DEAR.
3) Amazon only sellers
How do these sellers differ from the previous group? In this classification Amazon is still the sole or primary sales channel (greater than 80% of sales generated), however while they may still utilise FBA for some items or regions, most of their warehousing and fulfilment operations will be self-managed or outsourced.
Order processing and other forms of integration now become far more important. When outsourcing to a traditional 3rd party logistics (3PL) company, the seller will need to inform the 3PL of orders to dispatch, this can of course be done manually (email, entry on the 3PL system), however this isn’t the type of efficient process we want to recommend to our clients. To remove these manual processes, direct integration with the 3PL is recommend. This can occasionally be via API if the 3PL has a cloud system, but more often they will request an EDI feed. With self-managed warehousing and fulfilment, we may need to consider; warehouse locations, min/max stock levels by location, delivery company integration and pick/pack/ship manual processes.
As with our FBA sellers, DEAR is often a very suitable system for these client, the main limitation is that it consolidates the sales into a single invoice. This means the unique shipping details that relate to each order are not pulled through, resulting in the user using Amazon Seller Central to gather this important shipping information. One big benefit of this feature is it can handle huge amounts orders, so for high volume sellers who use FBA heavily it’s great.
Those that don’t use FBA and handle the fulfilment internally or by a 3PL, will need the shipping information for each order and may require direct integration with shipping and 3PL systems. The two standout add-ons for this scenario are Cin7 and Stitch Labs, both are very feature rich including complex products, warehouse management and most importantly API and EDI integrations. With shipping integration both direct and via shipping apps (Shipstation, Shiptheory etc) for self-managed, and extensive API and EDI access for 3PL integration and automation.
4) Ecommerce businesses
These businesses will have the most complex and varied requirements and processes. As we covered previously they have multiple sales channels (>2) and using different systems; ecommerce, marketplaces, point of sale, and other means (potential EDI). With each integration, the complexity of an implementation increase as the data sources are more varied which can cause issues when linking with a single accounting or inventory app.
They will also often have multiple forms of fulfilment including, self-manage, 3pl and potential FBA (although this is less common at this scale). For these business, a central inventory app is essential. Xero alone doesn’t manage multiple sales channels well and the tracked inventory is limited to 4000 simple products (no BOM, expiry date, Batch or Serial numbers) and a single price tier (many of our clients at this scale, sell both B2C and B2B, so multiple sale prices are a must).
As the processes and system are so varied a formal business process review and system selection phase is a must before recommending and implementing a solution. This is not optional. There is no “best in class” solution for these businesses. Each of the established inventory apps (Cin7, Stitch Labs, DEAR, Unleashed, OrderHive and Tradegecko) all have their merits, but one solution won’t work the same for two, apparently similar businesses. When scoping a client’s requirements, we must understand; systems used, version of sales system used, data formats, sales process, fulfilment process, shipping integrations and current process/system to be replaced. Once we have all this we can then assess which of the apps would be most suitable.
If you have clients currently using Amazon, use the classifications above to determine which type of seller they are and discuss the relevant solution with them. Then assess if this is something that either you (the advisor) or they (the client) can complete or if external expertise is required. Often FBA and smaller Amazon Only sellers will only require Xero and A2X, which by following the set-up guides is possible for most advisors.
For businesses who have more complex fulfilment and integration requirements who may benefit from inventory apps: I can’t over emphasise how important it is to fully understand the client’s data, processes and integration workflows, before selecting a system. Implementing the wrong system is a very costly mistake and can crush some businesses. Inventory apps have a relatively high churn rate (the number of people who leave a system), which is down to complexity of systems, incorrect system selection and inadequate implementation. For these clients, it’s best to outsource the system selection and implementation to a cloud integrator (like BlueHub). These companies can be found on the partner sites of the apps, and are specialists in app advice and implementing complex systems. They have been through the process of setting up these systems for similar business and can provided best practice advice, personalised training and ongoing support to help business adapt to their new systems.
If you would like to learn more about Amazon, ecommerce and cloud accounting apps head over to our blog www.bluehub.co.uk/blog it’s full of great free content aimed at accountants looking to increase their cloud accounting app ecosystem. It is also one of the best locations to find out about our upcoming webinars, again they’re completely free to attended – we know accountants love that.