How to Build a Financial Model for Amazon FBA Sellers

[@eric_andrews]

Questions? Let me know in the comments happy to discuss. 🚀Also, if you want to learn how to systematically scale your startup without ending up as one of the 90% of startups that fail, have a look at this ⇒ www.ericandrewsstartups.com/financeforstartups

[@odaiyousef1898]

Great Job Eric well done

[@kemalberkerimer2328]

Your content is really beneficial for me. Many thanks for sharing your expertise!

[@eric_andrews]

My pleasure I'm glad to hear it

[@umarsg7945]

Another very informative video Eric, You are very clear with how you explain stuff. Thanks for sharing.

[@eric_andrews]

My pleasure Umar, cheers!!

[@aakashagarwal9827]

Interesting... Great Job, Eric! Would you make a video on equity research modelling and M&A modelling each anytime soon? and thanks for Clearco!

[@deeptisharma4272]

Superb as always 😍❤️ . Thannk uuu

[@eric_andrews]

Thank you Deepti!!!!!

[@SnookerWorld160]

Hi, you just explained a hectic model in manner anybody can easily understand. Can you make a video on Double entry system for ledger, journal, balance sheet and income statement for fba business?

[@judoxyoni1]

Love your modeling videos! But I think there's an error, You subtracted initial inventory by Paid Orders not Total Orders, or was this intentional. Can you explain?

[@eric_andrews]

Hey thanks for pointing that out yes that's a a small error that I made, but I corrected it in the file download! Nice work 👍

[@rohansaharan2837]

Just had a small doubt, do you really think financial modelling gives an accurate picture about the forecasting of that business? I mean it’s based on assumption and one small difference in assumption can totally change the picture, also while calculating total Inventory you subtracted paid orders and not total orders, I know it’s a simple mistake but it totally changes all the numbers. This is why I believe it’s not full proof. Would love to know your thoughts on that! Love your content

[@eric_andrews]

Hey - yeah it's an interesting question. By the way I updated that total orders error in the model so if you download it you shouldn't have a problem. But to answer your question you can never predict the future very accurately (especially with fast-growing businesses), but having a plan is still super valuable, especially if you update it frequently. It seems you think that the point of a financial model is to very accurately predict the future, it's not. In general the value of a financial model is it allows you to make decisions about the future before things happen. Your models will always be wrong but they allow you to be strategic more about your growth rather than just being reactive. For example if you want to double or triple the business over the course of a year or 10X over 3 years it's good to think about the infrastructure you will need to do that and build a whole plan out. Your plan itself will not be perfect but at least you have that framework in your head of how to scale and what things you need to do. Also financial models allow you to raise money more easily, which is essential for many businesses. Hope that helps 👍

[@rohansaharan2837]

@@eric_andrews Yes that makes sense I guess. I am a beginner in financial modelling and was too worried that I might make a silly mistake and that would ruin the whole model but ya I get your point. It’s great to be learning from the best like you keep up buddy ❤️

[@eric_andrews]

@@rohansaharan2837 Happy that you are learning, thanks for checking out my channel rohan! Yes just remember that the point of finance isn't to make models, it is to make decisions around allocating capital. Models are just a tool.

[@josephsaad2791]

Yes, but what if you do not make revenue as forecasted or even worse you cannot sustain the business. In this case, in this case you will be running the risk of paying back debt which harsher than giving out equity in your company where you share liability with your partner. Right?

[@eric_andrews]

Good question. Actually the inventory financing I talk about with clearco is more like equity. They require no collateral or personal guarantees and if your business doesn't work out then you don't have to pay it back, it's just a flat % of revenue payback which can be as low as 5%, no revenue no payback. If you took on traditional debt it would be harsh like you described, but with some of these new financing options it's better. Also I want to mention that clearco only lends to businesses with some established revenue history so they wouldn't lend to you unless you had revenue, because they don't want to lose their $. If you have absolutely no revenue then traditional equity financing is probably going to be your only option anyway, but funding growth afterwards now doesn't need to be as dilutive because there are lots of different businesses building financing options that are neither debt nor equity nowadays. No one size fits all solution for every situation but I think you get the idea.

[@josephsaad2791]

@@eric_andrews thanks, it definitely makes more sense. And as you described, there are many financing options now a days in the grey area, not solely the traditional black & white (debt / equity)..

[@eric_andrews]

​@@josephsaad2791 Cool, I'm glad! Just good to know what all your options are these days.

[@Postonification]

amazing video thanks

[@villgomez]

Is the Clearco payback technically still COGS? I was under the assumption that debt service is operating expense or non-operating expense.

[@eric_andrews]

Good point. If you were creating accrual GAAP accounting financial statements, it may be that the payback is more of a cash flow/balance sheet item, and that just the interest would show up in the "interest & taxes" section of the income statement (I'm not 100% sure). But if you are an early-stage business doing cash-based numbers, this is probably an easier way to track it.

[@e-c-p7261]

Hi! What if we don't do PPC, but just making huge amount of giveaways like 200 + to rank for kw we need? How do we display that in financial modeling?

[@eric_andrews]

Include the full gifting cost for the marketing instead. It's the same impact financially. Make sure to move the giveaway product cost, pick & pack fulfillment, etc for how many units you gave out, in your marketing section, and try to subtract it out of your cost of sales (if possible).

[@vkurkal]

I think error on 15:28. Anything we sell you used C39, shouldn't it be C43? Haven't opened your template yet, but wanted to put it out there for your thoughts for other viewers.

[@eric_andrews]

Hey yes that's a small error that I made, but I corrected it in the file download! Thanks for highlighting 👍

[@ntcuong01ct1]

What is organic order?

[@jayskitchen]

shouldn't inventory be calculated based on total orders and not just paid orders (which is what you showed in your example?) Just want to make sure I understand.

[@eric_andrews]

yes that's a small error that I made, but I corrected it in the file download!

[@shankhadeepsengupta9976]

Great Video Eric! I just had one doubt: How do I accommodate the marketing costs that arise out of repeat customers? From what I gather it was assumed that cost for a customer is only incurred in the first purchase.

[@eric_andrews]

Repeat customers usually have almost no marketing costs. Usually, they just purchase through email campaigns. That being said if you were doing a deep analysis you could try to add a few dollars onto their lifetime CAC to account for future "remarketing" costs....that would be interesting.

[@ntcuong01ct1]

Thanks, where can I download it?

[@eric_andrews]

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[@joshroman579]

Thanks for the video, Eric Andrews! Are you guys using Seller.Tools at all? Been hearing about it around a few communities I'm in. Could you check it out and give us a review or walkthrough sometime soon?

[@ntcuong01ct1]

in this excel file, Can I include Administration cost from Board of Director, Sale Manager, etc?.

[@kiranv8815]

Thanks Eric, looking for more models from you😍

[@dinogerc318]

Its always to be in TOP 10% not only in income wise but here too

[@isaacdrake5182]

Love to see a non profit audit, with functional expenses, statement of activity, financial position, aje and cash flow

[@sadaansayeed1050]

Great content. Any idea on how to adapt this to use ACOS rather than CPC?

[@eric_andrews]

You mean just spend as a % of revenue?

[@sadaansayeed1050]

@@eric_andrews Yes. That's how Amazon sellers usually measure advertising costs. ACOS is very high at the beginning, and gets progressively lower as the product accumulates reviews and organic ranking improves. It eventually settles at between 20-30% of revenue, depending on product category. It would be great to have a model that factors in advertising costs as well as the one time launch costs - imagery, listing creation, giveaways(for reviews) etc. of a product.

[@sadaansayeed1050]

Also there may be fixed monthly costs for each product, such as PPC management.

[@sa0o923]

Very clear and straight forward. Liked & subscribed. I have to say though, I'm not digging the fact that you included even the unsold inventory into COGS (cost of goods *sold*) calculations. Is this standard practice for FBA businesses? Seems to lead to a very misleading and period-sensitive GP margins.

[@eric_andrews]

Hey, it's a good question and thanks for the sub! Ok, if you are a solo-founder trying to manage your cash, it is probably easiest to do it the way I showed in this video on a cash basis. If you are a larger company, you would likely transition to more accrual-based accounting, meaning trying to match up all the costs with their delivery date, which would smooth out your margins. But to do that you would need to build a balance sheet where you would keep track of prepaid inventory, accounts payable / receivable, debt, etc, moving the costs onto the income statement as you fulfill inventory....which is another level of forecasting. With full-time accountants, accrual-based is what you would transition to, but in the early days of most startups you are doing everything on a cash basis.

[@lamicropipeta]

I saw almost all your videos, they are really helpfull. I have an e-learning platform, how can i do the finantial model if i am not the only instructor? Which are my assumptions? How can i calculate my selling price? greetings

[@eric_andrews]

Hi, glad to hear it and thanks for the question. When you say you have an e-learning platform, do you mean you started the platform yourself? Or you are a teacher on the platform? I will try to help once I understand a little better. Cheers

[@lamicropipeta]

@@eric_andrews i started the platform, it is my own domain, i'm using WordPress and some plugins. It is about bioentrepreneurship

[@eric_andrews]

@@lamicropipeta got it. You're gonna love this. I built a Marketplace financial model video a few months back here it is, it should answer all your questions. For now for the average order value (price) i would set an average price for the whole platform and over time you can build out more detail. kzbin.info/www/bejne/h2rPn3t9e9eZmpY

[@lamicropipeta]

@@eric_andrews thank You a lot. I am taking that video as a starting point 👌🏻

[@eric_andrews]

@@lamicropipeta awesome good luck and let me know any other questions 👍

[@yogibear3511]

Hi Eric, How would you build-out this model based on multiple products ? Would you simply duplicate each 'sheet'(as its own product) - and each of these 'sheets' links to a master/consolidated sheet ? Regards,

[@eric_andrews]

yes that would be easiest

[@anewdawn72]

Eric your're a life saver! I was trawling youtube looking for someone to explain launch costs, PPC and in general "How the hell do you make money with this FBA business with all the costs involved model and how much money do I really need" and you absolutely smashed it out of the park! I'm now a fan

[@eric_andrews]

Thank you very much I'm so glad it was helpful!

[@patrickburke8128]

First, thank you for this. It’s exactly what I’ve been looking for. Question: How are you able to assume that your paid to organic ratio keeps growing? Would this ever reach a peak or limit on the paid to organic orders?

[@eric_andrews]

Glad to hear it. On your question - Ideally as you grow your user base they continue to return as customers and refer friends, you start ranking to the top for target keywords bringing in a lot of organic sales, organic social media grows, your email list grows, and you reach a point where you aren't paying for most of your new customers. That is ideally what you want, but you usually have to pay for most of your new customers in the beginning. They are assumptions but that is the trajectory of basically any successful company over a long period of time. Peak would be 100% of orders being organic, but I'm not sure I'd recommend forecasting that as every company should reinvest profits into marketing even at scale

[@ankitak5745]

Hi Eric, can you please post some forecasting examples videos? It will be really helpful thank you

[@eric_andrews]

Haha, have you looked at my channel? It's all forecasting examples! Here is a good one to start with kzbin.info/www/bejne/rp27dY2vj56UsM0 😃

[@Ayuk1]

Great content. Trying to master financial modelling myself. Would be super happy if you could do more of such projects

[@eric_andrews]

Check out the rest of my channel!!!! Lots of financial modeling 👍👍 and more to come

[@Diddydodat1988]

Love love love this video. Super helpful. Eric is a great teacher.

[@eric_andrews]

If you love my youtube videos you're gonna really love my Finance for Startups course that I'm about to launch

[@prateek7746]

is it better to do a subscription service on ecommerce or the regular one?

[@eric_andrews]

It depends. Subscription businesses have incredible financial performance if they can get subscribers, but they are much harder to grow and build than regular e-commerce businesses. So I would say it completely depends on the product.

[@Foxygrandpa2131]

These videos are soooo good! Can you do one on modeling a Freemium App and the break even costs?

[@eric_andrews]

Thanks Jonathan! Actually that sounds fun I've worked with a couple of startups doing that. I'll put it on my content list !!

[@Foxygrandpa2131]

@@eric_andrews Woohoo!

[@Frontfootback]

Yeah this is great. Would like to see you do physical retail store modeling. Same store sales and store profitability franchise vs self owned

[@eric_andrews]

I can definitely do that. Will put it on my list for upcoming videos. Thanks for the suggestion benjamin.