89. The State of Amazon FBA, Shopify & Ecommerce in 2020 with A2X’s Paul Grey

 
 
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How can eCommerce businesses better manage their accounting and eCommerce sales at the same time?

In this episode of the Bean Ninjas Podcast, Wayne interviews Paul Grey of A2X on the big topic of Amazon, Shopify and eCommerce profits. A2X is an automated accounting software for Amazon Marketplace sales, fees, cost of goods sold, and FBA inventory. 

Paul will give his insights on Amazon, tips on leveraging software to grow your eCommerce store profits and so much more. 

In this episode, we discuss: 

[01:55] Paul’s introduction on himself and his business, A2X
[03:58] What A2X is best used for and how it came about.
[08:18] Insights that accounting service providers are able to give clients.
[10:34] The story of A2X’s launch.
[13:22] Paul tells us more about growing their business based on partner advocacy and his top 3 tips for identifying great partners.
[18:33] Can you still make money in Amazon FBA in 2020?
[19:28] Things happening in the marketplace that sellers should pay attention to.
[23:31] Paul’s thoughts on alternative marketplaces.
[25:50] The differences between Amazon FBA and Shopify.
[28:58] Things you need to know about eCommerce.
[31:11] The meaning of freedom for Paul and how he rates himself in terms of his freedom.

Transcription

Wayne:

Welcome everyone, to the Bean Ninjas Podcast. I’m Wayne Richard, and we’re talking Amazon, Shopify and eCommerce profits with Paul Grey of A2X. Welcome to the show, Paul. How are you doing today and where are you joining us in from?

Paul:

Thanks, Wayne. It’s a pleasure to be here. Thanks for having me on the show. And I am speaking to you today from the New Zealand countryside near Auckland.

Wayne:

Excellent. Paul, what is it about New Zealand and fintech, both yourself and Xero, both out of New Zealand?

Paul:

Yeah. Well, I think it’s not a coincidence. Xero has done great things for cloud accounting all around the world, and an ecosystem has grown up around Xero in New Zealand and in Australia. And of course, now, in other countries as well. But I think maybe some of the early software companies that started working with Xero solving business problems surrounding the core accounting needs; it’s been a natural progression for them to take their solutions where Xero is strong.

Wayne:

Excellent. Well, today, Paul, you’re going to share with our audience your insights to Amazon & tips on leveraging software to grow your eCommerce store profits. But before you do, I’d like for you to share just a bit about yourself to our listeners, and also hear from you, your introduction of A2X?  

Paul:

Sure. Well, a little bit about me, I am a New Zealander; I’m sure you figured that out by now. Although I have lived a lot of places around the world including eight years living in the US. I’m from a country area of New Zealand, from a family of orchardists, but my career has been in software and eCommerce. And now that I’m back in New Zealand, I have two children, I have a little bit of land, I have a dog, and I have a couple of paddocks out the front with 20 and a half sheep, and the half is a very small sheep. 

So that is the lifestyle. But from here, I run A2X, which is a software app for businesses that sell online with Shopify stores or through Amazon marketplaces. It connects those eCommerce sales channels to cloud accounting systems such as Xero, QuickBooks Online and others.

And what A2x does is give eCommerce businesses confidence in their financials. Basically, it makes sure the numbers that turn up in the profit and loss statement of the balance sheet relating to Shopify sales, Amazon sales; those numbers are right. And you know they’re right because, with A2X, they balance with the cash that’s in your bank account. 

So really, it’s all about having confidence that you’ve got the right numbers in your financial statements, which means that when you see the profit at the bottom of the profit and loss, you know that at least for sales through Shopify and Amazon, the numbers are correct.

Wayne:

So how did the idea of A2X come about and who’s it best used for?

Paul:

Well, it’s best used for businesses that are selling more than a handful of orders a month through Shopify, through Amazon or both. And as soon as you have a real business, sooner or later, you’re going to need accurate accrual accounting financials, and that’s what A2X is for. 

How did it come about? Well, it came from a business need that I’ve experienced. It was way back in 2008; it was the early days of what’s now called FBA, Amazon’s FBA program. I don’t think it even had that name at that time; it was more of a pilot project inside the corner of one Amazon fulfilment centre. 

And I’ve started an international eCommerce business sending products from Australia and New Zealand that it never been available in the United States before. I think maybe we were the first people to send an international shipment directly into FBA. Of course, thousands of people do that today, but in 2008, that certainly wasn’t the case. 

Anyway, we got the first products there, made the first sale, and a few weeks later, received our first settlement payment from Amazon. And it was my job to run the financial side of eCommerce business. And I looked at the dollars that arrived in the bank account, and I looked at the sales, and I thought, “How do you? Is it right? Have I got paid the right amount?”

Wayne:

That’s right.

Paul:

I went to seller central, found I could download a settlement file, and I looked at it. And, look, I’ve had a long career in software; I’ve done a lot of data analysis and worked with a lot of file formats, and I’ve got to say I was pretty shocked at how badly structured that settlement file was in 2008. And I can assure you, it has only got worse since then. It’s pretty interesting, I could have doubted it that that comes out of those files. 

Anyway, I waited through it. But I reconciled it all in a spreadsheet, and of course, that first settlement, span sales in one month and then the next month, so I might have spent a quarter-end or something like that. So it’s filling the transactions into the right financial period was kind of a bit of a headache. We figured out how to do it in spreadsheets and make it reconcile to the cash, and we were doing it on a two-weekly cycle with the settlement payments.

And then, you know, you don’t have to have too many sales before that becomes a really old thing, right? You don’t really want to do it after you’ve done it about three times. So we automated that spreadsheet. And then, we were selling more; hundreds, maybe a thousand orders a month. And then, it just outgrew the capability of the spreadsheet. There’s so much data that comes out through those Amazon settlement files that we needed to automate that with software.

And I guess, little did we know that no one else anywhere seemed to be; I guess it’s early days of Amazon, right? There weren’t that many merchants selling on Amazon Marketplaces. But the origins of A2X really can be traced back to that time, which is, what, 12 years ago now. First-hand experience working with Amazon settlement transactions in the US. 

And by then, it would have been the UK also, and Canada, and a little bit in Japan, and then the European marketplace has opened up and we had all those currencies. And A2X was built to account accurately, basically reconcile everything back to the cash that arrived in bank accounts. And then, we’ve developed that into the A2X product that’s available today.

Wayne:

And it’s interesting, Paul, the insight and clarity that we’re able, as an accounting services provider, able to give to our customers when we show them the results that come out of not just really breaking out those settlements into true gross sales, versus the volume of in-variety of Amazon fees that many of them aren’t even aware, are being charged to them, nor have previously identified the trends to help manage in-effect those costs within their own businesses.

Paul:

Yeah. Well, hey you’re absolutely right, Wayne. I mean, the seller central has a monthly financial summary page that was added, I guess, after a few thousand complaints by sellers they couldn’t account for their Amazon sales properly. That’s the ones who probably didn’t know about A2X. But that monthly summary page, it has a revenue number on there that’s not really revenue. It bundles in whole other things like sales tax collected and stuff that’s not revenue. 

And A2x allows that to be spread out into the correct categories. But you make a good point about people not knowing about the fees, and it’s no wonder because there are over 300 transaction types that can flow into a seller’s merchant account now. Now, any one seller probably doesn’t see all 300 of those; some of them are regional; there’s a whole operating only to Europe, and then some relating only to techs in Australia and so forth.

But when you think about the difference is people know about the FBA fees, there are a lot of different variations on that. But you’ve got Amazon lending, you’ve got the different advertising programs, you’ve got all the adjustments and service charges. And if you didn’t know to dig under the covers, you’re absolutely right, you just get that need of mountain, I don’t know. Maybe a lot of people just assume that; I don’t know what people assume. But the thing is, some of them are actually balance sheet transactions, not P&L transactions. You really do need to put them in the right place in your financials.

Wayne:

Agreed. So A2X was built really to scratch your own niche. I want to share with you an interesting stat that I read on Web Retailer. It stated that 72% of Amazon sellers use no third-party tools within their business. So I’m curious about the initial launch of A2X when you made it a product available for purchase. Was it an instant hit or was it even a goal of yours to release the tool to market? How did you get your first 100 clients?  

Paul:

Yeah. Well, you’ve got me thinking back to how did we launch A2X? No, I do remember it. We’ve been using A2X for our own international eCommerce business for a while. We knew it worked, we knew it was bulletproof, and really, it was this idea that if we were striking these challenges, and making sense of the Amazon settlement transactions, and putting it into a form that made sense for accounting, surely, sooner or later, lots of other Amazon sellers would run into the same problem, or have the same questions, or have the same need.

What we did though is we made a really simple one-page website that said, “We’ve got this piece of software that does these things that will sort out your Amazon transactions and post it to your financials so that it all reconciles your balances. If you’re interested, type in your email address and we’ll get back to you.” It really was as simple as that. 

And to this day, I really don’t know how people found us, but they did. And some of them were sellers that have been trying to reconcile things; quite a few were actually accountants. And we’d say to ourselves, “Well, hey, if a hundred people want to use this software, then we’ll reinvest in it to be a fully-fledged commercial quality product.” And we gave it something like six months or a year.

And when we looked at it again, it wasn’t a hundred people, at least 200 people. And it’s at that point where we stick to that major investments in software engineering and making it easier to get started and quick-start capabilities to really help people get on top of their accounting for Amazon sales.

Wayne:

So Paul, I know one of the interesting approaches you’ve taken to growth is really around building a partner community really based in advocacy. Can you tell me a little bit about that? And would you mind perhaps sharing your top three tips for identifying great partners?

Paul:

Yeah. Thanks, Wayne. Great question. I think for us, it was really when we realized that eCommerce businesses out there were getting a better result when they had a specialist bookkeeper or accountant involved in supporting their business. And a lot of people come to us directly and if they have some accounting knowledge, literally, they could deploy A2X and get those benefits and those numbers to their accountant. 

But there are plenty of people out there in business who don’t want to spend their time doing their own bookkeeping and accounting, and they’re the ones who really have that need, or should I say, will get benefit from dealing with a specialist accountant who understands eCommerce – the business model, the different transactions flows. Different; there are some particular challenges in accounting for eCommerce businesses.

And so, at A2X, we do a lot of work to provide materials and educational information, and quick start guides and things for bookkeepers that are maybe coming new or fresh into the eCommerce world. And look, there are millions of eCommerce businesses out there; there’s a huge need for specialists’ expertise to help them all with their books. 

You also asked what do we look for in our partner or what makes a great; I guess, if could interpret that question is what makes a strong eCommerce accountant; it would be a partner to use A2X? I think probably the first thing is that decide to specialize in eCommerce recognizing that it’s not the same as bricks and mortar retail store. The way the businesses are organized is different. It’s a specialist’ discipline.

So an accountant or a firm that is focused on eCommerce as a vertical, that’s certainly one of the first things. And it’s not that we need that, it’s that, it’s the firm specializing in eCommerce accounting that are delivering the best value to their clients. And quite frankly, having the most success, people are flocking to the specialists now.

Secondly, I think it’s not just about saying we can do QuickBooks or we can do Xero, it’s about adding value through having a way to do eCommerce financials that deliver the real value to the client. And that might be standardized processes, it might be standard tools that are proven, that you’ve got an architecture that you can deploy that just takes a whole lot of cost out of the equation. 

And I think probably the third thing is, it’s that customer focus. A firm that has thought about what the needs of an eCommerce business are and has offerings that make sense for the eCommerce business model. If you’ve got a private seller Amazon FBA business for example, there are certain things that a private label FBA seller needs, there are lots of things that they don’t need.

If you can package that up as a fixed price, or a subscription service, or a “Would you like this? Would like that?” If you have a Shopify store, then we can handle that for this price, which gets right away from the old-fashioned, “I’ll do the job for you and charge my hours at the end of the month,” which I think eCommerce businesses are well beyond that and they’re thinking about how they want their business to run.

Wayne:

Absolutely. I will add a fourth, and I would say it’s confidence in their numbers. I really think it comes down to our relationship with our customers coming down to doing the right thing, but also having a trusted relationship that we’re able to deliver timely, accurate financial reports because these are the tools they use to make data-driven decisions around how they’re going to run their businesses.

Paul:

Interesting that you say that because giving people confidence in their eCommerce sales in their numbers, that’s a theme for A2X as well. 

Wayne:

Excellent. Well, Paul, you mentioned earlier that you’ve been in the Amazon FBA space before it even really had a name. Let me ask you, do you feel as though you can still make money on Amazon FBA in 2020? 

Paul:

Yeah, absolutely. It’s certainly true that there’s more competition for certain categories and certain products and all that kind of thing; the advertising costs are higher. But I think that the old truths are still truths, which is a business that’s adding value by bringing a product to market that solve problems for customers, I think it all comes back to a business that’s adding value, there’s huge opportunities selling with Amazon, and FBA is just the obvious way to serve that channel. 

Wayne:

So what are some things happening within the Marketplace that sellers should really be paying attention to right now?

Paul:

Well, I think what’s been really significant over the last year or so is what Amazon’s been doing with what they call the brand registry, and the way that it’s sort of their third goer that over the course of about seven or eight years. But it’s really becoming the gate or the channel by which; this would be very true of private label sellers, by which a brand that its products get through, get listings on to Amazon. 

And there are more and more constraints, more and more Amazon programs that are only available once that a brand is registered. And more recently, the brand registry program has required trademarks that’s pushed a lot of people to pursue trademarks that otherwise wouldn’t have, wouldn’t have bothered, wouldn’t have needed them. 

I read an article earlier this week about how the trademark offices now overwhelmed by new trademark applications. And I couldn’t help wondering whether Amazon’s brand registry might be part of the reason for that. So I think you can’t ignore that anymore. It’s not a matter of just listing a product any time you feel like it. That brand registry has become very important.

I think the changes in the United States in sales tax, who’s calculating inflicting sales tax, ostensibly to simplify things and otherwise, it’s maybe made it just as complicated but in a different way. And in parallel with that, there’s some really complicated things going on with VAT in the UK and Europe is the uncertainty of what if it bricks it might have on some of the VAT roles.

Some other ways that FBA programs in Europe work with Pan-EU FBA where a sale is made, and as the seller, you don’t know where the item is going to be shipped from, and yet, you’re expected to charge the correct VAT on that sale. There’s still a lot of complexity there matching the actual VAT reporting and tax filing with what’s going on under the covers in FBA’s Pan-EU program.

So those are areas that, especially for larger sellers or sellers that are upgrading in all those different Marketplaces, you’ve got to keep an eye on those because the goal post to move to whatever year it seems.

And I guess the third thing I’ve mentioned is there seems to be an acceleration recently in new Amazon Marketplace is opening up    in the UAE and Singapore, being two recent examples of new Amazon Marketplaces, new potential customers and markets for sellers that are willing to take that step.

Wayne:

What’s exciting for me is even as quickly as these trends come about, software is developed to help address those labour-intensive, what used to be manual processes. We could probably do a whole another episode just around sales tax processing, identifying nexus, and it’s great to see that there’s software tools that sellers can use to help them better understand their liabilities, automate the registrations and filings of this big topic that’s come about recently in the market. 

So I do want to switch gears a little bit. Another reason, hot topic in the press has really been centred around big named brands like Nike and Ikea leaving Amazon; it brings up a pretty compelling debate around the viability of alternate marketplaces for merchants like eBay or Walmart? Do you have any thoughts on this?

Paul:

Yeah. Look, a lot of things in business, there are competing priorities and opportunities and threats. I think one thing that probably is in the mind of a lot of Amazon sellers, especially if they had some success is the day you wake up and realize that all your eggs are in the Amazon basket. And if Amazon changed the rule, or closed down a listing, or decided that every single one of your units in FBA needed to be checked manually; that’ll be a four-week process before they re-enable your stock, those are actually major risks to your business. And you start to think about, “Well, how do I mitigate that risk?”

One of those ways is to have your products for sale through other sales channels. And especially if you have a brand that is strong enough that people will search for your brand and they will find your brand elsewhere. And that can lead you to other marketplaces. You’ve mentioned eBay and Walmart. 

It can also lead you to the idea of, “Well, why not have a brand web store?” It’s pretty straightforward to bring up a Shopify store now to represent your brand. You can tell your brand story that way. And if you’ve got your stock in FBA, you can connect those pieces together and still have your orders shipped out without having to have your own warehouse and your own auto dispatch operation staff. So you can use; there’s all kinds of ways to put that together.

Wayne:

It’s interesting how Shopify fits into all this and some of the investments that they’re making towards helping sellers manage fulfilment. In your words Paul, what’s the difference between Amazon FBA and Shopify? Who is one better for over the other?

Paul:

Well, I think by Amazon FBA, I think you’re talking about the idea of an Amazon-only go-to-market where all the stock goes into FBA and sells through one or more Amazon Marketplaces. And that’s an incredibly powerful combination. In fact, it was that; the early days of that, that led me to get into eCommerce back in 2008 that we were talking about earlier. 

So who is that better for? That’s better for somebody selling into a market where they do not have an operational capability. For me, if I’ve got a product from Australia, I’m not in the UK, so it makes sense for me to put that stock into FBA in the UK. And from there, I can serve customers throughout Europe. 

Whereas if I was in the United States and I had stock, maybe I’ve got a bricks and mortar store, I’m already shipping my own mail-order things, then it’s quite natural for me to have say, a Shopify store to take extra orders and ship those orders using the processes that I already have. 

So where you want to go to FBA is where the Amazon Marketplace is your dominant or primary or exclusive sales channel. Where Shopify I think comes into its own is there are all kinds of products and services that for one reason and another are not suitable for Amazon; there might be categories that Amazon doesn’t serve.

And then a lot of countries in the United States, Amazon is in almost every physical product category and there’s some notable exceptions to that. But when you look at new markets, often, the Amazon Marketplace will open up just in two or three categories. So if we have a type of product can’t be sold with FBA on Amazon.

If we took Amazon Australia, for example, it’s something like two years before you could ship a product with an expiration date into FBA. So that takes out all your groceries, half of your cosmetics and skincare products; all that kind of stuff. If you can’t sell it on Amazon or you can’t sell it with FBA, I should say, you need to have your own order fulfilment capability, or why not also take orders through a Shopify store. 

And for the people that are selling training courses, or other service offerings, or one-off artworks, or custom-made products, Shopify can be a fantastic fit, whereas Amazon may not be suitable at all for many of those types of products.

Wayne:

Excellent. Well, Paul, you shared back in late 2014 on your LinkedIn profile three things you need to know about eCommerce. And I’ll help remind you; these three things where delivery needs to be free and fast, eCommerce is not about your website anymore, and mobile commerce has taken off. Are these three things still relevant in 2020? And if there was one that you would add or remove, what would it be? 

Paul:

Yeah. Thanks, Wayne, for pointing it out. I’m casting my mind back to that time. Gosh, that’s six years ago now. I think the context for those points is Amazon was still an up-and-coming thing, people were still thinking website first at that time, and asking the question of, “Why? Why should I put my products on Amazon?” I think we’re well past all of that. People understand that customer service means fast-delivery; Amazon Prime being the leader on that. 

What would I think about today? Today, I would think about where are my customers and where do they want to purchase. So it’s not about whether I prefer Amazon or Shopify or Magento or Bigcommerce, it’s about whether my customers prefer to buy direct from me, from a reseller, or they just have an Amazon Prime account, and they just really want to buy that product on Amazon.

I would often say to people, “You know, you can take your products off Amazon. But are you sure that they’re first choice isn’t; they want to buy something on Amazon, if your product isn’t there, they’ll buy a competitor’s product? Because they want to buy through Amazon, they trust it, they trust the delivery, they trust the returns policy and so forth.”

So I think, think about what it is that the customer wants, what’s the customer’s preferred shopping channel, and then think about how to get your products to them in the way that the customer wants.

Wayne:

Excellent. Well, Paul, it’s about time that we wrap up. What we like to do is ask each of our guests this final question. Here at Bean Ninjas, one of our core values is based around freedom. This to us is the right to have control of your time and priorities. You mentioned earlier in the call a bit about lifestyle. What does freedom mean to you? And if you were to put it on a scale of 1; just getting started in achieving freedom, to 10; being finally free, how would you rate yourself? 

Paul:

Oh, I’m probably going to say I’m a 7 or 8. We’re never quite free of our responsibilities and things we need to do, and places we need to be. But I would like to think that A2X as an organization is I think we’re very aligned of what you said Bean Ninjas is about. We are a distributed organization; all the people in the A2X team choose where they want to work, when they want to work.

It’s not unusual for somebody to pick up their family and move to a different country for two or three months of the year and work from there if that’s what they want to do; travel as a family. Some of us prefer to live where we’ve got a little bit of space for our families to grow up. Other people love to live in the big cities and that’s how we’re organized. So, yeah. Freedom to structure your life the way that works for you and for your family, I think that’s so, so important these days. 

Wayne:

Excellent. Paul, I appreciate the time today. Thank so much for being on the Bean Ninjas Podcast. 

Paul:

Hey, it’s been my pleasure. Thank you.

Contact Paul Grey:

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