SKUs and Your Debt Strategy – PAG and Profitability

Other posts in this series: Underperforming SKUs, ROII and Inventory Turns

While it may not seem like it, profitability and debt actually go hand in hand for an e-commerce seller. In this series from Seller Accountant, Tyler explains how understanding PAG can help you spot underperforming SKUs and how to be proactive when making decisions that affect your profitability.

PAG, or Post Advertising Gross, is your Gross Profit minus your cost to advertise, and it can be an incredibly useful metric for determining the financial health of your business (more on that here).

When looking at your P&L, it’s important to know what categories make up this figure in your accounting.

• Landed COGS – includes factory invoice, duties, freight, tariffs
• Logistics charges – picking, packing, and shipping fees from either FBA, your third-party logistics, or your own native warehouse
• Merchant fees – for Amazon sellers, the 15% commission that Amazon gets paid; also includes Paypal fees, Shopify Pay fees, or any other credit card processing fees
• Credits or clawbacks – if you are selling your brand through a vendor partner like Wayfair

Once you’ve got your P&L set up with a solid PAG formula, you can use this information to monitor individual SKUs – including advertising expenditure and sales performance.

Check back next week for more in this series, and to get in touch about working with Seller Accountant for e-commerce accounting services, fill out our contact form here.