Costs Associated With Selling On Amazon And Effective Ways To Minimize Them
Updated: Apr 18, 2022
"You only have to do a few things right in your business so long as you don't do too many things wrong." - Warren Buffet
There's no doubt about it as an Amazon seller, you are on stage facing millions of target buyers with the potential to take your eCommerce business to a different level altogether. To ensure that your profits don't take a miss in the meantime, you need to be savvy about what you're paying to Amazon as selling expenses and how you can reduce your costs through conversions, fulfillment, and visibility.
Amazon is one of the world's leading eCommerce platforms and selling on this humongous online marketplace comes at a price: The costs associated with selling on Amazon can be greatly affected by the platform's seller fees, so online traders need to know how to reduce these to earn good profits. To this end, here's a closer look at how to cut costs when selling on Amazon!
THE COSTS INCURRED WHEN SELLING ON AMAZON
1. Monthly Subscriptions Costs
Individual seller - one who sells less than 40 items per month.
Individual sellers pay $0.99 for each item sold on the marketplace, in addition to variable closing fees ranging from $0.45 to $1.35.
Professional seller - one who sells more than 40 items in a month.
Professional sellers pay variable closing fees and referral fee percentages ranging from 6% to 25%. Professional sellers also pay $39.99 per month, but they are exempt from the $0.99 per item fee.
2. Sales Related Charges
Referral Fees - This is what you pay to Amazon every time you sell a product on their platform. Most times, the Referral Fee is on a flat rate basis, i. e., around 15 percent or maybe a little less. It can however change depending on the category in which the item was placed. Now, most categories have a fixed referral fee, which implies paying $0.30 if the set percentage is lower. There are a few exceptions where there is no applicable minimum referral fee, such as in Collectible Books, Fine Arts, Gift Cards, Extended Warranties, Music, et al. Also, there are certain categories that have varying referral fees. Here the percentage is calculated based on sales in dollars. Sports Collectibles, for instance, charges a 20 percent referral fee if the sales price is $100 or less, drops to 10 percent if the sales price is between $100 to $1,000, it comes down to 6 percent if you can manage to sell for more than $1,000.
Variable Closing Fees - This is applicable if you are selling items under the Media category, for instance, software items, computer games, video games, consoles for video games, etc. If you are a seller of these products, you shall pay an extra $1.80 as the variable closing fee.
Refund Administration Fees - This is the fee that you need to pay to Amazon in case the selling deal is struck returned. Let us assume, a sale deal of a laptop has just been closed. Within the stipulated time, however, the buyer decides to not use but return the product. In a case like this, you shall be refunded the cost plus the referral fee, but you shall be liable to pay an applicable Refund Administration Fee, which is $5.00 or 20 percent of the referral fee, whichever is less.
3. FBA Charges (Fulfillment By Amazon)
Irrespective of the method you choose to ship your products, there will always be a cost involved. Even if you opt for local shipping and courier businesses wanting to ship yourself, you will have to pay them. And in case you decide on Amazon taking care of the shipping process, well, there's a cost involved with that, too. The latter is called Fulfillment By Amazon. When we talk of FBA fees, we are actually considering two different types of fees.
Fulfillment Fees - This is the fee that Amazon charges you to fulfill the requirements of packing and shipping the product and also the service in between, like handling customer support and returns. This fee is different as per the size and weight of the products.
Standard Sized Products: The FBA fees shall range from $2.41 for a product under a pound to $4.71 if the product weighs over 2 pounds, plus an extra $0.38 for each pound over 2 pounds.
Over-sized Products: If the item is large-sized but under a pound by weight, you are expected to pay in the range starting at $8.18 and $0.38 for every extra pound over 2 lbs. If, however, the product is an oversized product weighing over 2 pounds, then your FBA fees will be $137.32 and $0.91 for every pound over 90 pounds.
Storage Fees - This is charged because Amazon lets you use their warehouses to store your products instead of you having to store them yourself. This fee changes during the year, with January to September being $0.69 per cubic foot and October to December being $2.40 per cubic foot. However, in case you're storing oversized items, the storage fee drops to $0.48/cubic foot and $1.20/cubic foot, respectively.
4. FBM Charges (Fulfillment By Merchant)
FBM, or Fulfilled by Merchant, is where the seller himself arranges for the packing and shipping of products. These expenses are lower than FBA charges because the seller is responsible for shipping costs, but they're not entirely removed.
FBM sellers using the Individual selling plan are bound to use the shipping rates set out by Amazon, even if the shipping credit works out to be less than the total shipping cost. If this applies to you, it's critical that you price the items carefully, so you don't get swallowed by Amazon's rates.
However, if you're an FBM seller under the Professional selling plan, then you get some flexibility and you get to choose your shipping rates. There's one exception to this, and that is if you're selling in BMVD. In this case, Amazon gives you a shipping credit that matches the shipping rate, which varies as per the shipping method (e.g. domestic standard, domestic expedited, the domestic two-day, international standard, and international expedited).
5. Advertising And Product Promotion Expenses
When as an Amazon seller, you get involved in an advertising campaign, you would want to know how much it will cost you. On average, Amazon advertisers pay $0.81 for every click on their ad. The important point to comprehend here is that the cost is not etched anywhere on stone. Your advertising campaign costs will vary depending upon your budget and your competition.
If you’re running for highly competitive keywords, be ready to pay more. The reason is that it leads to a bidding war and hence drives the price up. You may have to go above the average price of $0.81 because there would be multiple companies bidding for certain ad placement and keywords.
Your budget may also affect your CPC. If you have limited flexibility in your budget, it will influence how you set your CPC.
For example, if you have set your budget at $500 to spend on the PPC campaign, it would be better to set a bid of $1 rather than $2. You can get 500 clicks with $1 or 250 clicks with $2. If you want to get more clicks to attract leads to your products, you must find out what CPC will work out best to maximize your budget.
6. Miscellaneous Charges
Before it happens that you start thinking that you are out of the jamboree of charges to be paid to Amazon, let me notify a few other very minor charges that you have to incur before putting your product up for sale
The high-volume listing fee is payable if you have more than 100,000 listed products. It is a monthly flat charge of $0.005 per single item, payable along with your FBA storage fees.
If you are selling textbook rentals, then Amazon charges you $5.00 for every rental, payable at the time of the sale.
Products that are dangerous in nature have an extra FBA fee tagged along which ranges from $0.06 to $0.16 per unit.
As an FBA seller, if you want Amazon to use their boxes and cartons when sending out the item, you will be charged a fee of $0.15/unit for the holiday season and $0.10 for the rest of the year.
Buyers returning items to Amazon may not necessarily do so in the original box in good condition, or they might even use a different packing altogether. If this happens, Amazon will charge you a notional fee and repackage your product before returning it to you.
If you are selling a refurbished product, Amazon spiffs up the not-new products and re-sells them, which is free of cost. However, be prepared to pay up a charge if Amazon finds your product ineligible for refurbishment.
"What sets bootstrapping apart from other forms of business funding is that it relies heavily on entrepreneurs’ frugal thinking, creativity, thriftiness, planning and cost-cutting efficiency skills." - Victor Kwegyir
Having explained most of the expenses that as an Amazon seller, you are required to flip your wallets and expend, let me now take you on a pleasure trip whereby I am making an attempt to help you save some money. Listed here are some great tips to minimize some of these overheads.
1. Reduce Amazon Shipping Fees
For shipping products that are lightweight, use services like US Post Office Priority Mail. This provides you with a free box and, more often than not, works out cheaper than the Flat Rate box option
Print your postage online which fetches you a cheaper postage rate and a postal tracking service for free which can help you know the location of your products.
You can save wonders on packing materials. Consider using shredded newspapers and magazines in order to protect your product and double your advantage by telling your customers that your e-business is eco-friendly. Use unbranded packing materials and used boxes from local vendors.
Companies like FedEx now charge more based on volume than on weight. So, by sending two smaller boxes instead of one large box, you can save a nice amount of bills.
2. Reduce Amazon Referral Fees
Use Amazon's Referral Fee Calculator to find out the fee for different categories – this is probably what you will find: Backpacks – 3% fee, Books – 13%, Fashion Jewellery – 20%, Beauty products – 6% and Baby products – 6% fee.
You can observe a clear ‘discrimination’ against Fashion Junk and Books and at the same time, a clear cut favoring of Backpacks, Beauty, and Baby products. So by little knowledge of choosing the correct product to sell you can save abundant dollars in fees.
3. Reduce Variable Closing Fees
Devote time and calculate the VCF of the product you wish to sell. It would not make any sense to sell books for $5 and incur up to 20 percent VCF when you can sell books in the range of $30 or more.
4. Reduce FBA Fees
Use tight, consistent, and precise packaging - It is essential that your operations team uses scales so as to constantly check the weight for every order and ensure they are being packed efficiently. Remember to account for storage costs related to maintaining a lot of packaging on hand. Reducing the number of packages per order is an effective way to lower expenses.
Sell products in combo packs - Bundle up the products that are generally sold together or that can be merged into packs of twos or fours. Selling two items separately would mean paying FBA shipping fees on both items. But, if you bundle those two items together into one unit, your shipping fee may increase by only a notional percentage, depending on the new dimensions of the one bundle, rather than being doubled up.
Choose the product category wisely - The broad category under which your product is listed decides the Amazon referral fee to be paid. For example, as a category, you choose ‘Watches,’ for which the referral fee is 13 percent, instead of ‘Apparel Accessories’ for which the referral fee is 17%. Such measures are easy to cost-saving means. However, be sure that your product is highly relevant to the category that is chosen.
Maintain a check on the stranded inventory - Stranded inventory is a general term for varying problems such as expired listing, suppressed listing, delisting, etc. It has an ill effect on available storage space and makes you incur long-term storage fees. Do an in-depth analysis frequently to mitigate issues owing to such inventory, and make sure that the product you've listed is either in stock, sold, or reimbursed.
5. Reduce Order Removal Costs
Sellers can also create a removal request to avoid incurring long-term storage fees. Deadstock, damaged or returned goods can be disposed of by Amazon upon request. Removal orders cost $0.50 per item for standard size items and $0.60 per item for oversize items. This is a flat fee to return items to the location of your choice. If you do not want the inventory back, you also have the option of having it disposed of for you. This costs $0.15 per item for standard size and $0.30 per item for oversize items.
THE BOTTOM LINE
To sustain your selling business in the green, you need to know the entirety of your costs. With the best possible know-how, take all of them into account, and only then determine your price floor. Now before you even get a notion about cutting prices below profitability levels, always bear in mind one thing and that is, you will only have fun and be utterly successful selling on Amazon once you are able to generate organic sales with a decent profit margin.
In the above write-up, I have made an effort to list different types of Amazon fees that exist and ways to reduce them. I have tried to explain the difference between an Individual seller plan and a Professional seller plan. Understand these differences and learn how to reduce Amazon fees on your transactions as effectively as possible.
"Not wasting money is the best way to save money." - Mokokoma Mokhonoana
I hope that this article is informative to you about the existing Amazon Fees and the various tips to reduce these expenses.
However, I shall highly appreciate and welcome more suggestions and comments below, especially if you are aware of more ways to cut Amazon's fees and you would like to share with the e-commerce community.
"Every pound is a seedling. Invest your seedlings to create a tree. Re-invest your seedlings to grow a forest." - George Choy
By: Pawan Prabhat