Selling on Amazon has changed dramatically this year.
Not only have selling fees taken a sharp upward climb, but there’s also the coronavirus pandemic to contend with. A surge in online shopping has led to disrupted supply chains, huge delivery delays, and unhappy sellers.
At first, Amazon paused shipping for non-essential items, leaving sellers high and dry with no way to get their goods to paying customers. This meant that an increasing number of FBA sellers turned to 3PL warehouses to ship their goods, and the trend seems to have stuck, adding an extra cost to the already rising price of selling via Amazon’s FBA program.
Understanding the outgoings of your business is vital for growth, pricing strategies, and stock management.
A lot of Amazon FBA sellers consider the COGs their only expense and consider the leftover money profit. But with fees (however small) lurking around most corners, costs can start adding up. All of a sudden, your business isn’t as profitable as you first thought.
A lot goes on behind the scenes so, if you’re wondering what the real costs are for FBA sellers, from storage and shipping to monthly fees, here’s a helpful guide.
The Basic Fees for FBA Sellers
Before shipping, storage, and other fees are taken into account, Amazon FBA sellers have to pay standard FBA costs and referral fees.
This is a monthly fee – kind of like a subscription cost – that sellers might need to pay through the FBA program. It’s free for a personal seller account, but this will incur a $1 flat fee for every product sold.
If you sell more than 40 products a month, it’s worth upgrading to the professional seller account. This is $39.99 a month but doesn’t require the $1 flat fee for each product.
On top of this Amazon also takes a cut of revenue (it does this for non-FBA sellers, too). Usually this is around 15%, plus a $3 fee to handle and ship the product.
Your referral fee will fluctuate depending on what category your products fall into – some are far more costly than others. For example, Amazon device accessories have a 45% referral fee, gift cards have a 20% fee, and groceries have an 8% referral fee. Most other categories fall somewhere between 12% and 15%.
FBA Hidden Fees: Other Costs to Consider
Once the basic fees are out of the way, there are several other costs involved in selling via Amazon’s FBA program.
1. Weight of Product
Amazon ships products through its FBA program, which is great because you don’t have to sort out the logistics. You can put everything in Amazon’s hands and they sort it all out for you.
It costs to ship items, so understandably Amazon puts some of those costs back onto the seller. And, because it costs more to ship large, heavy items, the shipping fees are higher for weightier and larger products.
Amazon rounds up the weight of a product, so you’ll usually end up paying a little more than the real weight of the product. In 2020, this fee is going up by as much as 10%.
2. Storage Fees
Sellers that use the FBA program ship their products to Amazon’s warehouses. From there, Amazon deals with the rest.
This means that Amazon charges a fee for storing products in their warehouses – and rightly so. For the most part, there is a flat fee depending on the size of your product. The thing to note is that the price changes at different times of the year.
From January to September, standard sized items incur a storage fee of $0.75 per cubic foot and oversized items are $0.48 per cubic foot. From October to December, standard sized items cost $2.40 per cubic foot to store and oversized items cost $1.20 per cubic foot.
3. Long Term Storage Fees
If your products don’t sell, you might find yourself paying long term storage fees. For items that are in fulfillment centers for between 181 and 365 days, there is a monthly cost of $3.45 per cubic foot. For items in fulfillment centers for over 365 days, you’ll be charged a monthly fee of $6.90 per cubic foot.
4. Shipping Goods to Amazon’s Warehouses
There are many benefits of using Amazon’s FBA program. You simply ship your goods to them and they handle everything from there. But, as you probably know by now, it costs to ship products.
Amazon has a number of warehouses dotted around and they usually ask you to ship your products to several different warehouses. The costs can really add up.
As a general rule, it tends to cost around $3-4 per empty box and then between $0.20 and $0.50 per pound depending on where your items are being shipped to.
One way to keep costs down at this point is to ship your first batch of products to one warehouse, your next to another, and so on. As long as your products arrive in every warehouse Amazon needs them in at some point, you should be fine.
No one likes to talk about returns, but here we are.
One of the reasons Amazon is so popular with shoppers is because it’s incredibly easy to return goods. This is great for the buyer, but not so much for the seller.
As a result, the return rates on products can be quite high. When a product is returned, you don’t get the FBA fee or referral fee back, which means you tend to end up out of pocket. A lot of Amazon FBA sellers forget to factor in this cost and it can come as a nasty surprise when the cost of returns keeps on adding up and adding up over time.
Aside from the FBA fees, there’s also the costs of running a business in general. These are often known as overheads and can be listed as expenses. However, they should always be taken into account when you’re calculating your true profit.
Overheads might include costs like:
- Product photographs and copy – especially if you get these done professionally (this can range anywhere from $50 for a low-budget service to thousands of dollars for a high-quality professional service)
- Seller permits (often you won’t need these as most products sold on Amazon aren’t Federally regulated and are consumer products that don’t need government approval. However, if you’re selling something that is regulated, you’ll need to look into permits both nationally and locally)
- Product liability insurance and general business insurance (product liability insurance spans a range of prices, depending on how many units you sell and what they are. The average cost of product liability insurance for low-risk products is $0.25 per each $100 in revenue)
- Trademarks (obtaining a national trademark typically costs around $300-$400 for each class of products you want to protect)
- Any staff or contractor costs (this cost will vary hugely depending on how many staff you have, how often they work, and what roles they’re taking on. A seller with one part-time member of staff will pay far less than one with two full-time members of staff)
These can add up if you don’t keep a close eye on them. For example, a professional photo shoot for your new product line might help you sell more products overall, but make sure you factor the cost into your per-product profit.
7. Intermediate Warehouse Costs
Sometimes, you might want to send your products to a processing center to undergo quality control testing before they are sent on to Amazon’s warehouses.
This means you’ll need somewhere to store them in the interim. Which, again, incurs costs. The costs here will vary depending on where you decide to store your goods and how long you’re storing them for before shipping to Amazon’s warehouses.
8. 3PL Companies
Amazon is now allowing non-essential items to be delivered in an acceptable time frame after pausing the process for a while at the start of the coronavirus outbreak.
However, many Amazon FBA sellers are organizing their own shipping anyway via third-party logistics companies. This gives them more control over how and when their products are shipped, but it does cost to do so.
The fees here will vary depending on the 3PL company you choose, but as a general rule, going to a third-party works out to be more expensive than having Amazon ship your products directly.
9. Amazon Getting it Wrong
At the end of the day, no company is perfect, and a company as big as Amazon is bound to make a mistake or two at some point. Unfortunately, this can end up costing you. They have been known to lose shipments (in fact, this happens quite often), lose products in the warehouse, fail to ship on time, and damage goods in transit.
These are things you can’t account for in your fees calculation, but it’s good to have them in mind as a buffer just in case.
The last thing you want is to go into the red because of something out of your control.
10. PPC and Advertising Costs
If you want to get eyeballs on your products, there’s a good chance you’re going to have to splash out on some advertising. The competition on Amazon is high, so every little helps when it comes to your marketing strategy.
Amazon has an in-built PPC or Sponsored Products feature that lets you target specific keywords related to your products to attract more buyers. These can be a great way to boost exposure on your products and get more sales, but they cost money to run.
The costs here will vary considerably depending on the keywords you choose to target (some come with a higher price tag than others), the audience you want to reach, and how much money you can afford to pump into them.
The key is to keep your advertising costs below the cost of your products.
For example, if you’re selling a $25 product on Amazon and we use the typical Amazon conversion rate of 10%, that means that for every 10 people who click through onto your product, one of them will make a purchase.
This means you want your ads for this specific product to cost no more than $25 per 10 click throughs – and actually, you want the cost to be far lower than that if you want to make a profit of any kind.
It’s worth taking other advertising costs into consideration here too. You can market your products on Facebook, via Google PPC campaigns, YouTube ads, Instagram ads, and various other ways. Determine which methods will work best with your products and go from there.
11. Manufacturing Costs
Manufacturing is likely to be a big cost for FBA sellers, but again this will depend on the kind of items you’re selling. Not only do you have to produce a glut of products to get you up and running, you’ll also need to consider the costs of ongoing production.
First of all, you’ll need to find a manufacturer that produces the quality of product you want to sell. Sites like Alibaba can connect you up with affordable manufacturers, but even to order a sample you’ll have to pay out (this is usually around $100 per sample, but it’s worth it for finding the right, reliable producer).
Once you’ve chosen your manufacturer, you’ll need to bulk order for your inventory. This works out cheaper than buying each product individually when a customer makes a purchase.
On average, products sold via the Amazon FBA program cost around $20 and can often be manufactured for less than $5 each.
12. Inspection Costs
You might decide to get your products inspected before they leave the factory to ensure they’re of the highest possible quality. This isn’t mandatory, but it means you can have peace of mind that you’re selling a great product.
There are two options here:
- You can hire an inspection service which costs around $300 (this is a static cost and doesn’t change regardless of the size of the order you want inspected)
- You can ask your supplier to run a self-inspection and then get them to send you a full report. They can then ship you a finished sample, which costs around the same of a usual sample ($100)
13. Damaged and Lost Reimbursement
Amazon runs a Lost and Damaged Reimbursement Policy to reimburse sellers who have had a product lost or damaged either in the fulfillment center or by the designated carrier.
The issue to bear in mind with this is that you won’t always get the full amount of your product returned back to you.
Instead, Amazon take into account:
- Your sales history
- The average FBA selling price of the product on Amazon
- The sales history of the specific ASIN
They will then grant you a refund based on this information. While you’ll get some money back, it’s worth noting that it’s usually not the full amount you paid out. For example, the reimbursement cost won’t include the FBA fees you already paid out for the product.
14. Early Reviewer Program
The Early Reviewer Program is a great way to promote your products by getting reviews for them. It lets you submit one of your product SKUs to be promoted by Amazon for review by a specific, pre-chosen (and pre-vetted) reviewer.
Taking part in this program costs $60 per SKU.
Again, it isn’t mandatory, but it can really give your products a boost in the listings. The payment isn’t taken until you get at least one review, so you don’t lose any money if the reviewer doesn’t uphold their part of the deal.
15. Lightning Deals
Lightning Deals give you a chance to run flash discounts on your products and get more sales. Amazon charges a flat fee to run a lightning deal. This is usually $150, but it can vary depending on the week you’re running it and if that clashes with any major selling holidays.
You’ll be charged the fee for every Lightning Deal you run.
To qualify, you have to be a Professional Seller, have a sales history, and have more than a 3-star seller rating.
Amazon also requires that you give at least a 15% discount on products included in Lightning Deals, so be sure to work out how much profit that leaves you with after you take all the other fees into account.
Amazon’s FBA Fee Calculator
If the thought of trying to work out all these costs on your own is overwhelming, you’re not alone.
Luckily, Amazon has an FBA calculator that helps sellers compare the costs of using the FBA program and FBM (fulfilled by the merchant) option. It also allows you to simply calculate the fees that go into selling via the FBA program.
Here’s an example of Amazon’s FBA calculator in action.
As you can see, the two columns let you compare the costs of Amazon fulfillment and your own fulfillment. It takes into account the costs of shipping and any basic FBA fees to work out how much profit you’re likely to get from each method.
It’s Important to Know Your Costs
2020 will be an interesting year for Amazon sellers. Fees are set to increase by quite a large margin, and the coronavirus pandemic has forced sellers to switch up their strategies.
But knowing (and, more importantly, understanding) the true costs of selling via Amazon’s FBA program is vital for figuring out the bottom line of your business, increasing profits, and long term growth.