If you asked Amazon third-party sellers in 2014 about the fees they were paying to Amazon, you wouldn’t get an overwhelming majority of people complaining about what they were paying. At a healthy 19% average of their total sales, the fees certainly weren’t cheap, but they still weren’t prohibitive.
Fast-forward to the present day, and sellers are paying more like 34% of their sales in Amazon fees – and they aren’t thrilled about it either.
Even so, there are still huge numbers of sellers keeping their Amazon stores alive despite the ever-increasing fees. What’s the key to success here? Identifying the items that get the highest profits and cutting out the ones no longer making money.
With Amazon charging 72 different fees to sellers, these margins can be time-consuming to calculate – especially if you have more than a couple of dozen items in your store.
Then there’s all the other stuff to keep track of, like Amazon orders pending, refunds, and administrative fees. The good news is, Shopkeeper makes it easy to not only calculate the profits and margins for each item but to compare all your products side-by-side on a single dashboard.
Rather than gathering all the data and doing the math yourself, you can make the data work for you.
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Amazon Seller Fees
But let’s have a closer look on the other side – Amazon sellers, and see which Amazon fees affect sellers the most and how they can optimize the business?
Over 90% of Amazon sellers use FBA (Fulfillment by Amazon) centers to store, pack, and ship their products.
As you’d expect, there are several different fees associated with this service. For example, there are the storage fees: standard packages cost $0.83/cubic foot, and oversize packages cost $0.53/cubic foot.
Storage fees and fulfillment fees (packing, shipping, etc.) are a given for anyone who’s making sales, but there are other fees to take into consideration as well.
Sellers might have to pay relabeling fees, removal/disposal fees, or aged inventory fees too. These fees may not apply to every item, but they’ll still take a chunk out of the bottom line if sellers don’t manage their inventory carefully.
Since the main FBA fees are mainly calculated based on weight or size, the fees will vary for each seller. Fulfillment fees could make or break someone’s bottom line, especially for items within categories that have seen a steep fee increase.
Without recalculating the profit margins for each item one by one, though, sellers won’t have an accurate idea of how Amazon’s fee increases are actually affecting them.
Fulfillment fees aren’t the only thing to watch out for, though; Amazon has also announced stricter policies for aged inventory. Instead of having 365 days before the aged inventory fees kick in, sellers only have 271 – plus new inventory limits.
This is a smart move from Amazon’s perspective, but sellers will have a much narrower margin of error where inventory management is concerned.
Stock more than they can sell within a certain time frame, and they’ll have to pay additional fees. Stock less to avoid the aged inventory fees, and they could unexpectedly run out of certain items.
This is where Shopkeeper can really help sellers get the bird’s-eye view with all their products. Its inventory forecast tool tells sellers not only how much stock they have left but also how long it’ll last based on those items’ sales histories and when the seller needs to order more.
Shipping Credit vs. Cost
If a seller chooses to take care of shipping themselves (instead of using an FBA), Amazon gives them credit to offset the cost. That can work out to the seller’s advantage, but only in certain package categories.
The heavier the package, the more likely the seller will lose money when Amazon low-balls the shipping credit. Once again, this is why it pays to stay on top of how Amazon’s policies affect profit margins for individual items.
Seller Account Fees
If you’re a low-volume seller, you’ll probably have an Individual Seller account. If you’re a high-volume seller, you’ll most likely have a Professional Seller account.
Individual sellers can make up to 40 sales in a month, and they’ll only have to pay $0.99 to list each item (regardless of price). Professional sellers get limitless sales and listings, and pay $39.99 per month. They also get various perks, such as the option to use an FBA.
In addition to paying to list an item, sellers pay each time they make a sale. Referral fees are the main fee in this category, and they’re generally calculated as a percentage of an item’s sale price.
The average referral fee hovers around the 15% mark, but it could be as low as 6% – or as high as 45%. There are some categories. However, that also has minimum referral fees.
If there’s a minimum referral fee that happens to be higher than the regular referral fee, the minimum one kicks in (it’s always between $0 and $2).
A separate sale fee is a closing fee; this only applies to media categories. It isn’t calculated by percentage, as it’s simply a flat $1.80 that’s applied on top of any referral fees.
How Can Sellers Optimize Amazon Business?
Going after higher profits is a solid start, but there’s more to the picture than that; there are several advanced strategies that can benefit Amazon stores of just about any size.
The thing to remember here is that thanks to Amazon’s size, they usually hold all the cards. That being said, sellers can still take certain steps to ensure that they never get into a sink-or-swim situation with their Amazon stores.
The recent fee increases have put many third-party sellers in a tough situation, but the ones who have implemented some of the steps below will probably be in better shape than those who haven’t.
Amazon has enormous leverage on sellers – unless those sellers have made savvy product offering decisions. If you strategize what you offer to go beyond simply making lots of sales, you’ll avoid becoming dependent on Amazon.
Building a foundation of high-margin items does more than just improve your bottom line in the short term; it also ensures greater security for your store when unexpected changes (like increased seller fees) put a dent in your profits.
If you have already planned for bumps in the road, they won’t jeopardize the profitability of your business.
Maximize Value Creation
The obvious move is to assemble a product line-up and dump the whole thing on Amazon. But that isn’t always the smart move. Instead, prioritize your products according to profit margin.
If you’re using Shopkeeper, for instance, you can see the respective margins of every one of your items on the same dashboard – and they’ll reflect real-time changes in costs, fees, etc.
Knowing your margins for each product is especially important after this year’s fee increases; with changes to so many fees, you’ll have to do a lot of calculating to get an accurate profit margin for every item.
In many cases (such as with very small or very large items), increased fulfillment or shipping fees could mean you’re actually in the red in some cases. And if that happens, you certainly don’t want to keep those items in stock.
This is why a tool like Shopkeeper is important, especially with the updated seller fees; if you can see real-time numbers that reflect not only the seller fees but also refunds, administrative fees, and more, you’ll be able to take decisive steps to optimize your profits.
Maintain Outside Options
Sellers aren’t allowed to offer their products outside of Amazon for a lower price, but they can certainly still sell everything in their Amazon store in other online venues.
It’s a smart idea to have a backup plan because that undercuts Amazon’s bargaining power if you ever decide that you don’t like using their platform anymore. If you diversify your business plan, you won’t depend on a specific part of it doing well.
Protect Main Assets
Some sellers come to Amazon already having signature products of their own – and they should think twice about listing them in their new Amazon store. Yes, they could make money from these products; but that would also entail handing over a key part of their business to Amazon’s control.
Not only should you have other income streams besides Amazon, but you should also use those other venues to showcase your signature products. Even though they might boost your profits on Amazon, they don’t necessarily belong there.
This is another scenario in which Shopkeeper could help sellers optimize their strategies by identifying the best-sellers and determining which profitable items they could keep from the Amazon store while still making a decent margin.
Use Shopkeeper Tool
Whether you’re calculating seller fees or trying to decide which items belong in your Amazon store, it’s crucial to have all the relevant data at your fingertips.
This is where Shopkeeper comes handy. It is a profit dashboard for Amazon sellers, selling on multiple Amazon marketplaces. It shows you your sales, expenses and profit.
If you want to give Shopkeeper a try, check out their extended 30-day free trial and see what it can do for you. Another useful Amazon tool to have is AMZScout.
Lauren Kunz is a Texas native who has appreciated the craft of good writing from a young age. If she isn’t working on her latest writing project, she’ll probably be busy sewing, trying a new cheesemaking technique, or fermenting something tasty.
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