Amazon has been a popular choice among shoppers for a long time now. It also boasts of over 150 million unique monthly visitors, making Amazon a popular choice for sellers looking to expand their business and increase their sales online. However, growing a brand’s profits using Amazon requires an understanding of how much it costs to sell on Amazon, and what can be done to reduce that cost. This article addresses just that; it explains the Amazon seller fees and how businesses can reduce these costs.
Amazon Fees Explained
It should not come as a surprise that selling on Amazon comes with a cost, similar to selling on Walmart or eBay. Amazon charges businesses for using its platform, tools, marketing, and, most importantly, the captive audience they offer. An Amazon seller has to incur 4 main costs to access the marketplace:
1. Account fee: The first cost is the Amazon account fee – a monthly fee that businesses pay for selling on Amazon. Amazon has two different seller accounts, each with a different fee structure; Amazon Individual comes with no monthly fee, but businesses are allowed only 40 listings and 20 categories per month. Amazon Professional is available at a $39.99 monthly price tag with unlimited listings and more categories.
2. Referral fee: Here, Amazon charges you between 8-15 percent for each item sold. This is specifically a per-item fee, a referral percentage (depending on the item category), a closing fee for media items, and a high-volume listing fee.
3. Fulfilment fees: The next significant, and often disregarded expense is the fulfilment costs. This fee includes all the expenses involved around handling products from receiving them to their distribution. The fulfilment fee is an all-inclusive fee that makes it simpler for sellers to predict their fulfilment costs at the start itself, allowing them to foresee profit margins and project long-term revenue. The fulfillment fee can vary significantly and is dependent on the product size tier and product category as well as whether or not the product contains hazardous materials. It can range from $2.70 to over $157 for special oversized items.
4. Amazon Storage Fees: If you have a long turnover time on your inventory and it sits in Amazon warehouses for a considerable amount of time, Amazon will charge a storage fee, dependent on the length of time your products are in storage, and the amount of space they’re taking up.
5. Other expenses: As we know it, Amazon is a competitive marketplace, and businesses need to do all they can to stay in the lead. For this, it is important that businesses consider and make the most of the features like CPC advertising using Amazon Sponsored Products and Brands, competing for the Amazon buy box using low prices and free shipping, selling via Amazon Prime and other external marketing spend., as well as factors such as inbound shipping costs.
How to Reduce Amazon Seller Fees
Despite the high prices, having your business listed on Amazon can bring you lots of exposure, more customers, and an increase in sales. While Amazon can be an expensive marketplace to sell on, it is possible to increase your online profits drastically by understanding where and how your Amazon fees can be reduced.
1. Opt for a Professional seller account: While Amazon Individual seller account’s benefits of zero monthly fee may sound attractive, but if your business lists more than 40 items per month, paying more than $39.99 in per-item fees, would not be the cheapest option. Switching to an Amazon Professional account to receive unlimited listings and zero per-item fees will not only help you save money but also give you access to other features including the ability to run promotions, sell on different Amazon sites, and access the buy box.
2. Reduce referral fees: While Amazon referral fees cannot be reduced, businesses can be calculative about which items they sell on Amazon. A smart move could be to Use Amazon for products that have a low referral fee and use different marketplaces such as Walmart or eBay for products that have a higher referral fee.
3. Monitor your Amazon listings: Sometimes, Amazon incorrectly categorizes product categories and size tiers, meaning that you might end up paying more than you’re liable for. Carefully monitor your listings and notify Amazon about any discrepancies so that you’re only ever paying what you need to.
4. Reduce storage fees: Amazon wants you to sell products and move your inventory, instead of letting it gather dust in a warehouse. You will be penalized for slow-moving SKUs that spend too much time in the warehouse. You’ll want to optimize your inventory management to minimize the amount of idle stock in warehouses to keep warehousing costs to a minimum.
5. Reduce shipping fees: Shipping costs are known to be expensive, especially when fulfilling in-house. This costs can also be easily reduced by:
- Making use of unbranded packaging to reduce packaging costs
- Using the fulfilment calculator to make sure to avoid an additional costs to even check if an outsourced fulfilment provider is cheaper
- Leverage Fulfilled by Amazon (FBA) instead of FBM. Amazon gets extremely sharp discounts from shippers, meaning that FBA can be significantly cheaper than merchant fulfillment.
4. Increasing ROI through outsourced fulfilment: Reaching out to outsourced fulfilment providers to reduce shipping carrier costs help in increasing your ROI. While an increase in your ROI doesn’t directly reduce your Amazon fees, but it ensures that these Amazon fees make less of a dent in your profits. This can be achieved by competing on service over price and by making sure to offer great customer service and a seamless purchasing experience. Improving your conversion rates by getting on Amazon Prime to cater to that group of online shoppers who require/prefer speedy deliveries is also a good way. Lastly, you can also consider selling on other sales channels to reach a wider audience and using multi-channel listing tools and fulfilment partners.
5. Increase your visibility: Simply being listed on Amazon is not enough, especially if you are paying to appear on the platform- you must to be seen by consumers. To improve the visibility of your listings, consider offering fast and free shipping options, to appear in filtered search results. Optimizing your Amazon listings, including product titles and descriptions is key. Additionally, getting five-star customer ratings and responding to issues quickly, providing accurate tracking information, and on-time delivery is always a plus.
6. Exclusive deals with suppliers: While you might argue that these days everybody and everything is online, there is still a large chunk of population that don’t sell online and don’t understand the internet. They focus most of their attention on offline sales. Many of these businessmen and women can be found at trade shows or exhibitions; you can propose to be their exclusive suppliers of their products. In doing so, you are helping them to preserve the value of both their product and brand. Having exclusivity of a truly unique product on Amazon will allow you to charge a good or even a hiked price, without having to engage with competition.
7. Reduce FBA Fees
- Try using tight, consistent and precise packaging. It is essential that your operations team uses scales to constantly check the weight for every order and ensure they are being packed efficiently. Reducing the number of packages per order is an ideal way to lower expenses.
- Combo packs to the rescue. Packet up the products that are generally sold together or that can be merged into packs of twos or even multi packs. Selling two items separately would mean paying FBA shipping fees on each item. But, if you bundle those two items together, your shipping fee will increase by only a negligible percentage, depending on the new dimensions of that one bundle, over 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, watches currently sit at a referral fee of 13 percent and Apparel at 17%. Being aware and acting in accordance with these measures lead to easy cost-saving. That being said, be sure that your product is relevant to the category that is chosen.
- It is also essential to maintain a check on stranded inventory such as expired listing, returns, delisted items, etc. It has an adverse effect on available storage space and makes you incur long term storage fees.
Undoubtedly, selling on Amazon puts you on a platform in front of millions of buyers, further helping you gain the potential to take your eCommerce business to the next level. To make certain that your profits don’t reduce, it is crucial to be up-to-date and vigilant about what you’re paying to Amazon and how you can reduce your costs through conversions, fulfilment, and visibility. While your business is successfully saving money on Amazon fees with the above strategies, making sure you are gaining more with your pricing is the way around it. Reach out to us for a more detailed discussion on the best ways to reduce fees as an Amazon seller; we customize strategies that fit the bill for your business perfectly.
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Robb Fahrion is a Co-Founder and Partner of Flying V Group. He is passionate about helping businesses grow using the power of the internet. Robb graduated from Chapman University in Orange, CA and currently resides in Costa Mesa, CA. Robb enjoys writing about digital marketing, helping his clients turn their dreams into reality, and he is a HUGE Mike Trout fan.