Judging by the sheer number of sellers on Amazon, it’s safe to say that most of them are making enough of a profit to stay on the platform. However, this isn’t to say that Amazon is making it easy for them; their seller fees have been pretty high for years, and they recently announced upcoming increases in 2022. To put it into perspective, in 2014 the seller fees were 19% of total sales on average; now they’re around 34%.
Given the ever-rising cost of doing business on Amazon, it’s essential to know how their seller fees impact your profit margins. It’s possible to get that information from Seller Central (Amazon’s “command center” for sellers), but you’d have to look at multiple reports every time you wanted to know. Then there’s Shopkeeper, a profit calculator that displays your sales, profit margins, and more for each item on the same dashboard. The main thing is to know not only whether or not you’re in the black, but to know exactly which items are doing the most to keep you there.
To get a better idea of how Amazon’s fees affect your margins, here are some of the main ones to consider.
Shipping Credit vs. Cost
Sellers who pay for shipping costs themselves should definitely take advantage of Amazon’s shipping credit; after all, it’ll help offset the expense and improve profits. The catch is, these shipping credits often turn out to be quite a lot less than actual shipping costs. This arrangement works pretty well with smaller packages, but you could lose money on heavy or bulky items. The alternative is to use an FBA (Fulfillment by Amazon) center – more on that later.
Whether you have a Professional or Individual account, referral fees will apply. The actual referral fee will depend on which item you’re talking about. It could be 6% of a product’s price, it could be 45%, or it could be closer to the average 15%. A few categories have minimum referral fees; there’s an established minimum fee for each category (between $0 and $2), which is applied if the regular referral fee falls short of the minimum.
Media categories have an additional closing fee of $1.80; this is a flat charge that’s applied regardless of the item’s price.
Sellers who don’t store and ship items themselves have the option to use FBA warehouses instead. This can be both convenient and cost-effective, but you have to make sure the FBA-related costs aren’t taking too much of your profits. For example, the storage fees are $0.83 per cubic foot for standard items, and $0.53 per cubic foot for oversized items. Then there are aged inventory fees, relabeling fees, pick-pack-ship fees, and removal/disposal fees for unsellable items.
The tricky thing is that many of these fees will vary according to the size and weight of the item; one seller may enjoy excellent margins on their products, while another one is barely scraping by.
This is why Shopkeeper is invaluable, no matter how long you’ve been selling on Amazon; it pulls real-time data on the sales you make, the fees you’re paying, and any other expenses to show you accurate profit margins for everything in your Amazon store.
Seller Account Fees
This is one fee that doesn’t put much of a dent in profits, but it’s still worth mentioning since it applies to every seller. There are two different types of seller account fees; one is for low-volume sellers, and the other is for high-volume sellers. Someone who just wanted to get rid of a few antique dishes they inherited could sell them on Amazon; in that case, their seller account fee would be a $0.99 listing fee per item. They’re limited to 40 sales per month though, so that effectively prevents people from running an Amazon store as a low-volume seller. Those who run an actual business on the platform pay $39.99 monthly, and for that they can make unlimited listings and sales. They also get access to FBA services and eligibility for Amazon Prime, among other things.
Advanced strategies to optimize your Amazon business
Increasing your profit is important, but without additional planning you could end up painting yourself into a corner.
- Maximize value creation. For example, just because someone’s selling sportswear doesn’t mean that every popular sportswear item belongs in their Amazon store. Instead, calculate the items that’ll bring the highest profit, and make those the focus of your product line. This is the kind of thing to use Shopkeeper for; since you can compare the profit margins of each item side-by-side, it’s easy to see which ones are the money-makers.
- Protect your crown jewels. On the other side of the coin, you shouldn’t necessarily sell all of your signature products on Amazon. Why? Because Amazon has tremendous bargaining power, and if you hand over all your best products to them, you end up relying on that one platform for success. Even if a tool like Shopkeeper shows that these items make you plenty of money, you’d still be able to identify the other high-profit items and optimize your business without putting the best-sellers on Amazon.
- Act early. It’s important to make smart decisions on your product offerings from the beginning. Have plans in place to branch out, rather than putting all your efforts into running a successful Amazon store.
- Have outside options. Every Amazon seller is contractually obligated to not undercut the platform by offering their products elsewhere at a lower price. What they aren’t contractually obligated to do, however, is avoid selling their products on multiple platforms. If plan B is firmly in place (in the form of another flourishing online store), you’ll always have the option to leave Amazon if you aren’t satisfied with the margins you’re seeing there.
Making a profit as a seller on Amazon is about more than just getting a lot of sales; you also have to optimize your margins by prioritizing high-profit items. With a tool like Shopkeeper on your side, you can let the data do the work for you. If you want to see what Shopkeeper can do for your Amazon business, try an extended 30-day free trial!
Since Amazon takes a good piece of your profits, it’s critical to receive Amazon daily payouts to optimize your cash flow as best as possible.
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