Recently, Amazon released a report showing that sellers on its platform reported substantial profits even amidst scrutiny from regulators. This profit is no coincidence as it confirms Amazon as the e-commerce platform with one of the largest customer bases. As a merchant or a creator, it is only normal to be curious about how you can also leverage this potential to boost the sales of your products or merchandise. However, understanding the several layers of Amazon seller fees is a hurdle for many to cross. In this article, we are going to lay out everything you need to know about the topic.
As you must have guessed, the short answer is no. Looking at the services provided, it is also understandable why they can’t be free. Opportunities for merchants include providing a warehouse for their products and handling shipping logistics among other things. For other sellers involved in the sales of books and other media, Amazon provides services that include making their merchandise seen by their audience as well as packaging. Looking at these, it is understandable why selling on Amazon is not free. The fee to be paid is usually in percentages of the cost of the item to be sold.
Amazon marketplace is a diverse hub with different sellers selling different categories of items. While some sell items that cost as little as $1, some sell within the range of $1000. As such, Amazon has devised a plan that will fit the peculiarity of each merchant. This is important to know because there is no fixed percentage charged on most items. It depends on the category of the product and the selling cost of the third party ascribed to such product. You can however consider 15% as an average benchmark, although Amazon generally takes between 3% - 45%. Be reminded that this is just an overview, there is more to unpack.
Apart from the percentage cut Amazon takes on sales, there are other fees that are associated with selling in the marketplace. It’s understandable to question the necessity of the different layers of fees but knowing that they are implemented to ensure fairness. To fully understand the amount of money you have to shell out, a deep dive into the different prices that are associated is necessary. As a heads-up, these prices can be a little bit complex but a rule of thumb is to decide which category you fall into and focus on the pricing in that category.
Like most companies that offer software-as-a-service products, Amazon also has two tiers of plans for sellers. The plan you decide to choose should depend on the type of product you intend to sell on the platform. Here are the two types of accounts:
Now that you know the different accounts, you can now decide to pick the one that suits your business the most and focus on pricing that is relevant to that account.
This fee is associated with the Professional Seller Account. It takes its position at the entrance to the Amazon marketplace and it determines your experience on the platform. Third-party agents that choose this plan get to pay $39.99 monthly regardless of the volume of sales they make in that particular month. This plan however lets you explore all categories and features with no restriction.
This is the $0.99 fee levied on sellers on the Individual Seller account. The fee is charged for every item that is sold on the platform. It is advisable to use the Individual Seller account only if you are selling below 40 units a month. Any higher and you will be paying as much as the sellers on the Professional Seller Account with limited tools to give your sales a boost.
Shipping fees on Amazon are also not based on a single pricing system. A couple of factors go into determining the shipping fees for a particular product. These factors range from the type of product, the location you are shipping to/from, the weight as well as the dimension of the item. Unless you decide to offer free shipping to your customers, the cost of shipping is usually borne by the buyers but as a seller, you need to put this into consideration when fixing your price. You will want to opt-in for a model that encourages your customer to buy. Sellers on the Professional Selling Account can set their shipping fees but those on the Individual Selling account have to operate within $3.99 to $4.49 for each order within the same domestic region while orders going to international destinations can cost between $14.95 to $24.95. The weight of the item will determine just how much the price will be. If you want the order to come in quickly as an Expedited Order, the price can go as high as $14.95 for domestic and $46.50 for international orders
Looking at the name of the fees you might be wondering who is the referral and who is being referred. Look at it this way: the reason you would want to place your merchandise on Amazon is that you know there are millions of people on the platform trying to make a purchase and the odds that your customer is among them is pretty high. So for Amazon to bring that customer to you, they are technically referring them to you. Therefore they demand a certain percentage from each item sold to keep their company running. For most of the categories of items, 15% of the selling price is the average Amazon charges. There are however outliers like the 45% charged on Amazon Device Accessories. Others include the 3% charged on watches with selling prices higher than $1,500. In special cases when the calculated referral fee is less than $0.30, the percentage model is ditched and a flat fee of $0.30 is applied regardless of the category.
This fee is applied in addition to the referral fee on products that belong in the media category. This includes books, DVDs, videos, music, consoles, software/video games, etc. It is not clear why Amazon charges this fee but it is usually a flat fee between $1.35 and $1.80. Sometimes, this fee is used interchangeably with the Closing Fee but we will consider the difference later as we look at other fees.
Other Amazon fees, ugh. I know how you feel but it is better to know all these fees that are attached now before you jump on the marketplace only to regret it later. You will also agree that having a transparent system that clearly spells out the different fees is better than hidden charges that are experienced on other e-commerce platforms.
This is also known as FBA Customer Return Fee. This is the fee you are charged as a seller when customers return items in the category of apparel and shoes. Amazon offers the customer free shipping on these items so when they are returned, you are charged for the shipping and handling. The price depends on the size of the merchandise and ranges from $2.12 to $75.08. Amazon provides a breakdown here.
This is similar to the Variable Closing Fee and it is charged on items in the media category. When a Closing Fee is used, it is done in the context that it is a flat rate and not within a particular range. This term came to be in use most likely due to new development in pricing which is a change from varying prices to a single price of $1.80
If you don’t have more than 1.5 million Stock Keeping Units (SKUs), you don’t have to worry much about this fee except simply for the knowledge. For sellers that sell a high volume of items that exceed 1.5 million SKUs per month, they are charged $0.001 on every SKU above 1.5 million. So if your SKUs for a particular month are 2 million, you are charged $0.001 multiplied by 500,000 which will be $500.
These fees cover additional services such as advertising, inventory management as well as Fulfillment by Amazon. Amazon also offers coaching and account management on its premium program. All these optional programs have fees that are attached to them. We will look at Fulfillment by Amazon here while you can read more about the other programs on Amazon’s website
When it comes to providing warehouse services, packaging, and shipping of your products, you have two options. There is the Fulfillment by Merchant (FBM) program where you handle these services yourself as a seller. The other program is Fulfillment by Amazon or FBA
Fulfillment by Amazon is a special program that lets Amazon handle your stocking, packaging, and shipping. The benefit of this is the time and resources it takes off your shoulders so you can focus on other aspects of your business. Charges for this program usually come from paying Amazon for storing your inventory in their warehouse, giving your item a befitting packaging as well as shipping. As you might have guessed, the charges are based on the dimension and weight of your merchandise.
Undoubtedly, eBay is another big eCommerce platform that offers similar services as Amazon with reported active users as high as 138 million. The key differences between these two platforms are the model of pricing and user experience.
eBay uses Paypal to process payments while Amazon uses its own in-built payment processing platform which enables customers to use the one-click option. Using Paypal might also be disadvantageous to some customers that don't have access to Paypal services.
eBay offers a less complex pricing model for its users. This can make it easier to set up your account and use the platform. This however doesn’t guarantee that this will be cheaper as this will depend on the category of the item
Amazon has a wider reach of 300 million shoppers compared to eBay’s 159 million. This is because Amazon is seen as a trusted brand by users. Therefore Amazon will guarantee that you will reach a bigger audience
This is about the variation of services provided to ensure that users enjoy the time of each platform. Amazon has the different possibilities of scenarios with e-commerce mapped out and has devised proper ways to handle these situations. This ensures users are not exposed to risk or fraudulent activities. While using eBay has its own mechanisms for ensuring a safe experience, they are not as detailed as Amazon
With better user experience, safety protocols, detailed pricing models that are transparent as well as the ability to reach a wider audience, Amazon is definitely worth checking out. As long as you get used to all these prices as explained in this article, you should see your profits climbing in no time.