If you’re looking to break into the ecommerce world, Amazon is a great place to launch a business.
However, as with all good things, there are a few catches to selling your wares on Amazon. The biggest is the number of fees you’ll be charged for listing and selling items.
Amazon’s listing fees change from time to time, and being aware of what the site will charge you to use their services is a crucial component of finding success on the platform.
Today, we’ll break down what the listing fees are, how they work, and how you can save money and avoid paying some of these charges so your business earns more per sale.
The Benefits of Selling on Amazon
Whenever the topic of Amazon listing fees comes up, people immediately respond with, “Why don’t you just sell things on your own web store?”
This is a legitimate question. There are pros and cons to selling on both Amazon and your own online storefront. In a perfect world, as your business grows, you may do both.
If you’re just starting out, we believe Amazon offers a really great way to break into the world of ecommerce without having to find your own store platform, build your website, and find customers.
Here are the key reasons why selling on Amazon is good for new sellers:
· Access to Customers Who are Ready to Make Purchases
One of the biggest boons for sellers on Amazon is that the billions of customers on the site are ready to spend money.
A potential customer who finds your product on Amazon is often already past the research and awareness phase of the buying process and is ready to make their purchase.
Amazon provides you with customers with high buying intent, which is something you’d be less likely to have if you launched a new ecommerce site.
· Amazon’s Reputation
This one speaks for itself. You’d be hard-pressed to find someone who hasn’t bought something off of Amazon in today’s world.
The company has a great reputation for delivering products that meet customer expectations. And if they don’t, they’re more than happy to take returns and issue refunds.
Customers are comfortable shopping and buying on the platform. They are less comfortable shopping on new or less established sites.
· Ease of Use
You can be up and selling on Amazon in under 24 hours. That timeframe is not realistic if you’re setting up your own ecommerce store.
· Fulfillment By Amazon
Fulfillment by Amazon (or FBA) means you let Amazon warehouse, pick, package, and ship your products when they sell. This is convenient and saves you time, money, and the need to store your inventory.
What Are Amazon’s Listing Fees?
All of this awesomeness doesn’t come without a price. Amazon is in the business of making money, and they can’t just house your products, ship your orders, and list your items for free.
This is where Amazon’s seller fees come into play. We tend to think of these as listing fees, but Amazon calls them seller fees. They are essentially the same thing.
Breaking down all the different fees by product and category is a whole other article, but for reference, you can check out this page for more information.
To keep this as simple as possible, Amazon offers two programs: a professional selling plan and an individual selling plan.
The professional plan is $39.99 per month, but there is no per-item fee.
The individual plan has no monthly fee, but there is a $0.99 per item fee.
Again, you can get more detailed information for different product types, referral fees, returns, and so on at the link above. Amazon also provides sellers with a detailed fee explainer tool in their account that will break down each charge.
The key takeaway here is that volume sellers will find the professional plan’s flat fee a far better bargain, but if you’re just starting out, you can try the individual plan while you decide whether or not ecommerce is for you.
What is Amazon’s Inventory Performance Index?
At some point during your research, you may have stumbled on something called the Inventory Performance Index (IPI).
This is a number that Amazon assigns FBA sellers that ranges from 0 to 1,000. It’s used to measure your inventory health and how much space you’re taking up with products in Amazon’s warehouse.
Amazon won’t divulge the math they use to determine your IPI, but there are three key factors that figure into the equation: Excess inventory, stranded inventory, and in-stock inventory.
The key takeaway for most sellers is knowing what they should aim for as far as the IPI score goes. The magic number is 350.
If your IPI falls below 350, Amazon will restrict your ability to send more inventory to their warehouse and impose a $10 CU/ft fine on excess inventory sitting in Amazon’s warehouses. That can add up to big bucks.
How can you make sure you stay over 350 on the IPI score? The simple answer is not to send a lot of excess stock to Amazon’s warehouses. Maintaining realistic stock levels in relation to sales will help you stay profitable and avoid these penalties.
How Do the Fees Work?
The cost to sell on Amazon depends on your selling plan, product category, fulfillment strategy, and other variables. The options are flexible, so you can find the combo that works best for you and your goals.
When you set up your seller account, you’ll be required to provide both a credit card number and a bank account. The credit card covers all fees incurred from the sale or storage of products. Profits earned from sales are deposited into your account.
Your charges will depend on whether you’re on the professional or individual plan, whether you utilize FBA (and how much inventory Amazon is holding, the rate varies by size and time of year), and so on. There’s no one size fits all breakdown.
If you’re looking for more detailed and specific information, this page is a great resource.
Oh, and be aware that the referral and FBA changes are coming in June of 2021.
How Can You Avoid Amazon’s Seller Fees?
If you’re just getting started in the world of ecommerce, you might be looking at all these fees and thinking, “Will there be anything left for me?”
Amazon offers a ton of great benefits for sellers, but like everything in life, they come with a price.
Luckily, there are ways to lower your costs and avoid some of these fees.
· Redirect Customers to Your Website
One smart strategy for avoiding Amazon’s fees involves being selective on what you sell on the platform.
Listing only products that sell at a high volume can save you money on the storage charges for FBA items. House your slower sellers or lower volume items on your own website, where you’re not being charged by Amazon for storage.
· Sell Items with High Margin and Low Weight
Selling items with a high margin seems like a no-brainer, but most people don’t realize that storage fees are determined by weight and size and not the price of the item.
Therefore, if you have a $10 item that weighs five pounds and a $100 item that weighs five pounds, it makes more sense to list the $100 item provided it has a better margin and actually sells.
For low-value items under the $10-$15 range, you’re often just better off selling them on your own. This doesn’t mean you can’t sell them on Amazon (and people do), but the margins might not be worth it for new businesses, particularly if those items are also heavy or large.
New sellers often fail to consider the size and weight of their products in the FBA program. This is one area where your fees can really add up. Be sure to consider both factors and your margins before committing to selling these products through Amazon. In some instances, you will be better served by selling these items directly.
· Monitor Your Inventory Dashboard
We’ve talked about the IPI score already. Falling below the 350 score threshold means you’ll spend significantly more money on storage fees for your products housed in Amazon’s warehouses.
One of the easiest ways to avoid this problem is by monitoring your inventory dashboard. This will allow you to see how much stock you have at Amazon facilities, how often that stock is rotating out, and so on.
Armed with this knowledge, you’ll have an easier time managing your IPI score and can avoid paying fees for items that aren’t selling on the platform. You’ll also be able to maximize profits by seeing what does sell and focusing on that.
· Sell Items in Bundles
When possible, it’s always advisable to sell your items in bundles instead of individually.
If you sell five individual items, that’s five fulfillment fees you’ll pay to Amazon.
If you sell five items in one bundle, you now only pay one fulfillment fee.
Obviously, this can turn into significant savings over time. You’ll have to bundle the items for the warehouse yourself, but the savings are worth the extra effort.
If you have items that can be bundled, consider selling them in packages.
Amazon is one of the biggest retailers in history and a perfect place to start your ecommerce business. The platform’s massive size, trusted name, and fulfillment options make running a business on the platform relatively painless.
Like any business, Amazon isn’t offering all of this for free. Understanding how Amazon’s seller fees work is an important part of your success on the platform—learning how to minimize fees while maximizing profits is a key component of running a profitable Amazon storefront.
With the tools outlined in this article, you’ll be well on your way to making money on the platform without losing all your profits to fees.
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