Chapter 13 Amazon Seller Fees: Costs and Metrics to Consider to Increase Profit Margins

Lauren Shepherd / 11 min read
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Amazon Seller Fees: Costs and Metrics to Consider to Increase Profit Margins

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Table of Contents

    Selling on Amazon can be an immensely profitable channel for brands.

    Yet, like any other channel, it is essential that you understand the fees associated with selling on Amazon to get a clear picture of your full cost – and true Amazon revenue.

    Far too many Amazon sellers have played the game to win the buy box or drive an immense amount of sales on a new private label product, reducing the price so much so that no margin exists once it is sold.

    Amazon changes fees for FBA, for selling on Amazon to begin with and much more.

    This guide will walk you through exactly what Amazon fees are, how much you’ll be charged and how to do the proper math to make sure your Amazon revenue keeps you in the green.

    What are Amazon’s Current Selling Fees?

    Amazon sellers can choose between a Professional or Individual plan.

    • Individual sellers pay $0.99 for each item sold on the marketplace, in addition to variable closing fees ranging from $0.45 to $1.35.
    • Professional sellers pay variable closing fees and referral fee percentages ranging from 6% to 25% (an average of 13%). Professional sellers also pay $39.99 per month, but they are exempt from the $0.99 per item fee.

    amazon seller fees costs analytics plans

    1. Monthly subscription charges.

    If you are a professional seller (someone planning to sell more than 40 items per month), merchant fees are $39.99 per month.

    If you plan on selling fewer than 40 items per month, your upfront fees are $0, but you pay $0.99 per product sold.

    2. The per-item fee.

    Non-professional sellers (i.e. individual sellers) pay $0.99 per product sold.

    Professional sellers pay $0.

    3. Referral fees.

    Amazon referral fees are based on product category.

    Items in several categories have a per-item minimum referral fee (i.e., sellers pay the greater of the referral fee or the per-item minimum referral fee).

    Amazon will charge whichever of these two is higher for each item:

    • Referral Fee as a percentage of sale price: It ranges from 6% to 20% (45% for Amazon devices), but it’s usually 15%.
    • Minimum Referral Fee of either $0 or $1: Jewelry and watches are the only two categories with a rate of $2.

    Here is a chart provided by Amazon to help you determine referral fees for your specific product and category.

    4. Variable closing fees.

    These apply strictly to books, music, videos, DVDs, video games, consoles and software (BMVD products), and they will vary according to category, shipping destination and the type of shipping service used.

    5. Fulfillment fees.

    These fees are based on product dimensions and weight.

    This charge is typically between $2.41 and $10 for most products, though the price is increasing in 2020.

    Use this calculator to determine what your fulfillment fees will be:

    Why Amazon Sellers Need This Multidimensional Methodology

    Beyond the fees, however, the biggest reason most businesses lose so much on Amazon is because they’re using one-dimensional metrics to determine profitability.

    You can’t tell a person’s health by simply checking their heart rate, so why would you do the same for your Amazon business?

    To effectively evaluate your profitability, you must analyze every aspect to determine your overall inventory health.

    This is what we call the Multidimensional Methodology.

    Check out the infographic below for a visual walk-through, and then read through the methodology and how to do it following the graphic.

    amazon seller fees costs analytics health check

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    What is Multidimensional Methodology?

    The Multidimensional Methodology will help you determine your profitability at the SKU level so you can make the most informed business decisions, including:

    • Pricing.
    • Inventory management and restocking.
    • Returns management.
    • Vendor negotiations.

    First, we’ll go through the most effective methods to measure profitability on Amazon, and then we’ll get into the specifics of how you can squeeze the most profit out of each dollar you invest.

    Know Your Costs

    If someone were to ask you if you knew your exact costs at the SKU level, would you be able to say yes?

    Even the most organized sellers are missing out on hidden costs affecting their bottom line.

    Let’s get started with a review of the minimum list of costs that should be considered in your financial model:

    1. Direct costs.

    Your acquisition cost per SKU, including shipping.

    2. Indirect (overhead) costs.

    Warehouse costs, utilities, insurance, bookkeeping, payroll and benefits, business travel, corporate business tax, product samples, web development, etc.

    3. Amazon fees.

    Sales commission, FBA fees, FBA inbound shipping fees, commission on returned product, storage fees, return shipping costs (both from customer to Amazon fulfillment centers, and from fulfillment centers to you), and returns disposal costs.

    4. Costs for handling returns once they are received.

    What write-down or write-off costs do you incur by not being able to sell these returned products as new-condition products?

    Determining Your Overhead Allocation Cost Per Unit

    To calculate this, add up your indirect costs over the past 12 months, and divide that sum by the number of units you sold in the last 12 months.

    Use this number as a rule of thumb – it should be consistent on a month-to-month basis.

    Here’s the calculation to use:

    Overhead Allocation Cost = Indirect costs (over trailing 12 months) / sum of total # of units sold (over trailing 12 months)

    You may want to refresh this calculation every six months.

    Let’s say, for example, that you calculated a $2 overhead allocation cost per unit sold. This is how much money you have spent on the sale of the item before you have purchased or sold it.

    Typically, we see overhead allocation costs between $1 – $3 per unit.

    If your overhead allocation cost is higher than that, it may be time to evaluate your individual business expenses and determine how to streamline your costs.

    For example, let’s say Kathy’s Cat Toys is spending thousands of dollars on Amazon Sponsored Products every month to drive traffic to her Cozy Cat Castle.

    However, her return on her investment is three sales per month.

    Based on the high overhead allocation cost for that particular unit compared to her other SKUs, she will have to determine if that SKU is worth continuing to sell.

    Take a Look at Your Amazon Fees

    All Amazon fees can be pulled in one-to-two-week time frames out of Seller Central (Seller Central > Reports > Payments > All Statements View).

    Keep in mind your FBA fees will be higher for heavy or large items.

    Also be sure to monitor any slow-moving SKUs, as stale inventory can cause you to rack up additional fees.

    Lastly, while some of your expenses may be SKU-specific, some are not.

    Once expenses are calculated by individual SKU, the remaining costs should be allocated across all units sold.

    This is a very simple approach to profitability calculations and will provide you the minimum amount of information you need to monitor your costs day-to-day, or month-by-month.

    To summarize, let’s review your costs:

    • Wholesale cost.
    • Inbound/outbound shipping.
    • Amazon commissions.
    • FBA fees.
    • Overhead cost allocation.
    • Returns-related costs.

    Unfortunately, if you don’t have a constant pulse on your profitability by SKU, it can be difficult to make the necessary changes to vendor negotiations, inventory management or product sourcing promptly.

    By moving toward a model of profitability by SKU (updated every 3-6 months), having a decent understanding of the overhead allocation cost that you should be applying to all current sales, and knowing the impact of product returns on your SKU-level and overall profitability, you can become a smarter seller.

    This knowledge will help inform and educate future buying decisions.

    If Kathy’s Cat Toys is selling a lightweight feather toy that is incurring minimal FBA fees, has low overhead costs and sells like hot cakes, Kathy knows to reorder that toy.

    However, the Cozy Cat Castle that is heavy, large and slow-moving is a SKU that Kathy should consider no longer purchasing or even remove from FBA so as not to incur more fees.

    A lot of smaller brands choose to track all of these calculations through spreadsheets, but this can be extremely inefficient and time-consuming.

    Most successful mid-market sellers decide to employ a third-party software to automate this process and help them determine their true profitability.

    Identify Trends That Are Costing You Money

    1. Returns.

    While some products may have a high return rate (e.g., 20% of orders are returned), you may easily be able to resell all of those items as ‘new’ condition a second time if a customer doesn’t open or tamper with the product before returning it.

    Other products may have low return rates, but are a complete write-off if returned (e.g., software, vitamins, underwear).

    If you are forced to resell the SKU as ‘used’ following a return, there is a write-down cost incurred by not being able to generate the revenue you would have received were the item in ‘new condition.’

    For example, if you are selling an iPad and the customer chooses to return it, you would have to sell the item for a lower price as ‘like new’ or ‘used.’

    As products are returned, you should be tracking not only the proportion of each SKU being returned but also the cost per return regarding write-downs or write-offs.

    This can be found in Seller Central reports or automated through third-party software.

    It’s crucial to monitor return rates and return-related costs because occasionally those costs will actually be high enough to warrant removing the products from your catalog.

    Alternatively, you may have the option to push part of that cost onto your distributor/supplier with whom you share the returns-related cost data.

    For example, let’s say Molly’s Marionettes have seen a large number of returns.

    After Molly does a returns analysis, she finds that she is losing money.

    Once she removes the problem product from her catalog, she sees a 10% increase in profit the next month.

    2. Stockouts.

    Inventory stockouts (when listings are out of stock) happen to even the most experienced Amazon sellers and have the potential to be one of the biggest leaks in your profitability bucket.

    How much are inventory stockouts costing you?

    Let’s go over an example of just how much of an impact stockouts had on Steve’s Sporting Goods.

    Steve is an established Amazon seller with over 5,000 products, and his top seller is a pair of high-end soccer cleats. The cleats have been flying off the shelves and are selling at an average of 60 units per month, with a profit of $50 per unit.

    On average, Steve is out of stock on these cleats an average of 2.5 days per month, equaling a loss of $1,500 in profit over the course of the year ((2.5 days x $50/unit) x 12 months in a year = $1,500). While this may not seem like a lot, let’s consider Steve’s business as a whole.

    Using the Pareto Principle, or the 80/20 rule, we can assume that 20% of Steve’s inventory generates 80% of his profits, so 1,000 of his 5,000 SKUs. If we estimate that on average, his profit per SKU sold is $10 and he sells 10,000 of his top 20% of SKUs.

    If Steve were able to cut his average stockout time per month in half, he would make an additional $50,000 of profit each year.

    Why Stockouts Happen and How to Prevent Them

    Scenario 1: An Increase in Customer Demand

    Some changes in demand will be unpredictable, like when Kate Middleton wears a particular dress (known as “the Kate Middleton Effect”) and sales shoot through the roof.

    How to Prevent this Stockout Scenario:

    Not all stockouts can be remedied with the same solution.

    First, take a look at the type of product you’re selling.

    Since the “Kate Middleton Effect” is hard to predict, the best solution is to build a buffer into your buying strategy and buy extra stock to prepare for scenarios like these. Keep in mind that this strategy has drawbacks as well. If your product doesn’t sell, you risk paying those pesky FBA storage fees.

    Scenario 2: Annual Seasonal Variations

    Every retailer knows that when spring begins, winter boot sales become slower than molasses in January and rain boots and sandals begin to fly off the shelves.

    For many sellers, this often results in stockouts.

    How to Prevent this Stockout Scenario:

    If you are selling seasonal items, you’ll want to monitor changes in your historical sales rank and stay on top of other factors, like weather patterns, to help predict inventory levels. This can be tracked through spreadsheets or third-party software.

    Scenario 3: Complications with Your Supplier

    Occasionally, you will run into supplier issues that are outside of your control.

    For example, Nike decides to discontinue your best-selling running shoe or your wholesaler ran out of stock.

    How to Prevent This Stockout Scenario:

    Be your supplier’s best customer and maintain open lines of communications with them at all times.

    This way, you can be alerted in advance to any changes in their product line or SKU volume and adapt your strategy accordingly.

    Most importantly, you’ll know if any of your best-selling items are about to be discontinued, giving you the ability to buy up a bunch of extra inventory so you can continue to enjoy these sales for as long as possible.

    Scenario 4: Changes in Demand Resulting from Competition

    There are two potential causes for this scenario:

    1. Your Kitchen Aid blender has been struggling to sell for weeks and all the sales have gone to your competitor, Kelly’s Kitchen Supplies. All of a sudden, Kelly runs out of stock and you’re the top seller on the listing. This causes demand of your blender to go through the roof and you are not able to keep up, causing you to go out of stock, too.
    2. The opposite scenario happens when Amazon sees the success you are having with your KitchenAid blender and begins to sell the same SKU. Now you are never able to win the Buy Box, no matter how low you go with your price.

    How to Fix This Stockout Scenario:

    It’s crucial to regularly monitor your sales volume, price changes and variations in sales velocity for your SKUs.

    This will help you catch the first scenario as quickly as possible so you can adapt your strategy.

    Depending on your competition, you may want to increase your price to get even more of a profit margin out of this temporary spike in sales.

    Competitors jumping on a listing is becoming more and more of a common occurrence.

    To properly prepare for this particular situation, always be on the lookout for opportunities to diversify and expand your portfolio so that losing a few SKUs won’t make or break your business.

    The more diverse you are at the brand, supplier and SKU levels, the lower your risk.

    Always scout for new brands to sell so that if your best supplier begins to sell directly to Amazon or if your supplier cuts you off completely, you have more profitable products to rely on in your portfolio.

    Know Your Metrics

    Key Performance Indicators (KPIs) are crucial for the success of any business.

    These metrics can help you evaluate your success at reaching key targets, allow you to spot trends or problem areas and assess your overall performance.

    They are used across all industries but are particularly useful for retail businesses.

    The most successful Amazon sellers know to segment their analysis by brands, suppliers and buyers, and review metrics for each of these areas at least once a week.

    Here are the most important KPIs to evaluate the health of your Amazon business:

    1. Inventory to Sales Ratio.

    amazon seller fees costs analytics investory to sales

    This key metric covers multiple areas of your business.

    It indicates the overall health of your inventory and highlights your sell-through rate.

    2. Inventory Turns.

    amazon seller fees costs analytics inventory turns

    This ratio shows how many times a company’s inventory is sold and replaced over a period of time.

    A low turnover rate implies poor sales and, therefore, excess inventory.

    3. Gross Margin Return on Investment (GMROI).

    amazon seller fees costs analytics gross margin return

    GMROI is a ratio used to evaluate inventory profitability.

    A ratio higher than one means you are selling the merchandise for more than the total cost it took to acquire it.

    4. Cash to Cash Cycle.

    amazon seller fees costs analytics cash to cash cycle

    Cash to Cash Cycle measures the amount of time it takes for capital invested to go from cash to the production and sales process and then convert into cash again through sales.

    This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect cash owed, and the length of time the company is afforded to pay its bills without incurring penalties.

    The longer your cash to cash cycle is, the more time your cash flow is tied up.

    This means you are losing out on potentially more profitable investments.

    5. Days of Inventory (DOI).

    Quantity on Hand / (Sales During Period/Period)

    This KPI will help you see the average number of days an item is held in inventory before it is sold.

    It’s extremely useful in determining order quantity to ensure you are not overstocking or stocking out of your inventory.

    Days of inventory (DOI) is much higher for companies not tracking KPIs.

    Profitability Leaks

    Tracking your metrics is key because the dollars are in the details.

    While these details may seem minute, when the mistakes add up they can make or break your business.

    Here are some commonly missed profitability leaks unique to Amazon sellers:

    • Returned items that are lost or damaged: Occasionally, items returned by customers are either lost or damaged in transit and the seller of those items never receives them.
    • You don’t receive your refunds: When a customer returns one of your products to Amazon, Amazon immediately refunds the customer the amount they paid for the item. However, occasionally that refunded payment never makes it back to the seller’s account.
    • Amazon does not receive your shipments in full: It’s common for parts of your shipment to get lost or damaged along the way to Amazon’s fulfillment centers. It’s crucial to confirm the SKUs you sent over to FBA match up with the shipment Amazon has received.
    • The SKU quantity sent from your vendor is incorrect: Check, check and re-check again that the quantity you receive from your vendor is the same as the quantity you are expecting.

    Now that you know about some of the most common profitability leaks and the key metrics you need to pay attention to in order to evaluate your true profitability, let’s talk about how to squeeze the most out of each dollar you invest.

    Use Your Profitability Analysis to Squeeze More Out of Your Dollar

    1. Vendor negotiation.

    Lay all of the facts out on the table and perform an audit on all of your suppliers.

    This will help you spot areas where you can negotiate to get better deals.

    For example, the seller in the example below should be able to leverage their large sales volume and five-year relationship to negotiate better payment terms.

    2. Product sourcing.

    Now that you know your most profitable SKUs using the metrics we outlined, use your findings to inform your future buying decisions.

    Also, remember that the more diverse your portfolio is, the less risk you have of seeing a large drop-off in profit in case one of your product lines is discontinued or your brands go out of business.

    3. Historical profitability trends.

    If you identify that your pink oven mitt sales have been decreasing over time, it’s time to consider whether or not you want to reorder that product.

    Remember that all products have a life cycle – the key is to pay attention to trends.

    4. Consider third-party solutions.

    Seller Central’s reports are often not thorough enough and spreadsheets can be a pain to update and manage.

    Save time by automating processes that can be more effectively managed by technology.

    If you are interested in learning more about how you can automate the processes outlined above to identify your true profitability at the SKU level, contact the good folks over at Teikametrics.

    Want more insights like this?

    We’re on a mission to provide businesses like yours marketing and sales tips, tricks and industry leading knowledge to build the next house-hold name brand. Don’t miss a post. Sign up for our weekly newsletter.

    Table of Contents

    IntroThe Definitive Guide to Selling on Amazon[2022 Edition]
    Chapter 1 How Rollie Shoes’ Amazon Channel Manager Hit Amazon Selling Success in Less Than 7 Months
    Chapter 2 Is Your Business a Good Fit for Amazon?
    Chapter 3 Reselling on Amazon – Thoughts from The Former Head of Selling on Amazon
    Chapter 4 A Handy Amazon Seller Account Setup Checklist to Drive Sales
    Chapter 5 Amazon Selling Strategies to Get You Started Now
    Chapter 6 Amazon Selling Pitfalls Even the Savviest Sellers Forget [Infographic]
    Chapter 7 If You Aren’t Selling Your Products, Someone Else Is – Dealing With Amazon Fraud
    Chapter 8 The Amazon Buy Box: How It Works for Sellers, and Why It’s So Important
    Chapter 9 Chapter 9 How to Master Amazon SEO and Move Your Products up the Search Rankings in 2022
    Chapter 10 How to Successfully Market Products on Amazon & Think like a Buyer [2022]
    Chapter 11 8-Figure Private Label Seller Shares His 9 Steps to Success
    Chapter 12 Leveraging Amazon FBA for Your Online Sales Success
    Chapter 12 The Secret Amazon Pricing Strategy to Crush the Competition
    Chapter 13 Amazon Seller Fees: Costs and Metrics to Consider to Increase Profit Margins
    Chapter 14 How to Make $5K an Hour Selling on Amazon
    Chapter 15 The 4 Secrets of Long-Term Amazon Success [including FBA]
    Chapter 15 Amazon Advertising & PPC: What You Need to Know, How to Get Started and a Tool to Help You Along the Way
    Chapter 16 5 Brands Discuss How Amazon Pay Increases Their Customer Experience
    Chapter 17 55 Essential Selling on Amazon Tips to Grow Sales and Win Market Share
    Chapter 18 Using BigCommerce to Sell on Amazon


    Lauren Shepherd

    Lauren Shepherd

    Lauren Shepherd is the Senior Marketing Manager at Privy, where she helps thousands of ecommerce merchants grow their email lists and rescue more carts through well-researched content. She’s been immersed in the world of ecommerce for more than half a decade, and loves helping merchants improve their marketing game.

    View all posts by Lauren Shepherd

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