If you ever wanted to launch an Amazon business, now’s the best time to do it: the world-renowned eCommerce platform has reached an annual revenue of $386 billion in 2020, with its growth expected to continue rising over the following years.
One thing that confuses many first-time entrepreneurs on Amazon–and continues to confuse seasoned sellers–is the long list of selling costs. Fees also vary based on your product and the program you chose (such as FBA or FBM).
To start a successful business on Amazon, you need to get a clear understanding of what the selling costs are and what you can do to save the most money. If not, you might get bad surprises and throw away your budget without realizing it.
The prices you’ll be paying to sell on Amazon depend on various factors. These will include:
Amazon has monthly subscription fees for users depending on the size of its business. The professional seller plan, for example, is for companies selling more than 40 items sold per month and costs $39.99 monthly.
If you’re an individual seller with less than 40 orders fulfillment each month, you won’t have to pay any subscription fees. Instead, Amazon will charge you $0.99 per product sold.
If you’re selling via Amazon FBA, the prices you pay will all depend on your order type. For example, the larger your order is, the more you’ll have to pay Amazon to fulfill it.
Since FBA allows you to let Amazon’s warehouses manage your orders themselves, there's also a monthly storage fee that you’ll have to pay. You’ll be paying $0.69 per cubic foot from January to September and $2.40 per cubic foot from October to December.
Keep in mind that if your product stays in the FBA warehouse for longer than one year, you’ll have to cover additional charges.
Unlike FBA, sellers on Amazon’s Fulfilled by Merchant (FBM) program are responsible for fulfilling their own products. One of its main advantages compared to FBA comes in the form of reduced fees.
With FBM, Amazon sellers on the Professional selling plan get to pick their own shipping rates. There is also the benefit of not worrying about paying any warehouse or storage fees.
Each time you sell a product on Amazon, you have to pay a referral fee between 6% to 20%. The referral fee all depends on the type of product you’re selling within your Amazon store.
For example, if you’re selling any electronic products on your store, you can expect to pay a fee of 8%. If you’re selling clothing items, on the other hand, then you’ll be spending around 17%.
It’s pretty common for a customer to order one of your products only to return it later. As an Amazon seller, you’ll be in charge of covering costs for any item that the customer returns to your warehouse.
In general, it takes around $500-$3000 to get started selling on Amazon’s marketplace. The money you’ll invest will have to cover the following aspects of your business:
Your inventory costs will be the most significant upfront investment for your Amazon business. After all, it’s going to be what you’ll be selling to customers on the platform.
If you're entirely new to selling on Amazon, you may feel reluctant to spend a lot of money on inventory since you don’t have a clear idea of what products will work with customers yet. To avoid running out of cash quickly, we recommend that you just invest around $500-$1000 in the beginning and test out which products will sell.
As you’re running your Amazon business, you can’t settle for subpar photos. Having quality product photos will be essential to getting the customer’s attention and driving the most sales.
Part of your budget will be investing in professional photoshoots so you can make your online products stand out. Your pictures must showcase your product from different angles so the customer can get a clear view of the item and see it in a professional light. Low quality images won’t communicate a high-quality offering.
It’s not enough to just upload beautiful pictures to your Amazon store. To drive more sales, you’ll also want to invest in advertising and boost your reach as much as possible.
The good news is that advertising on Amazon is less expensive than other platforms: the current average cost per click on Amazon hovers around $0.35. However, advertising campaigns will take a lot of testing to see what works the best with your audience.
Outside of marketing your Amazon business online, you’ll also be spending a great deal of your time packaging, measuring, and managing your orders (unless you’re on Amazon FBA). As a result, you’ll have to invest in various tools and supplies.
For example, you’ll need to invest in boxes to pack your orders, packaging tape to close them, and a scale to weigh them. A printer to print all of your Amazon shipping labels and documents will also be handy.
As you can see, the fees for selling on Amazon can add up quickly. That said, you can still minimize your Amazon seller costs and save money with the right strategy in mind. Here’s how:
If you’re serious about selling on Amazon, it’s better to sign up for the Professional Seller account at $39.99 per month than the free Individual membership. Since it comes with unlimited listings and extra features to help you sell more on the platform, it will save you more money in the long term.
The category you choose for your product will play a significant role in how much you’ll be paying in referral fees. If you’re not careful, you may end up spending more money than you have to.
For example, let’s say that you’re selling necklaces on Amazon. If you choose the ‘Jewelry’ product category, you’ll be paying around 20% in referral fees. However, if you opt for the ‘Apparel Accessories’, you’ll be paying 17% instead.
Shipping heavy items on Amazon can come at a hefty price. It’s why you want to make sure to estimate your product size every time correctly, so Amazon doesn’t take into account the wrong size of your product and make you pay more for mass that doesn’t exist.
Before you prepare an item for shipping, always double-check that you correctly measure the dimensions. As a bonus, you can also invest in lightweight packaging to reduce the order's weight and save extra money.
Handling shipping manually yourself can be a time-consuming process. One of the best things you can do is outsource your Amazon shipping to a Third-Party Logistics Provider (3PL), which will manage your inventory for you.
A 3PL can save you money in the long run by reducing shipping carrier costs for you. Also, working with a 3PL ensures that Amazon isn’t going to reject your product, saving you time and countless headaches in advance.
If you’re on Amazon’s FBA program and leave your inventory stranded for far too long, you’ll start getting hit with additional warehousing fees. On top of that, it could also cause you to lose storage space for more products.
Make sure to take a look at your inventory each quarter to ensure that none of your products are stranded for too long. If an item doesn’t sell within six months, be sure to take it out of your warehouse.
A simple way to cut your costs on Amazon is to recycle boxes you already have instead of buying new ones. Not only is it going to save you money from buying new material each time, but it’s also better for mother nature.
You may have noticed that customers may like to buy complementary items to one of your orders. The problem is that Amazon applies referral and shipping fees for each order, which ends up costing you money.
Instead, you can bundle multiple products in one, so Amazon only charges you once for one customer purchase. You may have to pay slightly more in referral and shipping fees due to the size, but it may be less expensive than the combined fees from separate orders.
On top of that, product bundles ensure that customers get the most out of their orders and your brand. A bundle can improve the customer experience by simplifying their purchase decision.
If you’re frequently doing business with a carrier (such as FedEx or UPS), you should consider negotiating with them to get the best prices on shipping. For example, ask your carrier if they have any discounts for certain order volumes.
It’s the little things you do that count: by reducing your selling costs on Amazon, you’re not only being more efficient, but you’re also saving money that you can reinvest into your business (such as advertising or improving your product).
However, finding ways to save the most money from Amazon’s selling costs can be a time-consuming process, and there might be other areas of business you’d rather focus on.
That’s where we can help. At Pattern, our team of ecommerce experts help you find the best selling costs for each product you sell on Amazon. Get in touch today and learn what your Amazon costs could be.
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