Most, if not all, Amazon sellers understand the benefits that comes with using the Fulfillment by Amazon (FBA) system. But then again, many fail to realize that the fees included with the program can eat up a huge chunk of their ROI if not managed correctly.
To be fair with Amazon though, they have been pretty transparent with their FBA fees. So basically, it’s the fault of the seller for not fully understanding how the entire system works.
Those that have learned from their mistakes have modified their FBA strategy to address this problem. But with no clear template on how to effectively go about doing it, some still fall into the same pit they hoped to sidestep.
If you wish to better understand the fees involved with Amazon’s FBA system, or if you are thinking of using FBA, then I strongly suggest that you go through the entire article, as the main purpose of this post is to make you understand:
- What are the standard FBA fees
- What are the hidden ones
- How FBA fees affect your actual earnings
- How to calculate FBA fees for each of your products
All of these will give you an idea on how to correctly price each of your products for them to earn maximum profits.
As the saying goes “knowing is half the battle”. But first;
What is Fulfillment By Amazon (FBA)
“You sell it, we ship it”. That was a quote from Amazon itself on how they describe their FBA program. And for me, I dont think there is a more accurate and simpler way of explaining it.
In a nutshell, all you need to do is send your products to an Amazon fulfillment center and they will take care of storing, packing and shipping, and even provide customer service.
The benefits of using the FBA program does not end with mere convenience on your part, but with ensuring that your product is delivered on time to the right address. Giving you a higher chance of getting favorable customer feedback.
But just like any other courier service, Amazon charges you for this service. Fees are directly deducted from your sales profit.
Convenient, absolutely! But then again, if you don’t understand how these FBA fees work, there is a possibility that they will eat a huge chunk of your profits.
So let’s start getting into the meat of things and start with;
Your Standard Amazon FBA Fees
There are three standard fees that a seller pays when using Amazon FBA:
This is the standard fee Amazon charges every seller for using it as a retail platform. The standard charge is 15% but can fluctuate based on the category of a product.
Variable closing per item fee
Variable closing per item fees are reserved for sellers that does not have a monthly subscription on Amazon. The amount for this fee varies on the category a product falls under.
Order fulfillment fee
This fee is a combination of three order handling costs which are;
- Handling per order
- Handling pick and pack per unit
- Handling weight per pound
The cost for weight and handling per pound varies on the weight and size of a product. Order handling, and pick and pack per unit costs on the other hand is standardized and is based on the product size tier and type that it falls under.
*To check the exact referral fee for each item, refer to the image below.
Hidden FBA Fees That Could Eat Into Your Profits
Well, they aren’t really hidden per se. What they are though can be likened to fine prints and clauses that you have on any legally binding contract.
You need to understand that if you want to take advantage of the FBA system, you must pay for said convenience.
Here are some of the somewhat hidden fees that you should keep an eye on. And understanding each could have a huge impact when it comes to your profit margin.
Add On Products
If you’re the type of seller that sells products at a lower price, then you should keep an eye out on your listing falling under the label of “add on” products.
Add on products are a type of listing that are not allowed to be sold as a single purchase. And buyers that wants to buy a listing labeled as an one are required by Amazon to add another product, which obviously adds to the final sale price.
As a seller, you don’t have control over which product will be labeled by Amazon as an “add on” product. And since Amazon does not define how they categorize a product as an “add on” what most sellers do is to increase the price of the listing.
Now as we all know, price can be a huge factor when it comes to convincing a buyer to purchase a product. And in this case, increasing the price of a listing, for it not to be labeled as an “add on”, can have a huge effect on sales. Also, it can add more to your FBA fees.
FBA Shipping Plan
Another cost that can eat up your ROI is your FBA shipping plan. This is the report sheet that you send to Amazon which details how many units you’ll be sending to Amazon, and where they need to be shipped.
Standard practice would be for a seller to send products to a single Amazon Fulfillment Center and allow Amazon to set your shipping plan. Though this may sound convenient for you, it can actually cost you more in the long run.
You see, Amazon has a habit of moving products between fulfillment centers with the purpose of finding the optimal market location for each product. And every time they ship your products, you end up paying for it.
If you want to know if Amazon is sending your products to another location, just check its “availability” status. If the status of your product is labeled as “reserved” this means that your product has been received, but is in transit to another fulfillment center.
Our advice would be for you to send your product to a fulfillment center that is near the target market for your product, and to create your own shipping plan.
For example, if you sell surfboards, then it’s better to send products to a fulfillment center that is close to consumers that would probably need surfboards.
To create your own shipping plan, all you need to do is follow the procedure on Amazon’s shipping plan request guide.
Long Term Storage Fees
For products that have been in storage with Amazon for more than 6 months, long term storage fees starts to kick in.
An LTSF fee of $11.25 per cubic foot is issued annually every 15th of February and August. And for products that remains in Amazon storage for over a year, the fee goes up to $22.50 per cubic foot.
As you can see, this can easily eat a huge chunk of your profits. So it is imperative that you should not overstock and practice good inventory management.
Weight Handling Fees
To put simply, the more difficult it is for Amazon to fulfill your product, the higher their charge becomes.
Large products, bigger FBA fees. So in order to counteract this, you need to adjust your prices to ensure that you profit margin can cover all the FBA charges associated with it.
Determining FBA Fees: Product Size, Type And Weight
In order to calculate your FBA fees, you first need to determine the type and size your product falls under.
For product type, it’s either media or non-media.
Media products are:
- Computer games
- Video games and consoles
*Anything else is considered as non-media products.
For product size, it’s either standard sized or oversized.
It is further divided into:
- Small Standard Size
- Large Standard Size
- Small Oversize
- Medium Oversize
- Large Oversize
- Special Oversize
*Below is the chart size used by Amazon in classifying product sizes.
Weight fees associated with your product is calculated based on its size and type.
Formula For Calculating Your FBA Fees
With all the information I gave above, we can now start calculating your FBA fees.
Let’s say your product is a kitchen knife. You priced it at $20 and it is under the FBA program. Your first calculation should start with:
Referral Percentage fee
Sale Price of $20 minus Referral Percentage of %15 = $17
Your product being a non-media one, you take the sum and add in:
Handling and Pick and Pack fee
$17 – Order Handling Fee – Pick and Pack Fee = $14.94
Lastly, you add in your:
Weight Handling Fee
$14.94 – Weight Handling Fee = $13.98
Again, the entire process goes like this:
Price of product – Referral Percentage – Order Handling – Pick and Pack – Weight Handling
Now that you have factored in all the FBA fees, you now have an idea how much money you will actually get for each sale. Use this information to adjust your profit margin in order to get maximum monetary return for your effort.
Amazon FBA has its merits. But as you now see, the fees it entails can easily eat away at your profits. So before jumping head first, you must arm yourself with the right information about FBA fees and adjust your pricing to maximize profit.
And I do hope that this article has shed light into the matter.
If you have questions, suggestions or any thoughts you would like to share about this topic, feel free to leave them at the comment section below.
As always, have a great day, and see you next time!