As the old saying goes “you’ve got to spend money to make money,” and that certainly applies to selling on Amazon. As an Amazon FBA seller, you’re going to be hit with fees. But if you’re smart and diligent enough, you can find some ways of reducing Amazon fees to increase profits for your business.
Let’s take a look at the FBA fees you’re paying and ways to lower your Amazon selling fees, so you can increase profits.
Which Fees Are You Paying with Amazon FBA?
If you’re a seller who uses FBA (Fulfilled By Amazon), there are 3 main types of Amazon fees you’ll be paying just to deliver your inventory to an FBA warehouse and let Amazon take it from that point on. There are other fees that might apply in certain situations or circumstances, but we’ll be focusing on how these 3 types of fees work (and how you can go about reducing them).
#1 Amazon Storage Fees
As the name suggests, these fees are charged for holding your inventory inside of an Amazon FBA warehouse. Amazon charges once a month based on the space your total inventory is taking up at that moment. The fees are charged per cubic foot (or meter) of space and they are different for 2 size categories: standard and oversize.
The fees also go up during the final three months of the year, since Amazon processes a lot more inventory during the holiday season.
There’s also an additional monthly charge of $0.15 per item per month if an item has spent a year or more in an FBA warehouse.
#2 Amazon Fulfillment Fees
Amazon Fulfillment fees cover all the services Amazon provides moving your product inside the warehouse, handling the parcel, preparing it for shipping and sending it out. This fee is charged every time you make a sale. Depending on the size and weight of your item, it will be placed within 1 of the many fulfillment fee categories that each correspond to a fee bracket.
Fulfillment fees are also technically charged for handling returns, where in an event of a return of an item back into an FBA warehouse you’ll be charged the same amount as it was to fulfill the order in the first place. The only difference being that on the way back, the fee will be called a return processing fee.
#3 Amazon Referral Fees
Amazon referral fees are also charged every time an item from your store has been sold. The fees are charged for having a listing and selling an item on Amazon. The fees are charged as a fixed percentage of the total selling price the customer has paid, in most cases that percentage is 15%. With the minimum referral fee being .30, meaning that if you’re selling an item for $1 you’d be paying .30 in referral fees instead of $0.15 which would be 15%.
How Much Do Those Amazon Fees Add Up To?
Let’s take a look at an example here, a set of silicone baking mats. Let’s calculate how much the seller of this item is paying in fees per every set of mats:
Now that we have an idea of how much fees can cost and how they are calculated, let’s look into some ways of reducing them.
Product Packaging Could Be Key
It’s obvious that the weight and the size of a packaged product unit has a substantial impact on how the fees are calculated by Amazon. It’s only natural to focus on that first if we’re to reduce our Amazon fees. Also if you manage to reduce the size or weight of your product you’ll save money on shipping as well. It’s like killing two birds with one stone.
Hint: Amazon Products Don’t Have To Work Like Retail Product Packaging
Whatever design you choose for your product packaging doesn’t have the burden of achieving the same effects that it would in a brick and mortar store. It doesn’t have to stand out on a rafter, it doesn’t have to entice someone to pick it up. That’s what your Amazon listing does! By the time your customer sees the packaging, the purchase has been made. You shouldn’t feel bad for trying to make adjustments to your packaging for the sake of reducing fees.
Use Compact Packaging
Try your best to keep Amazon product packaging as small as possible. Make sure you ask your supplier if there are any other options for packaging and examine them thoroughly. If your supplier doesn’t have any options that suit you, propose one yourself. See if you can move or bend your product around to fit differently than it is fitting now. Then measure it, and see if you can fall into a different fee bracket with that configuration.
Find Ways to Lighten Up
Looking into lighter packaging options for your Amazon products is an obvious route to explore. You should also look into making the product lighter as well, if possible. Maybe use a different material for some of the products you’re selling on Amazon. Or consider removing a feature that doesn’t seem to be relevant to buying preferences, based on your customer feedback.
Be Precise in Your Packaging
The dimensions of your product are measured by length, width, and girth. Amazon will put it into a straight-edged cardboard box. There’s no need to have any unorthodox packaging, such as flaps, bows or anything similar. Keep in mind that one of the products in each of your batches will be scanned by Amazon to check its dimensions. You don’t want any part of the packaging to go any further in any direction than it absolutely has to.
Relationship Between Amazon Fees and the Selling Price
Fulfillment fees are the only ones that change when you change your Amazon product price. It’s extremely important to keep that in mind. It’s true that you can’t do much about referral fees, being that they’re charged as a fixed percentage. However, if you change your perspective a bit by focusing on your margins rather than on fees, you might discover new ways of banking more profits. Let’s crunch some numbers to show how this works in action. We’ll go back to the silicone baking mat we looked at earlier:
As we can see above, the fact that all other Amazon fees remain fixed and the referral fee rises with the rise in price, the margins increase as well. The same is true if you wish to do a discount via a coupon or otherwise.
If you reduce your price by 60% you will pay 60% of the original referral fee, meaning that the strategy might not be as costly as you originally thought. Try split testing prices, or an Amazon repricing tool. Finding the balance between profits, fees and sales volume is a critical skill for an Amazon seller.
Bonus Fee Hack! The (Sort of) Secret Amazon Fee You Might Not Even Know About
Just now, we looked at increasing profits while keeping fees in check. If you’re selling on a foreign market, your earnings go through Amazon’s currency converter. That’s where you’re probably losing more money then you thought.
Sellers usually just accept that Amazon will convert their earning into the appropriate currency without giving it a second thought. What you don’t know is that Amazon is one of the higher conversion rates out there. Their rates go as high as 3.5-4.5% by some estimates. The percentage gets deducted from your earnings, after all the fees have been charged. That means whatever your profit, Amazon will take an estimated 3.5-4.5% on top of that when you sell cross-border.
How to Avoid Paying High Exchange Fees?
The best way for an online seller to avoid Amazon’s FX fees is to arrange to have Amazon deposit your funds in the currency of the marketplace – without converting through the Amazon platform. You can do this through a global currency account for online sellers such as the one PingPong provides.
Using a global currency account would allow you to save up to 2-3% on average. You also have more power to control which currencies you hold, instead of being forced to convert your foreign payouts into US dollars by Amazon. This is especially useful when paying European VATs and Canadian GSTs. Using a global currency account, you can make VAT payments without additional fees – while completely avoiding the dreaded double currency exchange that usually takes place before paying foreign taxes like VATs and GSTs.
Online sellers can also run into currency exchange fees when paying international suppliers. If you’re negotiating prices in your supplier’s local currency, which is often recommended, you’ll then have to find a way to safely pay your supplier and convert the payment into local currency. Going to your regular bank to make international wire payments gets expensive, because banks aren’t known for giving the best rates.
A global currency account like the one from PingPong can also help you with supplier payments. Once you set up your account, you’ll be able to hold multiple foreign currencies. When you do need to convert currency, you can do it at a great low rate.
Curious to see how the rate you’re paying compares? Learn more about global currency accounts for online sellers.