Breaking Down Amazon Marketplace Fees
In late November, Amazon’s stock prices rose 2% in anticipation of Black Friday Sales optimism. This 2% increase pushed Amazon’s CEO, Jeff Bezos, over the $100 billion mark, firmly cementing him as the richest man on earth. Since January, Bezo’s fortune has seen a $32 billion increase thanks largely to Amazon Web Services and Amazon Prime’s ever-growing membership with an estimated 90 million subscriptions worldwide.
What began as an online bookstore has morphed over the past two decades into the largest online retailer in the world and it does not look like this growth will be capped at any time in the foreseeable future. One of the biggest draws of Amazon is the variety of means by which online retailers can sell inventory. Unfortunately, however, Amazon’s complicated fee structure is just about as easy to navigate and understand as King Minos’ Labyrinth.
Much of what selling will cost you is contingent upon a variety of things such as product category, size and volume of sales. One would assume that a company as forward thinking and progressive as the retail giant would have clear cut fee structures and answers to the question, “What will it cost me to sell on Amazon?” but that is not the case. In all likelihood, you do not have the time nor the patience to try and decipher this enigma code. So, allow this article to function as Theseus’ ball of string as we navigate the maze of Amazon marketplace fees.
Selling on Amazon
The Amazon Marketplace is the number one marketing channel for online retailers, but before a seller can list products on Amazon’s website, they must first create an account. During this setup phase, you will have two options to choose from: professional account, and individual account.
Professional Account – To set up a professional account, you will have to pay a subscription fee that is $39.99/month in addition to other selling fees. Generally, you would choose this option if you plan to sell more than 40 items a month. The reason for this is due to the fact that Amazon Individual accounts require a 99¢ fee for each and every sale made. For example, pretend you make 200 sales a month. 39.99/200 ≈.20, so that would require an extra 20¢ to be added to your cost per sale.
Professional accounts offer a bevy of features and benefits including:
- The option to add new products to the Amazon catalogue.
- Amazon is responsible for and handles customer service, shipping and fulfillment, so you do not have to worry about it.
- The ability to sell anywhere within the United States, Canada and Mexico
- Bulk listing and reporting tools.
- Customized shipping rates.
- Special promotions and gift wrap.
- Listings are eligible for top placement on details pages.
Individual Account – To set up an individual account, you will not be required to pay that $39.99 subscription fee, however, as mentioned above, you will have to pay 99¢ per sale in addition to other selling fees. So, this is considered to be the most cost effective method, if you are selling 39 items or less. That said, there are far fewer features when compared side-by-side with the professional account option. They include:
- The option to add new products to the Amazon catalogue.
- Amazon is responsible for and handles customer service, shipping and fulfillment.
- The ability to sell anywhere in the United States and Canada.
Referral Fees – Referral fees are added to all sales, regardless of whether or not you have an individual or professional seller account. Every item that gets sold through amazon has this fee attached and that is determined by two things: the product category and the selling price. The percentage of fee varies and can range anywhere from 6% to 45% although this number is on average right around 15%.
The referral fee is generally determined based on the total price charged to the customer, including the shipping and handling charge. Some categories might have even more convoluted rules, charging based on things like the price of the item and the gift rapping for the item, but not for shipping. Be careful and do your research.
Amazon’s Seller Fee Schedule lists referral fees for each specific category, so use this as a tool to get a more accurate assessment. Do note that taxes charged using an Amazon tax collection service are not included in the referral fees.
Most product categories have a minimum referral fee of $1 per sale, though this number is bumped up to $2 for items such as jewelry or watches. If the category you are selling in does have a minimum referral fee, you will not have to pay for both, but the larger of the two fees, contingent upon your product’s selling price.
If you were selling an item that costs $4.99 with a 15% referral fee, that referral fee would be 75¢. 75¢ < $1, so the minimum referral fee kicks in.
However, if you were selling an item that costs $100 with a 6% referral fee, that referral fee would be $6. $6 > $1, so the referral fee kicks in.
Variable Closing Fees- Amazon charges an additional fee for products that fall within its Media categories. This $1.80 fee is in addition to the referral fees for any item in these categories: books, computer games, dvds, music, software, video consoles and video games. If Amazon allows you to set your own shipping rate, then you will not be charged that variable closing fee. If you are selling non-media items from an individual account and Amazon requires you charge a certain amount for shipping, you will be charged a flat fee as well as a variable fee based on the weight of said item. An example of this would be if you were selling something very heavy. Your shipping cost would go up to account for that and you would have to pay the additional $1.80 VCF.
Shipping and handling – If Amazon is responsible for the shipping and fulfillment of the goods you are selling, they are the ones who determine how much you will charge your customers for shipping.
If you are using an individual account, when you ship an order, you will receive a standardized shipping credit. Amazon sets the shipping charges based on the product category and the shipping method selected by the buyer, and then credits what the buyer was charged to your account. You must ship orders even if the shipping credit is less than your total shipping costs. To offset the difference, you can adjust your shipping charges or the price of your product. This page will allow you to learn more.
If you are selling media items: books, music, video and dvds, the same rates apply for professional account sellers. If not, then you get to determine the shipping cost. Shipping rates are often much lower than what your actual cost to ship will be. But to be safe, plan to cover a portion of your shipping charges within the expense of your item.
Fulfillment by Amazon- Whether you have an individual account or a pro account, you can use FBA to stock, pack and ship whatever product you are selling. As you have probably come to expect, there is a fee for this that depends on a product’s size and weight. With that said, most FBA fees are reasonable in lieu of the tradeoffs in time and cost when it comes to storing, packing and shipping your products. In addition, it makes your items Prime-eligible. FBA fees also change based on the time of the year.
Advertising on Amazon Marketing Services – An option added by Amazon is Amazon Marketing Services (AMS). This addition allows vendors to reach new customers and increase product revenue. Using a PPC (pay per click) model, it allows you to:
- Target ads by shopper search keywords, interests or products
- Build ads quickly and easily—no design or technical expertise needed
- Pay only when shoppers click your ad
- Optimize performance with detailed sales reports
Amazon Marketing Services is based on a cost per click model and there are no additional fees associated with running these ads.
Now that we have navigated the complicated maze of Amazon fee structures, you can start selling on this vast and diverse online marketplace. Be sure to pay attention to their fee and shipping schedules and if you have any additional questions, check out their FAQ.