There are all kinds of factors that go into a profit margin. There’s the cost of the actual product, for one thing; there are also shipping costs, storage fees, and much more. If you’re an Amazon seller, the fees you pay to use the platform will play a big part in your bottom line – to the tune of 34% average of your total sales, to be specific. That number seems even higher when you compare it to the 2014 average, at “just” 19%.
As you might expect, Amazon’s ever-rising seller fees have made it increasingly difficult to turn a healthy profit. However, there are still certain strategies that have helped many sellers to not just make a living, but to find success on the platform. The key is to identify both high-margin and low-margin items, and prioritize the ones that are making more money. Coming up with an accurate profit margin for every item involves a ton of information, though; that’s why Shopkeeper exists. This profit calculator gives you real-time data on every aspect of your Amazon store, from profit margins to inventory management – all in one dashboard.
If you’re going to understand how your profit margins on Amazon work, you’ll need to understand some of Amazon’s seller fees.
Shipping Credit vs. Cost
The sellers who handle their own shipping don’t have to pay the expense on their own dime; Amazon will give them shipping credits to offset the cost. You can’t necessarily rely on these credits to cover your costs, though; this is because, for larger or bulkier items, Amazon seems to consistently underestimate what these packages actually cost to ship. The good news is, sellers can view Amazon’s shipping credit chart so they can compare what they’ll get from Amazon to what they’re really spending.
Seller Account Fees
This fee will depend on what kind of seller account you have. If it’s an Individual Seller account (i.e. you’re a lower-volume seller), it’ll cost $0.99 for each listing, with a maximum of 40 sales per month. This is the type of seller, for instance, who sells their own art as a hobby, or someone who recently cleaned out their attic and discovered a few pieces that were worth selling at a competitive price.
If you have a Professional Seller account (i.e. you’re a higher-volume seller), it’ll cost $39.99 for each month for unlimited sales and store listings. You’ll also have the choice to use an FBA (or “Fulfillment by Amazon”) warehouse, where you can store inventory, use their pick-pack-ship services, and more.
Sale-Related Fees
Regardless of the type of seller account you’re working with, you’ll be paying referral fees. They aren’t a fixed price, but rather are a percentage of the products’ sales price. Usually the average for referral fees is around 15%, but there’s a good bit of variation: the highest sits at 45%, while the lowest is 6%.
There’s only one exception to referral fees, and that’s the minimum referral fee. Between $0 and $2, this applies to specific categories, whenever it’s greater than the usual referral fee.
If you’re looking at media categories there’s one more fee to take into account, and that’s the closing fee. At a flat-rate sum of $1.80, the closing fee is added onto the appropriate referral fee.
FBA Fees
There’s a reason why around 91% of Amazon sellers use FBAs; they’re convenient and (usually) cost-effective. It also makes them eligible to offer Amazon Prime to their customers, which is an added incentive. It’s important to be smart when using this service, though. Not only does it add up quickly, but certain size tiers cost more than others. You’ll get a bit of a break in storage fees for larger packages ($0.53 per cubic foot instead of $0.83 per cubic foot for regular packages), but if you’re looking at shipping costs or fulfillment fees, the costs for oversized packages can put a serious dent in your margins.
You also have to consider removal/disposal fees, aged inventory surcharges, and other fees that don’t always apply, but will still impact your bottom line. The great thing about Shopkeeper is that when it calculates the margin for every item, it takes into account all 72 Amazon fees for the most accurate, up-to-date information possible.
Beyond Amazon seller fees
It’s great to work towards ambitious sales goals, but having a successful Amazon business takes a bit more strategizing than that.
- Have multiple options. If you’re only selling on Amazon, you’re dependent on how they tell you to run your business. If you’re selling on other platforms, though, that reduces Amazon’s leverage on your business plans.
- Act early. What you start out selling won’t be exactly what you end up selling; hopefully you’ll develop your product offerings along the way. In fact, it’s best if you start the planning process from Week 1, so you won’t be playing catch-up with customer demand.
- Protect your most important assets. Just because you have proven best-sellers doesn’t mean you should list them on Amazon. Keeping your brand’s signature products for other platforms means that you get to control them, and that’s important. If you’re worried about how this could affect profits, Shopkeeper would identify your other high-profit items – plus the low-profit ones that don’t belong in your Amazon store.
- Maximize creation of value. Just because you know an item will sell doesn’t mean it should be sold. Rather than focusing on overall sales, hone in on the high-margin products to maximize your earnings. You could use Shopkeeper to keep tabs on how each item is performing, and quickly adjust your strategy every time you noticed a change in profitability.
Make the data work for you, not the other way around.
The early bird catches the worm, as they say – and this applies to being an Amazon seller as much as anything else. A tool like Shopkeeper lets sellers not only keep track of their profit and loss drivers, margins by item, etc., but it also enables them to react quickly to changes in order to make growth-oriented decisions and get ahead of the competition. If you’re interested in trying Shopkeeper for yourself, get their extended 30-day free trial!