Fortify Your Bottom Line: Pay Lower FBA Fees
Without a doubt, Amazon’s FBA program offers a lot of benefits and value to its subscribers. Multitudes of us are taking advantage of this great selling platform and are earning handsome ROIs from our inventory investments, and the number is growing exponentially each day.
That being said, although Amazon FBA presents a straightforward opportunity for profit, it does come with its complexities. For instance, one aspect of FBA that many sellers find perplexing is the payment of various fees to Amazon for utilizing its fulfillment channel.
Often times I paint these fees with one giant brush and group them into the part of my mind that says “There is nothing I can do about these, it’s just a cost of doing business” Recently I sat up late one night thinking about how there may be a way to cut these fees, if even by a little bit, and shake some more profit out of the Amazon FBA Tree.
The first thing I needed to know was what fee’s I was actually paying.
The reality is Amazon has always been upfront with the fees they charge, I just usually ignore them. For those of you that do also, here is how they categorize these expenses:
This is the commission Amazon earns from letting you use its sales platform. The rate Amazon charges for its referral fee is 15% of the item price. The category of the product may cause the rate to vary.
Variable Closing Fee
The amount varies per item, and will depend on what the category the item belongs to, where it was shipped, and what the mode of shipment was. Only media products such as books, game consoles, DVDs, music CDs, software and the likes are subject to these fees.
Amazon Fulfillment fee
This is the total sum of three FBA transaction fees: FBA Order Handling fee, FBA Pick and Pack fee and FBA Weight Handling fee. The product size tier your item belongs to will determine the cost of the order handling fee and the pick and pack fee while your item’s weight will set the cost for the weight handling fee.
So now that I knew what I what I was paying for, I dove in the deep end and brainstormed and researched as many ways I could think of to lower the FBA fees.
And here is what I dug up:
1. Beat the Amazon Add-On Program – FBA sellers haven’t been too crazy with Amazon’s Add-On Program. To those who aren’t familiar, in the Add-On program, Amazon may choose to feature your lightweight, low -priced product as an “add-on” that must be purchased with another item since it is “costly” to ship on its own. When one of your items is branded as an add-on, two problems are created: First, it is now doubly hard to sell your item, and second, the FBA fees go up.
The best way to beat this Amazon feature is to add a new multipack option to the add-on item’s product page listing. The working logic here is that a customer may be more amenable to spending more on a multipack of a product that he or she needs/wants than buying something that he or she does not particularly care for.
2. Identify Your Target Market and Plot Your Own Shipping Plans – although it seems more convenient to just let Amazon handle your shipping plans, you may incur unwanted additional shipping related fees if you do so.
When handling your shipping plans, Amazon conducts market testing in order to determine the most profitable location for your product. That sounds great and all, but what you probably don’t know is that as it moves your product around different fulfilment centers in the country, you end up shouldering the shipping costs. This can take a huge chunk off of your ROI from your inventory investment. If you want to know which of your products Amazon is moving around, head to your inventory manager in your seller account and check the availability of your products. Items marked as “reserved” are the ones generating additional shipping costs.
While this additional expense is acceptable when you are starting out, remember that in the long run, you’ll be better off knowing where to ship your products and developing your own shipping plans. You will definitely save on shipment fees and increase your ROI.
3. Get Rid of Stale Inventory to Avoid Paying Long Term Storage Fees – stale inventory hurts your potential for profit in two ways: first, it represents capital that can’t be reinvested in faster moving products and second, stale inventory that has been idle on fulfillment center shelves for six (6) months are subject to Amazon’s long term storage fees.
Amazon issues long-term storage fees bi-annually (every February 15th and August 15th), and charges a rather steep rate of $11.25 per cubic foot your affected inventory consumes. Failure to remove affected inventory within a year of being charged will get you charged double the rate at $22.50. Paying these fees is a serious drain on your capital and definitely hurts your bottom line. Therefore, it is a must to conduct routine inventory age checks and dispose of aged inventory as often as you can.
4. Take Item Size and Weight Into Consideration when Setting Profit Margins – One of the prerequisites for FBA success is understanding how the size and weight of your item affects the FBA fees that you have to assume. Naturally, the bigger and heavier the product, the higher the Amazon Fulfillment fee gets and vice versa. Therefore, if you plan on selling larger products on FBA, make sure that you set profit margins that can sufficiently cover the costlier fulfillment fees Amazon will charge. This is the reason why, as a rule of thumb, I stay away from bulky and heavy items, as these will necessitate more effort on Amazon’s part to fulfill, which in turn will lead to a spike in fulfillment fees.
5. Do not Overlook “Opportunity Costs” – to make things clear, Amazon will not charge you any fees for not being able to replenish your inventory in a timely fashion. However, keep in mind that your failure to do so subjects you to “opportunity costs” when you lose your sales momentum due to stockouts. Keep in mind that loss of opportunity also hurts your bottom line. Therefore, it is your responsibility as a seller to actively monitor your inventory and restock when needed. When replenishing your inventory, always take into consideration the lead time, which is the wait period for your items to become active and available for sale on Amazon. Doing so will make your restocking process much more efficient.