Understanding Amazon FBA Fees to Optimize your Business
Amazon FBA is a platform that helps ecommerce businesses scale by streamlining costs and simplifying the steps it takes to operate successfully. The better you understand Amazon FBA fees, the more profitably you will be able to run your FBA business.
Amazon FBA alleviates the responsibility of storing, packaging, and shipping orders to people, as well as responding to customer service inquiries. For an individual seller or a small business selling a handful of products, these tasks may seem easily manageable; however, they can become overwhelming as your product offerings and customer base grows.
Delegating these tasks not only helps maintain the quality of your items and the integrity of your brand, but it also saves you valuable time. By outsourcing these tasks to Amazon, your time is freed up to focus on marketing, advertising, and other activities to grow your business. When breaking down operational costs, you should factor in the alternative of not using Amazon FBA and determine whether utilizing Amazon FBA allows you to reach your goals.
Understand Amazon FBA Pricing
There are always costs associated with running your business, regardless of whether you use Fulfillment by Amazon, Fulfillment by Merchant, or another method. If you are an FBA business owner or Amazon seller, there are four main categories of costs to consider:
- Selling plan
- Referral fees
- Fulfillment fees
- Additional & Optional Fees
Selling Plan
As an Amazon seller, understanding the number of orders you plan to receive each month will help identify which of the two service plans you should consider: the Individual Plan or Professional Plan.
If you expect to sell 40 or fewer items per month, the Individual Plan is the way to go. The cost of the Individual Seller Plan is $0.99 per unit sold. This is a great plan for an individual seller who is at the beginning stages of building a business.
As your business begins to exceed this volume, the Professional Seller Plan is more economical. The price of this plan is a flat fee of $39.99 per month. The price is not dependent on the number of units sold. Whether it's 41 or 4,001, the monthly cost remains the same.
The professional selling plan also has many tools included that can be accessed through the seller central portal. In addition to advertising your listings, this plan provides more insight into seller reports that help to optimize your business. If you're at the point where you want and need more advanced selling tools, this is the plan for you!
Referral Fees
The referral fee is based on the percentage Amazon charges for each item sold. The fee ranges from 8% to 15% and is dependent on the type of products sold. Calculating Amazon’s referral fee as part of your operations will allow you to more accurately forecast profit at the product level.
FBA Fulfillment & Storage Fees
Other Amazon FBA fees to be aware of include fulfillment and storage fees.
Fulfillment Fees
The Amazon fulfillment fee refers to the costs required to handle the logistics of picking, packing and shipping your products from Amazon fulfillment centers. Pricing is based on the type and size of your products. Make sure you keep up-to-date with any shipping cost and fulfillment fee adjustments by the platform. As recently as June 1, 2021, Amazon increased its core FBA fulfillment fee.
Specifically, a small standard package with a shipping weight of 4 oz. increased from $2.50 per unit to $2.70 shipping cost per unit, though the shipping weight slightly increased as well. Though the adjustments reflect an incremental change, it does affect your overall fees.
Storage Fees
Additionally, there is a monthly storage fee to house your inventory in the Amazon fulfillment center. These inventory storage fees vary depending on the size of your warehouse needs.
Storage fees also vary depending on time of year. From January through September, the fee is $0.75 per cubic foot and increased from October through December to $2.40 cubic foot.
Additional & Optional Fees
Outside of the primary monthly fees mentioned above, there are other additional and optional tools you can consider.
Depending on your needs, costs like a long-term storage fee or high-volume listings fees can be helpful additions. There are also extra costs to advertise or receive premium account services. You can compare the costs of different products by using the Amazon FBA revenue calculator and other tools that calculate the Amazon FBA conversion rate for an FBA seller. These tools will help you determine your profitability.
Benefits of Amazon FBA
Though there are a few “extra” costs associated with running your ecommerce business through Amazon FBA, there are unique benefits that offset them.
First, when operating as an Amazon FBA business, your products immediately become eligible for Amazon Prime free two-day shipping. Since speed and convenience are two of the top factors people look for when buying goods, having access to this is a significant advantage over other logistics options.
Second, Amazon FBA allows you to streamline and scale your business. With Amazon FBA, you avoid many of the logistical details that can quickly become overwhelming and expensive as a small business. On top of taking care of all the logistics of storing, packing, and shipping products, you’ll need to consider the associated costs of these services. Inventory storage fees, packaging costs, and creating shipping partnerships take a lot of time and care, and don't leave a lot of time to think about new ways to grow your business.
Third, you have higher visibility for your products as an Amazon FBA business. Amazon’s search algorithm prioritizes products part of the FBA platform over non-FBA products. This means when someone is searching for your product category, you have the competitive edge of showing up in the search results over those who aren’t using fulfillment by Amazon.
Lastly, Amazon is a globally recognized brand with the highest conversion rate of any ecommerce retail platform. Consumers are already familiar with Amazon, which means you can use its branding to your advantage, especially if you are a new company that’s trying to build an audience base quickly. When comparing the costs and benefits of operating through Amazon FBA versus handling everything on your own, it starts to make sense why a majority of ecommerce brands choose the program to boost their sales and grow their business.
Scaling Your Ecommerce Business for Sale
Before embarking on an ecommerce business venture or elevating your brand to the next level, it requires taking a close look at all the logistical fees. Make sure the investment is helping you boost your profit, not reducing it. As you scale, revisiting the fees/growth comparison will keep you on the right track towards reaching revenue numbers that could put you in a position to eventually sell your business.
At Forum Brands, we consider ecommerce businesses that receive 70% or more of their sales from Amazon FBA and have earned upward of $200K+ in annual revenue. Scaling your brand to this level gives you the opportunity to be rewarded for everything you’ve worked so hard to build. We offer fast and efficient payouts for brands that meet the criteria and help to build them into household names consumers know and love.
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