Amazon is a giant e-commerce Marketplace that sells its own products but makes its bread and butter through Marketplace fees to third-party vendors. These Amazon Marketplace charges generate the majority of the revenue, and they’re built low enough to make your business profitable enough to entice you as a seller, while remaining high enough that Amazon made a revenue of $232.887B, continuing a consistent 25-30% increase over the past few years.
Understanding Amazon Marketplace charges is critical to floating your business above the loss line and to pulling in a profit margin that makes the endeavor worth your time. You’ll want to do your research before you charge headfirst into the waters of third-party selling. While the actual amounts get muddy quickly, here’s an easy list of the types of Amazon Marketplace charges to factor into your business plan.
Monthly Seller Subscriptions
Amazon offers a couple of individual seller plans. The individual plan requires no monthly fee, but takes a flat fee of $1.00 per item. The professional selling plan is $40.00 a month, but does not require a flat fee. The math here is simple: if you’re going to sell more than 40 items a month, then the professional plan keeps your flat fee per item below the $1.00 mark.
Unless you are moving fewer units a month, you’ll want to avoid the flat fee and go for the professional selling plan.
Unsure about how much you’ll move as a new seller? Start with the individual, and then once you’re turning over more than 40 products a month, it’s easy to switch.
Closing and Referral Fees
Amazon has a comprehensive set of referral fees which apply to each category, and closing fees that are charged on media items.
The closing fee on media is $1.80 per item. You pay an additional $1.80 off the top of everything media, which is mostly books, DVDs, music, computer software, and video games. These closing fees help Amazon prevent copyright violations by preventing cheap bootleg copies from selling, and they also prevent sellers from making small profit margins off ridiculous amounts of wholesale.
Referral fees are more complex, and based on a percentage of the item’s selling price. These Amazon Marketplace charges are lower on media items because they take into account the closing fee. The referral fees are calculated to make you profitable while maintaining Amazon’s margins. The minimum referral fee ($0.30 per item) prevents people from drastically underselling.
You can find exact percentages here, but know that referral fees vary from 8-15% depending on the category you’re selling from, with the norm being 15%. You’ll pay a 15% cut on home, garden, office, and outdoor product sales. The “everything else” category, for when you and Amazon have no idea where to classify something, is also the standard 15%. You’ll get down to 8% on things like video game consoles, consumer electronics, cameras, and cell phone devices. The strategy here is simple: they’re charging lower referral fees for things often sold second-hand or by individual sellers, in order to compete with free Marketplaces like Craigslist and LetGo. For everything that you might want to sell as a third-party business, the cut is 15%.
Amazon also offers FBA (fulfilled by Amazon) services to handle some of the nightmares that you’ll have from storage and shipping logistics. FBA is actually a collection of services, like partnered carrier programs, multi-channel fulfillment (Amazon fills inventory sold on other websites), label and prep services, and repackaging for returns (a big lifesaver if you think you’ll have returns).
The fees vary, but will run from $2 to $5 for smaller items under three pounds, and up to $11.50 for a twenty-pound item. Oversized items, clothing, and “dangerous items” will incur additional payments.
In addition, FBA will require some monthly inventory storage fees and long-term storage fees. If you dispose of inventory or have items returned, those are additional charges. If you ship a product to Amazon without preparation or labeling, you get a per-item fee as well.
While that may look overwhelming, the prices and fees are fairly reasonable for the amount of work that Amazon will put in to run your inventory. FBA will be a good option for businesses that have a high product turnover rate but don’t have the logistics internally to handle their own orders. When you factor in FBA to your Amazon Marketplace charges, factor it as a percentage of the total takeaway of each product.
You also need to factor ads into your successful Marketplace strategy. Consider ads the same as an additional fee. While PPC has some costs and benefits to understand, the general question sellers ask is “how much should I spend” and not “should I spend.” Advertising campaigns should be run and run well from the beginning, and then you can scale as your business does. Even if you’re tossing 5% of the sale price at ads, you’ve got skin in the game and can develop them over time.
One of the hottest topics in ads is PPC marketing, which allows you to pay for visits to your page instead of just eyeballs. With PPC, you pay for clicks, not scrolls. You’ll need keyword research and a good sense of business analytics to maximize your PPC campaigns. Even though you pay for clicks and not eyeballs, you still ideally should be paying for purchase and not just clicks.
Amazon’s PPC system allows you to set the amount of money you want to spend per month on specific campaigns. Use data from your past advertising campaigns to determine how much per product you can swallow to get the ads maximized. Ad percentages will vary per product, but you can ramp them up just under your profit margins to sell more products and still turn a bit of a profit.
While consulting services and business analysts may seem extra, most successful third-party startups will factor these costs into their business model. If you budget a percentage per item for services, you can pool that finance and use it to leverage great services that can improve profitability, teach you how to break new ground, and give you the confidence to sell with flair.
An extra pair of professional eyes can be the tipping point for your Amazon business, the difference between ranking on page two and taking control of the buy box. Saving even a few percents of product selling points to invest in business solutions will help you gain momentum and manage those Amazon Marketplace charges. Amazon takes a good chunk for them, so make sure you’re investing some for you!
Conclusion (Where to Go From Here)
Amazon Marketplace charges include subscription packages, referral fees, closing fees, FBA services, and any money you spend on ads. Many sellers pay the same fees and percentages, so the difference in success and failure is building an enticing brand that delivers top-shelf content. The closing fees, subscription fees, and referral fees are unavoidable, and you’ll probably tack on the FBA fees as well. From there, your use of marketing and consulting solutions and your own creativity and ingenuity will help you beat Amazon Marketplace charges!