[This is a guest post from PingPong]
Selling on Amazon is an amazing opportunity. You get to present your products to millions of customers. And if you’re using Fulfilled By Amazon (FBA), managing inventory becomes much easier. Storage, handling, and shipping are all taken care of – for a price, of course.
What price do you have to pay for the ultra-convenience of Amazon fulfillment? What are the other costs involved with selling on Amazon? And, most importantly, how can we maximize profits while minimizing Amazon seller fees?
In this article, we’ll take a look at the four major kinds of fees on Amazon (Fulfillment Fees, Storage Fees, Referral Fees, Currency Fees). And we’ll provide tips on how to lower them whenever possible!
Amazon Fulfillment Fees (FBA)
Just like the name suggests, these fees cover services related to processing orders. FBA fulfillment fees go beyond packing, shipping and handling. They also include returns and customer service.
The fees are calculated per unit and depend on two factors: size and weight. Amazon has its own way of classifying tiers for product size and weight. They depend on the three dimensions of a unit’s packaging: weight, length, and height.
As we can see, there are two main categories: standard size and oversize. They are then segmented into small, medium, and large, as we can see here:
However, these six categories are not actually six different fees. They’re broken down even further when you get to the actual costs per unit.
Slight changes to packaging and weight can sometimes make a noticeable difference in your margins. For example, let’s say you have a standard size product that weighs around 1 pound. If you find a way to reduce its weight ever so slightly, you can reduce the cost of fulfillment fees by $1.48! If you’re selling a product at $20 per unit, you’ll have increased your margin by 7.5%.
There’s also a separate set of fulfillment fee brackets for products that require special handling and packaging, for example products that are potentially dangerous/hazardous. As expected, the fees are slightly higher.
Finally, there’s another factor that might affect your fulfillment fees: Multi-channel fulfillment. It’s for sellers that use the FBA system in order to fulfill product orders on other platforms or their own websites. The exact amount owed for the fees in this case depends on how quickly customers on other platforms receive their packages.
There are three multi-channel fulfillment options on Amazon:
- Priority shipping (next day)
- Expedited shipping (2days)
- Standard shipping (3-5 days)
How to Get FBA Costs Down
Examine whether any of the products you’re selling right now are somewhere near the cut off for a lower fee bracket. Then see if you can make changes to its classification. The same can be said when you’re considering adding a new product. Explore different packaging options or properties that might reduce the size and weight of a product in order to save on fees.
Amazon Storage Fees
Storage fees are what Amazon charges you for keeping all your stuff. This is separate from moving your stuff around (as we’ve just discussed with fulfillment fees). Storage fees are charged per cubic foot of space your inventory takes up in Amazon’s storage facilities.
The prices vary in regards to two factors: the item size tier, and the time of the year. Consumer spending goes up in the 4th quarter, as do storage fees.
How to Get Storage Fees Down
Before the changes to fees in February of 2019, there was a pretty hefty penalty to keeping your inventory in Amazon’s facilities for longer than 6 months. That penalty fee is now gone.
There is a fee, however, of $0.15 per product unit per month that kicks in after a product has spent 365 days or more in storage with Amazon. Plus, slightly higher storage fees for any dangerous items that require special handling and require special conditions for safe storage.
The Amazon seller community welcomed these changes, since the previously high penalties meant having to keep close attention to managing inventory. Most importantly, this new change makes selling seasonal products on Amazon more viable and a lot less risky.
Still, you want to clear out summer merchandise (or products unlikely to sell in the winter) before storage fees go up in October. Use coupons and shopping holidays (like back-to-school season) to clear the decks.
Amazon Referral Fees
Referral fees are basically commission for having listings displayed on Amazon’s platform. It’s charged on every sale, and it’s calculated by percentage. Unlike many Amazon fees, both FBA and Fulfillment By Merchant (FBM) sellers pay the same referral fees.
The standard referral fee is 15% of the total cost a customer has to pay for your product. It does, however, vary from category to category. Also, the minimum referral fee you have to pay is $0.30. Meaning that if you’re selling something for $1.50 you’ll pay a $0.30 referral fee which would amount to 20%, since the fee amount cannot go below that.
When the February 2019 referral fee changes came into effect, that minimum referral fee was drastically reduced from $1 to $0.30. There were also quite a few surprising changes, such as:
Several electronic and tech subcategories have a referral fee of 8% (cameras, cell phones, consumer electronics, game consoles), and personal computers 6%.
Ways to Avoid High Referral Fees on Amazon
Since referral fees are based on categories, you may have the option to creatively re-categorize items. The key is knowing which categories have which fees. Some electronic accessories have an 8% fee as well, but only on the portion of the amount that exceeds $100, the standard 15% applies to the first $100. The same with major appliances, the fee drops down after the $300 mark.
Interestingly, furniture referral fees drop to 10% for any portion of the total sales price greater than $200.
Even more interesting, the referral fees for jewelry and watches drop significantly after certain portions of the total sales price. For watches, it drops down from 16% to an astonishing 3% for any portion of the sales price above $1,500. For jewelry, it drops from 20% to 5% for any portion of the amount exceeding $250.
One more way to slash referral fees? If you’re selling on multiple platforms, you have the ability to make sales without paying referral fees to sell those same items on Amazon. Driving traffic to your website and building your brand can help you escape Amazon referral fees entirely.
Amazon Currency Exchange Fees
Here’s how it works with Amazon Currency Converter. After you’ve paid all your fees: storage, fulfillment and referral fees, you receive your payout from Amazon. If you’re a US Amazon seller who sells in foreign markets, Amazon automatically converts those Canadian dollars or British pounds, for example, into US dollars.
But Amazon doesn’t do it for free! When Amazon converts your earnings from one currency to another, they mark up the exchange rate. This fee’s usually in the neighborhood of 3.5%-4.5%, and when it comes to exchange rates that’s on the high side. Those fees become even more impactful if you’re in multiple marketplaces around the globe.
How to Beat the Foreign Exchange Fees
The best way to avoid those pesky currency fees on Amazon? Simply choose another method of depositing your earnings. You may be able to save as much as 2-3% over Amazon’s currency exchange fees.
The savings become even more remarkable when you consider how many Amazon sellers are actually paying double currency exchange (aka FX) fees in order to meet European VAT and Canadian GST tax obligations. Here’s how it happens if you’re selling in the UK: You receive funds from Amazon in US Dollars, for which you pay about 3.5% in currency exchange fees. Then when you go to pay your VAT taxes, only you have to transfer your dollars back into British Pounds – to do that you pay another currency exchange fee!
With a global currency account from PingPong, your profits will no longer be automatically converted into US Dollars. If you know you have a VAT payment coming up, you can keep some of your earnings in Euros or pounds. Then make the VAT payment for free and avoid even more costs with bank wires. It’s the ultimate way to keep unnecessary Amazon fees from eating into your hard-won profits.
PingPong is trusted by more than 43,000 customers worldwide for lower rates on currency exchange, VAT payments, and supplier payments. Ask PingPong to beat the rate you’re paying. Get a free, no-obligation rate comparison with an expert advisor now.