When we talk about selling on Amazon, the focus is often on how much money you can make. And while it’s true that an Amazon business can be extremely profitable, there are also expenses you have to consider.
The cost will vary depending on your business plan, but either way, you’ll need to have some money set aside in order to get things up and running. So, just how much will you need?
This article will fill you in on all the costs you can expect to encounter while selling on Amazon.
Different Types of Expenses
There are a number of expenses associated with an Amazon business. Some are obvious while there are others you may not have been aware of.
Here are all the costs that you’ll have to pay in order to be an Amazon seller.
This one is the most obvious. In order to sell products on Amazon, you first need to acquire items to sell. And unless you somehow get lucky and are given a large number of products that can be resold you’re going to have to pay for them.
There are a number of ways you can purchase items to sell on Amazon, including:
- Retail Arbitrage: This strategy involves visiting local brick and mortar stores and looking for items that are on sale or clearance. In many cases, you’ll find products that are actually selling for less in stores than they are on Amazon, allowing you to resell them for a profit.
- Wholesalers: These businesses act as middlemen between manufacturers and resellers. They buy large quantities of products at a big discount which they then sell to other businesses. With this strategy, you’ll end up paying less per product than retail arbitrage, but you’ll have to buy in bulk which can end up costing you more.
- Manufacturers: To get the cheapest price per product you can go straight to the manufacturer. Buying from the manufacturer also means you can ask them to make alterations to products, or create a completely new product based on your ideas. However, like buying from wholesalers you’ll need to purchase in bulk.
If you’re starting with a small budget, retail arbitrage might be the best option for you. You won’t face any minimum order quantities, which means you can just buy a few products here and there while you get comfortable selling on the platform.
For those who are willing to invest more in inventory, buying from wholesalers and manufacturers will be more profitable. Your sales margins will be a lot better and this strategy is more scalable. However, since you have to buy large amounts of products at once there is a little more risk, so do your research and be sure you’re buying products that are in demand.
For more information on sourcing products you can read this blog post.
So, how much will your inventory cost you? That really depends on what you’re buying and how much you’re buying.
If you’re just purchasing a few items from your local store it could be less than $100. However, if you’re buying in bulk from suppliers expect to pay anywhere from $500 – $5000, depending on your cost per item and your order quantity.
This is one expense you might not have considered. If you’re buying your inventory from wholesalers or manufacturers you’re going to need to have those items shipped to you, or shipped to one of Amazon’s warehouses.
If you’re dealing with domestic companies then this will be a pretty small expense, likely less than $100. But if your products are coming from overseas things can get rather expensive if you’re not careful.
When shipping your inventory from another country you have two options:
- Shipping by Boat: This is a very inexpensive way to get your inventory into the country. However, it’s extremely slow. Expect to wait 4-6 weeks to receive your items. If you need to get your products right away then you might have to look into the next option.
- Shipping by Air: This method is much faster. With airfreight, you can receive your products in as little as two days. Of course, in most cases shipping by air will be more expensive, so you’ll have to weigh that against the money you’d save by sending them via boat.
If you’re using the Fulfilled by Amazon (FBA) program to sell your items you’ll also have to consider the cost of shipping to Amazon. You may decide to simply have your supplier ship directly to Amazon, or if you’re in possession of your own inventory you’ll have to pay to have it shipped to them yourself.
Like inventory costs, shipping costs will depend largely on quantity. The more you’re shipping the more it will cost you. The size and weight of your products also make a big difference, so keep that in mind.
If you’re shipping items from overseas you can expect to pay anywhere from $300 to several thousand.
Amazon doesn’t just let you use their platform for free. They charge you for this service so be prepared for that. Here are the fees you’ll pay:
- Seller Account: You’ll have the choice between an Individual Seller account and a Professional Seller account. Individual Sellers don’t have a monthly fee but pay Amazon $0.99 for every sale they make. Professional Sellers pay $39.99 per month but don’t have any transaction fees.
- Referral Fees: In addition to charging you for your account, Amazon also takes a cut of each sale you make. The percentage they take depends on the category you’re selling in and ranges from 6% all the way up to 45%.
- FBA Fees: The FBA program allows you to ship your inventory to Amazon to be stored in one of their warehouses. When you make a sale they’ll ship your products for you. In order to take advantage of this service, you have to pay additional fees. Storage fees are $0.48 – $2.40 per cubic foot, and fulfillment fees are $2.92 – $137.32 per unit. To quickly estimate potential fees use this Amazon FBA Calculator – a free Google Chrome extension by AMZScout.
Make sure to account for these costs when considering how much to sell your products for. You need to make sure that you have enough money left over after each sale to still make a profit.
This last one is optional, but if you want to get the most out of your Amazon business you’ll likely want to pay for advertising. Buying ads increases the exposure your products receive, helping you generate more sales. They’re also a great way to promote new items on the platform.
Amazon advertising costs depend on your budget and the amount of competition there is for the keywords you’re targeting. On average you can expect to pay $0.81 per click. You can set a limit on how much you pay per day, but the minimum spend is $5 per day.
Amazon Seller Cost Example
As you can see, there are a number of factors that can impact how much you’ll end up paying as an Amazon seller. So, let’s create a scenario and use that as an example so you can get an idea of how much you may have to spend.
You start by signing up for a professional seller account, which is $39.99 per month. Once that’s in place you start looking for a product to sell.
Let’s say you’re interested in selling kitchen knives. You find one you like listed on Alibaba and get in touch with the manufacturer in China.
You decide to purchase 300 knives and negotiate a price of $4 per knife for a total cost of $1200. Your manufacturer then quotes you a price of $400 to ship the knives from China to the US.
You plan to sell the knives through the FBA program but want to have them shipped to you first before you forward them to Amazon. You receive your inventory and double-check everything is correct. It looks good so you send your items to Amazon for a cost of $45.
Your knives are 0.5 x 3.3 x 11.9 inches in size. Because of how small your product is, your FBA monthly storage fee would only be $0.01. Your fulfillment fee for each sale would be $2.92. You decide to sell your knives for $19.99. The Home & Garden category has a 15% referral fee, meaning you’ll pay Amazon an additional $3 for every sale that you make.
Finally, you decide to run an ad campaign to boost sales. In total, you spend $150 per month on ads.
If you sold all of your knives over the span of three months your costs would be:
- Amazon Seller Account: $119.97
- Inventory: $1200
- Shipping: $445
- FBA Fees: $879
- Referral Fees: $900
- Advertising Fees: $450
- Total: $3,993.97
Assuming all of your knives sold at the full retail price of $19.99 your total revenue would be $5,997, leaving you with a profit of $2,003.03.
Tips to Help You Keep Your Costs Down
There are a number of ways to help you reduce your costs. Here are a few tips to help you save money as an Amazon seller:
- Buy Cheap Goods from China: You’ll find that the best prices on products are from Chinese suppliers. Alibaba is arguably the most popular place to purchase inventory and has some great deals. You’ll likely have to buy in bulk, but the low cost per product will be worth it.
- Sell Small and Light Items: If you’re looking for a way to save on shipping try selling products that are small and light, as these are cheaper to ship. Steer clear of heavy products, as this can often triple your shipping costs.
- Sell in Categories that have Lower Referral Fees: Stick to categories that have a referral fee of 15% or less.
- Avoid Buyer Fraud: Be on the lookout for scammers who will try to take advantage of you and get items for free. Contact Amazon immediately if you think you’ve been scammed by a buyer.
Remember, by keeping your costs low you’ll ensure your profits remain high, so do everything you can to cut your expenses.
Cost of Selling on Amazon – In Summary
An Amazon business does have a number of fees and costs involved. However, as our example showed, even after all these expenses there’s still an opportunity to make some really good money.
By being aware of how much it costs before you get started you’ll be able to plan ahead and come up with a profitable business plan.
About the author: This post was written by AMZScout Amazon Expert Team. AMZScout is one of the top Amazon research tools for online sellers. We provide innovative solutions and share trends to guide sellers to success.