Are you wondering whether using Amazon as a platform to sell your products is a good idea or not? This article will explain all expenses that you, as a seller, will bear directly or indirectly. Stay tuned for more.
While selling on Amazon, you will encounter many direct and indirect costs such as Referral fees, storage costs, and so on. But a good expenditure analysis might give you the headstart you need to build a successful business.
In this guide, I will walk you through each and every kind of expense you may need to bear in different stages of your Amazon journey. This information will help you evaluate the overall selling cost so you can implement the required strategy to achieve the desired outcomes.
Table of Contents
- Amazon: Where To Begin?
- The Cost of Selling on Amazon
- Additional Costs
- Final Verdict: How Much Does It Cost To Sell On Amazon
Amazon: Where To Begin?
Before you start selling, you need to decide which Seller agreement you want to go with. Amazon offers 3 types of agreements and each has its own advantages, suited for businesses of different capacities. Let’s find out more.
Fulfillment By Amazon
It’s safe to say that Fulfilled by Amazon (FBA) is the most popular seller agreement out there. In this method, sellers need to ship their entire inventory to Amazon warehouses and the company takes care of processing the orders, labeling, packaging, shipping, and even customer service.
You have to pay monthly FBA fulfillment costs which we will discuss further in the article.
This type of agreement is more suited to sellers with decent finances in the beginning. Selling through FBA is not cheap by any means and there are several hidden costs that may hurt your monthly profit.
Here are the costs associated with the FBA agreement:
1. Storage Fee
As I mentioned earlier, if you opt for an FBA seller agreement, you will have to pay the storage cost as a part of the FBA fulfillment fees. It’s the amount you pay for using the space to keep your inventory at the Amazon warehouse. Even if you have a single item stored at the warehouse, you are liable to pay the cost to Amazon.
When you pick the FBA, you are required to ship your inventory to the warehouse at your expense. The shipping cost will depend on the size and type of inventory, and the carrier that you pick.
Amazon offers two storage plans:
As I said, Amazon will charge you on a monthly basis, as long as you have your products inside the warehouse. The inventory is the only determining factor for Storage costs. Here is a breakdown:
|Product Size / Duration||Jan-Sept||Oct-Dec|
|Standard Size||$0.83/cubic foot||$2.40/cubic foot|
|Oversized Products (<18x14x8 inches/ <20lbs)||$0.53/cubic foot||$1.20/cubic foot|
On the 15th of each month, Amazon goes through several inventory checks including the product’s age inside the warehouse. The ones that are in store for longer than a year, will be charged with a long-term storage fee, along with the monthly storage fee.
A $6.90/cubic foot/0.15% of the unit cost long-term storage fee will be applicable.
2. Fulfillment Cost
Under the FBA agreement, you will be charged a certain amount of money as an order fulfillment fee.
The fulfillment cost entirely depends on the shipping size and weight. Naturally, the smaller and lighter products will be easier to ship compared to the bigger ones. So the fulfillment fee varies according to the product size.
You can check out the fulfillment fee structure below:
|Product Size||Product Weight||Fulfillment cost/unit|
|Small StandardSize||6 oz or less||$3.07|
|6+ to 12 oz||$3.22|
|12+ to 16 oz||$3.77|
|Large StandardSize||6 oz or less||$3.72|
|6+ to 12 oz||$3.96|
|12+ to 16 oz||$4.75|
|1+ to 2 lbs||$5.40|
|2+ to 3 lbs||$6.08|
|3+ to 20 lbs||$6.44 + $0.32/lb above first 3 lbs|
|Small Oversize Products||70 lbs or less||$9.39 + $0.40/lb above first lbs|
|Medium Oversize Products||150 lbs or less||$13.37 + $0.46/lb above first lbs|
|Large Oversize Products||150 lbs or less||$86.71 + $0.83/lb above first 90 lbs|
|Special Oversize products||Over 150 lbs||$158.49 + $0.83/lb above first 90 lbs|
Fulfillment By Merchant
Another way of selling is through FBM or Fulfilled by Merchant. In this agreement, your products are listed in the normal category and you are responsible for storing the inventory, processing the orders, shipping, etc.
While you don’t need to pay the FBA cost, fulfilling the orders will require trained staff and a bunch of other resources. Also, you need to have storage to hold your inventory which may cost you a lot, especially if you have a lot of products to sell.
In short, if you already have a fulfillment facility and a place to keep the inventory, FBM might be the profitable option for you, instead of FBA.
Seller Fulfilled Prime
There is a third agreement called SFP where the seller is responsible for order processing but must comply with Amazon’s 1-2 day delivery policy. In exchange, your items will be listed with the Amazon Prime logo which we all know, attracts a lot of customers.
Again, if you own the storage and fulfillment center, you can go with the SFP agreement but make sure you have good shipping partners that can deliver the orders to meet the deadlines.
The Cost of Selling on Amazon
In this section, I am going to talk about every possible expense you will have to bear from the moment you register to the point when you make a sale.
Seller Account Cost
The first step towards becoming an Amazon seller is registering yourself as one. Amazon offers 2 types of seller accounts – Individual and Professional.
For beginners. The best option is to start with an Individual account and see how things move from there. With this account, you will be charged $0.99 for each successful sale. Amazon will deduct the money from your credit card or seller account balance once the sale is completed.
While the individual account gives a good opportunity to try things out, it doesn’t allow you to access the monthly sales reports and inventory tools. Additionally, you can’t dictate the shipping prices or use Amazon’s promotional and gift card services on your checkout page.
A Professional account costs $39.99/month and gives you access to premium tools such as inventory access, monthly reports, promotional offers, etc. Amazon doesn’t take any cut from your completed orders.
By simple mathematics, if you are selling more than 40 items as an Individual seller, it’s time to go with the Professional account. The one time is the only amount you will pay and you are free to set some of your rules as you prefer.
Which One Is Better for You?
The choice simply depends on the requirement and scale of your business. Mind you, a Professional account is a must to sell some expensive and luxury items on Amazon such as watches, collectibles items, videos, jewelry, and much more. Also, A professional account will allow you to set the shipping rates and collect sales tax, which can contribute to some income as well.
So if you want to sell any of those products, you have no choice but to go with the Professional account. However, if you are selling casual items and want to keep your expenditures low, better start with an Individual account.
Amazon charges 2% to 15% of each order as a referral fee. All items have a set referral fee which you can check out on Amazon Seller Central’s official page. The referral fee will be deducted from the whole order amount which includes shipping costs, gift wrapping charges, and so on.
Usually, electronic items, computers, accessories, and jewelry have a higher referral fee, compared to clothing, pet supplies, stationary, etc.
Now, you are aware of all the direct costs you will have to pay while selling on Amazon. Let’s talk about some hidden costs that you need to know before you choose a product to sell and set up your inventory.
1. Return Order Costs
Amazon offers a very lenient, sometimes unconditional return policy, especially for Prime members. As a seller, it’s not very positive news for you since you have to pay a return fee for every valid return order processing.
However, there are a few product categories for which no return processing fee is applicable. A few examples are:
- Luggage items (suitcases, handbags, etc)
Apart from these exceptions, all return orders will cost you some money, primarily depending on the shipping weight. Here is a full return fee structure:
|Size Category||Total Shipping Weight||Return Processing Fee|
|Small Standard Size Shipping||6 oz or less||$2.12|
|6+ to 12 oz||$2.23|
|12+ to 16 oz||$2.32|
|Large Standard Size Shipping||6 oz or less||$2.40|
|6+ to 12 oz||$2.76|
|12+ to 16 oz||$2.85|
|1+ to 2 lb||$2.96|
|2+ to 3 lb||$3.41|
|3+ lb to 20 lb||$3.41 + $0.20/lb above first 3 lbs|
|Oversize Shipping||Small Shipping||$4.19 + $0.20/lb above first 2 lbs|
|Medium Shipping||$10.57 + $0.25/lb above first 2 lbs|
|Large Shipping||$43.70 + $0.25/lb above first 90 lbs|
|Special Shipping||$75.08 + $0.25/lb above first 90 lbs|
2. Inventory Disposal Cost
If for any reason, you need to clear your inventory from the warehouse, there is a disposal fee to be paid for that.
There are many reasons why you may want to remove some of your products from the Amazon warehouse. Here are a few:
- You are unable to sell the items and keep paying the long-term storage cost.
- Your products are reaching the expiry date.
- You keep receiving complaints regarding product quality.
Here is how you will be charged for the Inventory disposal fee:
|Shipping Size||Shipping Weight||Disposal fee/unit|
|Standard Size Shipping||0 to 0.5 lb||$0.52|
|0.5+ to 1.0 lb||$0.75|
|1.0+ to 2.0 lb||$1.14|
|More than 2 lb||$1.51 + $0.63/lb above 2 lb|
|Oversize Shipping/Specially handled Items (Jewelry, watches shoes, delicate items, jewelry, etc)||0 to 1.0 lb||$1.50|
|1.0+ to 2.0 lb||$1.96|
|2.0+ to 4.0 lb||$2.89|
|4.0+ to 10.0 lb||$5.05|
|More than 10.0 lb||$7.25 + $0.63/lb above 10 lb|
3. Closing Fee
Amazon charges a closing fee on certain media items such as games, audio, videos, etc. The standard closing fee per unit is $1.8. This will be charged on top of all other applicable fees. Here is a list of items:
- Music files
- Digital videos
- Computer Programs/Software
- Computer games
- Gaming accessories
- Gaming Consoles
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Final Verdict: How Much Does It Cost To Sell On Amazon
E-commerce is full of possibilities and no platform offers more than Amazon when it comes to selling online. Yes, the competition is stiff and the initial expenses may overwhelm you. But, with proper analysis and financial planning, you can make your way toward a successful Amazon career.
Some people believe you need to be financially strong in order to even begin on Amazon. This is not entirely true, yes you need some capital, to begin with, but if you do things smartly, it’s not impossible.
Here are some important tips:
- Start with the individual seller account so you will be charged only when you make a successful sale.
- Before ordering the inventory, make product research and find a profitable product with the least amount of competition.
- Use a product research tool such as Helium 10, Jungle Scout, etc.
- If your budget allows, go for FBA and outsource most part of your Amazon activities.