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How To Figure Out Your Margins With Amazon’s Fees

January 24, 2018 Allison Hess

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You’re an Amazon seller looking to grow and expand your business. But when you take a look at your profits, they aren’t aligning with the growth you want. 

In order to fully know your business, you need to first understand your margins—aka how much you’re making per product.

To calculate this number, you need to take into account all the fees and expenses from production through fulfillment.

In this article, we’ll go through Amazon’s fees and the other fees you likely encounter that are cutting into your margins—and how to ensure you’re getting the greatest profit for your efforts.

What Are Your Margins?

There are two types of margins to consider. Remember that you’re not just looking at profit; you want to look at the margins that make up your business.

Operating profit margin shows how much of every dollar ends up in your business’s “bank.” Say, for example, you sold $100,000 in revenue. After fees and costs, you ended up with a profit of $25,000. That means you had an operating profit margin of 25%. Your business receives 25% of the sales.

Gross profit margin is slightly more comprehensive. It shows how much money you have after a single sale. This makes it a great indicator of the overall efficiency of your business. This margin takes into account what it costs to produce and acquire the product, including fees, COGs, overhead, marketing, shipping, labor, and more.

Determining your margins means looking at every cost or expense that you’re paying along the supply chain.

The primary fees for most Amazon sellers are Amazon’s fees.

How To Figure Out Your Margins With Amazon’s Fees hand holding amazon symbol

Amazon Fees

It’s free to list products on the Amazon Marketplace, but you’ll pay fees based on the sales you make and the seller program to which you belong. Fees are also dependent upon your selling category.

There are three key Amazon fees to know about: selling plan fee, referral fee, and variable closing fee.

1. Selling Plan Fee

There are two types of Amazon selling plans: Individual and Professional.

The Individual Amazon Seller Account has a per unit fee of $0.99 for each item sold. This is usually for the Amazon seller who sells a few items per month, as it’s a more basic plan. 

The Professional or Pro Merchant Amazon Seller Account does not have a per item fee. Instead, the seller pays a flat rate of $39.99 per month.

The professional account has additional benefits for business owners:

  • Use of spreadsheets and inventory tools
  • Access to order reports
  • Customizable shipping rates
  • Ability to earn top placement on product detail pages
  • Ability to apply to sell in 10+ additional categories (in addition to the 20+ open categories)

Pro Seller is usually the better option for most Amazon businesses. If you sell at least 40 products in a month, you’ve already made up the difference on the flat fee. If you’re a smaller business not selling over 40 items per month, you’ll want to stick to the Individual plan.

2. Referral Fee 

Amazon also charges a referral or sales fee. Amazon is referring a customer to you through the platform, so they’re taking a cut of that. Think of it like a fee to market on the Amazon platform.

This fee is calculated as a percentage of the total item price and giftwrap if applicable. It does not include shipping.

The referral fees are dependent upon category. Look below to see what your fee percentage would be based on the category of goods you sell.

When the referral fee changes based on a price difference, you calculate based on the item price plus the gift wrap charge. For example, a $99 electronics accessory would be considered under $100; however, if someone got gift wrap for $10, it would then be in the over $100 category.

Amazon Kindle

15%

Automotive Parts & Accessories (not including Tires and Wheels)

12%

Tires and Wheels

10%

Baby Products (not Baby Apparel)

15%

Books

15%

Cameras and Photos

8%

Consumer Electronics

8%

Electronics Accessories (under $100)

15%

Electronics Accessories (over $100)

8%

Entertainment Collectibles (under $100)

20%

Entertainment Collectibles ($100-$1000)

10%

Entertainment Collectibles (over $1000)

6%

Home & Garden

15%

Industrial & Scientific Products (including Food and Janitorial)

12%

Kindle Accessories

25%

Music

15%

Office Products

15%

Personal Computers

6%

Shoes, Handbags, Sunglasses

15%

Software & Computer Games

15%

Sporting Goods

15%

Sports Collectibles (under $100)

20%

Sports Collectibles ($100-$1000)

10%

Sports Collectibles (over $1000)

6%

Tools & Home Improvement Items

12%

Toys

15%

Unlocked Cell Phones

8%

Videos, DVDs, Blu-Rays

15%

Video Games

15%

Video Game Consoles

8%

Watches

15%

Other

15%

 

3. Variable Closing Fee

The variable closing fee is subtracted from the overall sale, including item sales price, shipping, and additional charges like gift wrap. This fee is used towards the shipping details of your product. It’s a fixed rate for media products, but it varies for non-media products.

For media products, the fee is $1.35. Media includes books, music, software & computer games, videos & DVDs, video games, and video game consoles.

For non-media products, the fee depends on shipping:

  • Domestic Standard Shipping: $0.45 + $0.05 per pound
  • Domestic Expedited Shipping: $0.65 + $0.10 per pound
  • International: N/A

Example Amazon Sale

Let’s say that you are a Home Revolution seller. You are selling the HEPA Filter for Shark Navigator. The item price is listed at $8.30 on Amazon. This product offers free shipping with Prime.

This means that you’ve made $8.30 in revenue.

Then you need to take into account the three fees.

The first is your seller plan fee.

If you had an Individual account, this fee would be $0.99.

But let’s assume you have a Professional Seller account because you sell more than 40 products per month. In this case, you pay a flat fee monthly of $39.99. Thus, to determine how much this fee costs per item, you’ll need to average it out based on how many products you typically sell in a month.

Let’s say you sell 100 products per month. Your fee per item would be approximately $0.40 per item.

The second cost would be your referral fee.

The category percentage of Home & Garden is 15%. Thus, you’d take 15% of the $8.30 (if the customer request gift wrap, that price would be included). This equals a referral fee of approximately $1.25.

The third is your variable closing fee for shipping.

If you are shipping domestic standard, it would cost $0.45 plus $0.05 per pound. The item weight is only 5.3 ounces, so let’s assume (for ease of calculation) that this fee is only $0.45.

Thus, the equation looks like this:

$8.30 (item price) – $0.40 (seller fee) – $1.25 (referral fee) – $0.45 (closing fee)

Your margin for this product after Amazon fees comes out to $6.20.

How To Figure Out Your Margins With Amazon’s Fees businessman at desk calculating

FBA Fees

What if you decide to use Fulfillment By Amazon? FBA includes picking and packing orders, shipping and handling, customer service, and product returns. Using FBA also enables your product to be Prime eligible, as we saw with the Home Revolution example above. FBA is a great way to outsource your logistics so you can focus on business strategy.

There are two FBA fees. The first is a fulfillment fee per unit and the second is a monthly inventory storage fee per cubic foot.

Note that these fees differ based on the month. For fulfillment, pricing is slightly higher for January to September and slightly less during the holiday season of October to December. Storage fees increase during the holiday season, though.

Below is the chart of FBA fees:

Fulfillment Fees (per unit) - January to September

Standard Size

Small (1lb or less)

$2.41

Large (1lb or less)

$2.99

Large (1lb to 2lb)

$4.18

Large (over 2lb)

$4.18 + $0.39/lb above first 2lbs

 

Oversize

Small

$6.85 + $0.39lb above first 2lbs

Medium

$9.20 + $0.39/lb above first 2lbs

Large

$75.06 + $0.80/lb above first 90lbs

Special

$138.08 + $0.92/lb above first 90lbs

 

Fulfillment Fees (per unit) - October to December 

Standard Size

Small (1lb or less)

$2.39

Large (1lb or less)

$2.88

Large (1lb to 2lb)

$3.96

Large (over 2lb)

$3.96 + $0.35/lb above first 2lbs

 

Oversize

Small

$6.69 + $0.35lb above first 2lbs

Medium

$8.73 + $0.35/lb above first 2lbs

Large

$69.50 + $0.76/lb above first 90lbs

Special

$131.44 + $0.88/lb above first 90lbs

 

Monthly Inventory Storage (per cubic foot) - January to September

  • Standard size = $0.64 per cubic foot
  • Oversize = $0.43 per cubic foot

Monthly Inventory Storage (per cubic foot) – October to December

  • Standard size = $2.35 per cubic foot
  • Oversize = $1.15 per cubic foot

Other Fees

What other fees can cut into your margins that you should consider?

  1. Amazon advertising (Sponsored Products and Headline Search Ads; cost per click)
  2. Non-Amazon advertising
  3. Product discounts and promotions
  4. Sourcing
  5. Shipping
  6. Warehousing fees (if not using FBA)
  7. Labor costs (if you have employees) 

How To Increase Margins

You’ve calculated your margins based on the above fees. What can you do to increase these margins?

There are two ways to improve your margins: raise your price and/or cut your expenses.

Although increasing price can improve your margins, you still need to price competitively on the marketplace. Thus, a price increase is not always the go-to option for padding your margins.

Take a look at each of your expenses. There are some you can’t change, like Amazon or FBA. However, there are others where you can change or rework your decisions to lower your costs without sacrificing quality.

The best areas to start looking at your margins are shipping, sourcing, and sales.

How To Figure Out Your Margins With Amazon’s Fees arrows money increase

1. Look at your shipping fees. 

Most hidden fees are in the shipping leg of the supply chain. Can you make this process leaner or more direct? Can you work with a different carrier or use a different shipping method? Can you shorten delivery times?

2. Talk to your factory. 

How much are you paying per unit? What does your MOQ look like? Can you reduce price if you order a larger volume? Are there any hidden fees?

3. Cut low-margin products.

There are only so many fees you can cut. If you want to ensure you’re always having a profitable margin, you need to sell products that have a cushion.

This doesn’t mean selling expensive items, because often high-ticket items can actually have low margins. Instead, you want to sell those products that have balance margin with expenditure.

4. Lower your return rate.

A high rate of returns could be killing your margins, because you have to pay double fees for shipping, warehousing, etc. In fact, some returns can even put you into negative margins for that product.

Take a deep dive into your return rate. Why are you getting returns? Is it the quality of the product? Are you marketing your products incorrectly?

Lower your return rate, and you’ll lower your expenses.

Bonus: Focus on upselling.

Increasing your cost per sale is a great way to improve your margins. It will reduce the overhead burden while increasing your revenue.

Sell complementary products. Bundle products together. Optimize your searches to connect with one another. If you can get customers to buy multiple products from you, you’ll start seeing a higher return on your margins and on future purchases.

The Bottom Line

Check out Amazon’s revenue calculator to see how much you could be making on a product. Enter the product’s UPC for an estimate of your potential margin. 

You should be reviewing your margins monthly. This helps spot areas where you could be cutting fees or expanding business.

Understanding your margins will give you a closer look at your business from the inside out.

Are you interested in selling high-margin products?

Of course you are!

Home Revolution offers more than just quality, reliable, profit-driven products. We offer a team of providers to ensure that you are always making the highest possible margins with the lowest possible fees.

Contact us today to learn more!

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