Do you know the cost of selling on Amazon? The answer might shock you.
A new report from Marketplace Pulse has shined some light on the total cost of selling on Amazon. This year, Amazon has raised the total cost sellers must pay toward warehousing storage fees, packaging, delivery, and advertising on the site.
This blog will dive into the cost of selling on Amazon's Platform, what that means for third-party sellers, and how you can combat the rising cost.
The Cost of Selling on Amazon's Platform
Sellers on Amazon Marketplace pay a commission fee to Amazon. The fee is required to pay out toward storage, sales, packing, and delivery fees. Six years ago, Amazon took 35% of each sale, but it has increased its cut yearly.
Now, for over 2 million third-party vendors, Amazon has raised its cut for selling on its platform. From 35% six years ago, Amazon now takes 50% on average. Yes, you heard that right. Amazon now takes an average of half of each sale for merchants that sell, fulfill, and advertise on the platform.
The Reason for Amazon's Increased Cut
Why is Amazon taking such a huge cut of the sales?
During the pandemic, Amazon sellers were not heavily impacted because of the increase in customers and the increased sales from people buying from home. However, online shopping declined once the lockdowns were lifted, and buyers turned to other spending avenues, like dining out and traveling. As a result, Amazon suffered its slowest growth since its beginning.
The increased cut is to help tackle rising costs and slower growth during this downturn.
Why Are Third-Party Sellers Getting the Brunt of the Increase?
Amazon might be targeting its third-party sellers because it has been and continues to be its cash cow.
Similar to the holiday fee that Amazon hit its third-party FBA sellers last year, this increase could be because third-party seller services grew 24% on a year-over-year basis, and with an uptick in demand comes lower warehouse availability, a perfect recipe for increased pricing. By comparison, Amazon's total e-commerce revenue declined by 2% last year.
Amazon Selling Fees
When selling on Amazon, there are three main buckets that Amazon receives fees for: referral fee/transaction fees, advertising fees, and FBA (fulfillment) fees.
According to the Marketplace Pulse report, here’s a look at the average percentage of third-party sellers pay for each fee:
- 15% referral fee (or transaction fee)
- 15% advertising fee
- 20-35% FBA (Fulfillment by Amazon) fees
Amazon's Referral Fee
Amazon's referral or transaction fee is not the culprit for the significant increase. In fact, the 15% transaction fee has stayed the same for over a decade.
Advertising Fees on Amazon
Amazon buries organic search results, which means that the best-converting screen space is given to paid advertisers. Therefore, sellers have to advertise to have a chance to be discovered on the platform. Some sellers can get away from paying hefty advertising fees. Many retailers spend less than 5% of sales on it. However, private label sellers often spend more than 10% on growing their brands.
FBA (Fulfillment by Amazon) Fees
Fulfillment by Amazon (FBA) fees have increased steadily over the years. Amazon has raised fulfillment fees every year and has also introduced increases in storage fees.
Selling on Amazon is often tied to using FBA, and sellers feel they will only succeed with it.
Luckily, other options like the Zenventory Fulfillment Network make it possible to get FBA speed without the FBA costs.
3 Ways to Combat Amazon's Rising Costs
Treat yourself, or treat yo’ self, is also a term coined by the Parks & Recreation tvseries. (This blog was not intended to turn into a homage to Parks & Rec, but here we are.)
#1 Raise Prices
The easiest way to handle these rising fees is to increase the prices of your products. Some sellers choose to make this change to help lessen the impact on their revenue. However, given the competitiveness of Amazon FBA, many sellers are reluctant to increase their prices too much so they can avoid losing out on a sale to their competitors.
#2 Diversify Your Sales Channels
Amazon is one of many marketplaces out there. You can diversify your online selling by adding your products to direct selling platforms like Shopify or BigCommerce. Transaction costs are much lower, and you’re in full control of the shopping & checkout experiences for visitors to your site.
Of course, every platform comes with its costs and fulfillment solutions. So, do your research and make a cost analysis before you jump ship.
#3 Find FBA Alternatives
Another way you can fight the continual increase of fees from Amazon is to find other alternatives for inventory storage and your fulfillment needs. An ever-growing industry of lower-cost non-FBA fulfillment services exist and can provide added benefits like:
- Lower Fees
- Branded Shipping Labels
- More flexibility in how items are packaged
- More personal service and dedicated support
With an alternative FBA solution, you can insulate your business from future Amazon FBA increases.
The Zenventory Fulfillment Network
50% of your sales is the cost of selling on Amazon, which is only expected to increase - If you are interested in an FBA alternative, consider ZFN: Our fulfillment network connects you to a vetted local 3PL, ready to save you money and serve you better.