As one of the largest online marketplaces in the world, Amazon has made it easy for businesses to reach a global audience and sell their products. However, the cost of selling on Amazon can add up quickly, especially if you choose to use their fulfillment service, Amazon FBA.
For most sellers, the biggest fees impacting profitability are fulfillment fees, referral fees, storage fees, advertising costs, and returns and refunds.
In this article, we will break down these top four costs impacting sellers’ profits and show you how to reduce FBA fees so your business is more profitable.
READ MORE | How to Sell on Amazon for Free in 2023
How to reduce Amazon Seller fees
Whether you are a beginner or a veteran Amazon seller, you understand there are many fees you have to pay to sell products on Amazon’s marketplace.
However, we found that the following four costs have the biggest impact on an Amazon seller’s profitability:
1. Fulfillment fees
Amazon charges fulfillment fees for picking, packing, and shipping your products to customers.
The cost of Amazon’s fulfillment fee can significantly impact a seller’s profit margins. Even reducing it by just one dollar can lead to substantial savings in the long run, as the cost compounds with each sale.
The Amazon FBA fulfillment fee comprises two components: Product size tier and shipping weight. If you want to lower your fulfillment cost, it must come from one of these variables.
The size tier is determined by the shipping weight, which is calculated based on the greater of the unit weight or dimensional weight.
The reason Amazon and other shipping companies use dimensional weight is that their shipping trucks are not just limited by weight but also by the physical space available in each truck. So, charging sellers based on the total volume their product takes up inside the shipping trucks is logical.
Hack: Use Amazon’s FBA revenue calculator to estimate the fulfillment fees before sending your products to Amazon’s warehouse. This will help you avoid surprises and decide which products to sell on Amazon.
How to reduce Amazon fulfillment fees?
- Reduce packaging. Choose smaller, lighter packaging to lower your shipping weight and reduce shipping costs.
- Bundle up. Bundle products together to reduce the number of units that need to be picked and packed.
If none of these options work, you can potentially save on fulfillment fees by ensuring that Amazon is not overcharging you for incorrect dimensions.
Amazon periodically rescans products through their Cubiscan measuring system to check if the size has changed. If the product’s size has changed and is now bigger, Amazon will use the new data and begin charging a higher fulfillment fee.
To prevent and recover overcharges, periodically check Amazon’s measurements with the ones provided by your manufacturer. You can do this by keeping track of everything in a spreadsheet and cross-checking it with Amazon data once a month.
2. Referral fees
Amazon charges a referral fee for every item sold on their platform. The referral fee is a percentage of the item’s sale price and can vary depending on the category of the product. For most categories, the referral fee is 15% of the sale price, with a minimum fee of $0.30 per item.
Hack: Choose a niche with lower referral fees. For example, referral fees for Home & Kitchen, Toys & Games, and Office products are only 15% of the sale price, whereas referral fees for jewelry are 20% of the sale price.
How to reduce FBA referral fees?
- Find niche categories. Sell products in categories with lower referral fees.
- Enroll in Amazon’s Brand Referral Bonus program. Through the Brand Referral Bonus program, any time you drive off-Amazon traffic to Amazon and a purchase is made, Amazon will give you 10% off the referral fees for that purchase, as well as any other purchase those customers make from your brand in the next two weeks.
In the past few months, we’ve been testing this out here at Jungle Scout by using Google Ads to send traffic to our Amazon listings, and so far, the results are pretty amazing!
Because we’re only paying 5% instead of our usual 15% referral fee, our Google campaigns are noticeably more profitable than our Amazon campaigns.
3. Storage fees
Moving on to the third major cost you can reduce –– your storage fees. Like fFulfillment fees, these are charged based on the volume your products occupy in Amazon’s fulfillment centers.
Rather than reducing the size of your product or its packaging, the best way to save on storage costs is to move your products in and out of Amazon as fast as possible. Because each day a single unit of yours goes unsold, your per-unit storage cost increases.
That’s why ensuring you send the right amount of inventory to Amazon is important. Amazon recently enacted its FBA storage capacity system to help prevent sellers from overstocking.
Hack: Keep your inventory levels low and only send products that sell quickly to Amazon. Also, keep an eye on your Inventory Performance Index (IPI) score to track your inventory performance and levels to make sure you are not overstocking on slow-selling products.
How to reduce FBA storage fees?
- Monitor your inventory levels regularly and avoid overstocking. Maintain only enough inventory to last anywhere from 60 – 90 days. So when placing your next FBA shipment, ensure you only send in however much inventory you expect to sell within 60-90 days.
- Utilize Amazon’s Removal Order service to remove slow-moving products from Amazon’s fulfillment centers before incurring aged inventory surcharges.
- Run promotions or discounts to sell slow-moving products.
4. Advertising costs
Amazon offers several advertising solutions to help sellers promote their products on their platform. These include Sponsored Products, Sponsored Brands, and Sponsored Display ads. The cost of these ads varies depending on the keywords used, the competition, and the bidding strategy.
Hack: Use Jungle Scout’s Keyword Scout tool to find high-traffic keywords that are less competitive and bid on those keywords to reduce your cost per click. With Keyword Scout, you can also see each keyword’s estimated cost per click.
Also, make sure to track your advertising performance regularly and adjust your bidding strategy accordingly to lower your Advertising Cost of Sale (ACoS).
How to reduce Amazon advertising fees?
- Utilize ACoS. Set a target ACoS and regularly adjust your campaigns that are performing poorly.
- Budget. Set a budget for advertising and track your ROI to ensure you are getting a return on investment.
- Monitor keywords. Remove poor-performing keywords.
- Opt for cheaper solutions. Work on free marketing strategies such as social media marketing.
- Optimize your listing. Improve your product listing to help increase your conversion rate.
READ MORE | The Ultimate Amazon Advertising Guide
Become more profitable on Amazon!
The key to running a successful and profitable Amazon business is to fully understand the costs and fees involved in selling on Amazon. We hope this article gives you a deeper understanding of how you can reduce FBA fees and keep more money in your pocket.
You can also check out our YouTube on this topic below!