FBA Fees + Tips to Improve Profits
As with anything you invest your money into, there are fees and costs associated with selling on Amazon. These expenses may seem like no big deal, but some fees can add up quickly and lead to overspending issues that impact your profits.
For example, storing excess inventory in Amazon’s FBA warehouses comes with long-term storage fees on top of your standard storage fees. And when a product is no longer selling and you need to remove the inventory from FBA, that can also take a chunk out of your budget. Amazon charges removal fees starting at $0.32 per unit all the way up to and beyond $7.70 per unit depending on shipping weight and size tier.
Understanding the fees you pay and how they affect your profit margins is one of the most important aspects of selling on Amazon.
Many sellers operate at a loss because they don’t know how much each product really costs them when all's said and done. Thus, they’re unable to price it correctly, look for better logistics and fulfillment alternatives, and control and keep costs down.
In this post, we'll take a closer look at Amazon FBA fees. We've also created a free FBA calculator that you can use to run your profit calculations.
In this Amazon FBA Calculator guide, we’ll take a look at:
What are Amazon FBA Fees?
The costs involved in selling on Amazon using Fulfilled by Amazon are generally referred to as FBA fees. These fees are typically made up of four parts:
Sellers pay Amazon a referral fee on each item sold. It’s usually 15% of the item's retail price, though certain sub-categories have higher or lower referral fee percentages, such as:
Variable closing fee
While all Amazon sellers are charged the referral fee, an additional closing fee of $1.80 per unit sold is charged for sellers of items in the following categories:
For example, when a DVD is sold, the seller is charged a $1.80 closing fee in addition to any other applicable fees.
Amazon Selling Plan Fees
Amazon offers two types of selling plans to new sellers:
The individual seller plan comes with a $0.99 fee per item sold while the professional seller plan comes with a $39.99 monthly subscription fee, irrespective of the number of items you sell. Suppose you're an individual seller plan user and sold 45 items in a month. In that case, you’ll have to pay $44.55 (45 x $0.99) in Amazon seller fees, costing you $4.56 more than you would have to pay had you selected the professional selling plan.
FBA fees include storage (monthly and long-term), removal or disposal orders, returns, and fulfillment costs, which may vary depending on estimated volume, time of year, and item size.
Amazon determines the estimated volume of an item by calculating its unit and carton dimensions. That’s why you must package and send your products to Amazon according to FBA shipping policies (e.g., putting the correct weight or classification). This way, Amazon can give you accurate FBA fee estimates.
Inaccuracies in your product’s weight or classification can cause Amazon to overcharge you in pick and pack fees. Worse, they may reject your shipment and charge you extra for non-compliance with their product preparation requirements.
Other FBA Fees
Using Amazon’s FBA services and features also come with a cost. Examples of FBA services that require fees are:
When to Use an FBA Calculator
Use an FBA calculator when you are researching a new Amazon product to add to your catalog. This tool will help you calculate the estimated FBA fees associated with selling that product on Amazon and can help to determine the profit it will make.
Depending on the calculator’s features, you can modify your product’s weight and dimensions to experiment with different shipping and packaging options to figure out the best way to keep costs low. You can also compare product pricing variations.
Suppose you’re planning to increase or lower a product’s retail price. In that case, the calculator will provide information on how these price adjustments can impact your margin, helping you make an informed decision.
Use the data in the calculator to find out whether selling that new product through FBA will be more profitable for your business. If not, you can quickly look at your other options like Seller-Fulfilled Prime and Fulfillment By Merchant.
SoStocked’s Amazon FBA Calculator
How Does it Work?
This FBA calculator estimates the potential profit a product can bring for you.
The profitability is estimated on the product's current Amazon fees based on retail price, size, category and other factors as discussed above. You can also add your product cost, shipping cost, storage cost, and other details to get your net margin.
All in all, this tool saves you a lot of time and helps you organize all of the information needed to determine if a product is a worthwhile investment.
Amazon’s FBA Revenue Calculator
Alternatively, you can use Amazon’s Revenue Calculator and country-specific FBA calculators to understand the FBA fees per country. Each of these calculators also factors in individual currencies and any fee differences in those countries.
However, they do not include the costs associated with marketing the product like photography, graphic design, product ads, and promotions like other calculators do. So, they may not give you a full picture of your product’s actual profit potential.
See for yourself:
- Choose your country-specific FBA calculator.
- Search for the product you intend to sell. You can search it by ASIN and see if it’s listed in Amazon stores. If you have a listing for the product you want to run profit calculations for, log into Seller Central and search it by SKU. If your SKU is not available, consider using a similar product to assess a comparison.
- Input revenue details, including the pricing information for each fulfillment option.
- Input cost details, including cost estimates for each fulfillment option.
- Hit calculate. The revenue calculator will show you the breakdown of costs associated with the product.
- Adjust and recalculate as needed.
4 Tips to Increase FBA Profit Margins
Amazon’s FBA program is one of the most popular fulfillment methods for new and seasoned sellers. However, it isn’t free.
Amazon FBA fees also change frequently, so having a good inventory management strategy is key to staying on top of things.
Below are some tips for improving inventory performance to maximize profits while keeping FBA fees low.
Streamline Your Inventory Process
Two inventory pains that cost sellers a lot are stocking out and overstocking.
For example, carrying excess inventory comes with holding costs that can hurt your business. Holding costs typically include warehouse expenses, additional storage fees, opportunity costs, insurance, and spoilage/shrinkage losses. These costs get higher the longer you let your excess inventory sit in a warehouse unsold.
Stocking out is another problem that can eat into your budget. There are apparent stockout costs like lost rankings, lost income, and express air shipping, but there are also hidden costs that often lurk below the surface. Some of these include unhappy customers, productivity loss, and costs you may incur when you accept backorders.
On Amazon, you can list a back-ordered product. Back-ordering is ideal for top sellers that often run out of stock due to high customer demand. This process allows you to continue to sell without stock and then fulfill orders at a later date when the product becomes available.
However, since backorders take some time to arrive, potential customers may be put off by the long estimated ship date and decide to find another seller, tanking your conversion rate and potentially your ranking along with it.
Another cost of backorder is paying extra for expediting the production and shipping of your items to try to get them to Amazon faster. And if you fail to ship a back-orderd item within your promised date, your On-Time Delivery Rate will take a hit, Amazon will automatically cancel the order, and worst of all, your seller account health will be affected due to negative feedback that may be generated from this.
These inventory pains typically stem from a lack of means to monitor inventory and forecast demand. That’s where using a sound inventory management system like SoStocked comes in handy.
SoStocked streamlines your min/max restocking process, purchase order management, and supplier lead times. Automating these processes not only increases efficiency but also reduces stockouts and excess inventory.
Conduct a Regular Amazon Inventory Cleanup
Regularly check your Inventory Health report by going to Manage Inventory Health. With this you can monitor and track SKUs that could incur holding costs if you don’t remove or sell them quickly.
Review the columns in the report to see the current age of your sellable inventory, long-term storage fee estimates, units shipped in the last 30 days, and so on.
List all your aged inventory and prioritize those with the highest storage fees. Be strategic about how you want to move them before the next inventory clean-up date. Remember, Amazon conducts an inventory assessment every 15th of the month to identify inventory that's been in their fulfillment center for more than a year. Aged inventory is subject to long-term storage fees. So, you should get rid of your aged inventory before the next clean-up date to minimize costs.
Consider bundling your slow sellers with top sellers or taking part in Lightning Deals to encourage increased sales. Use ads to drive more traffic to these products, especially those with poor sales rankings. Listing optimization to improve conversion can also provide a valuable sales lift. These techniques will help you manage your aged inventory better and improve your sell-through.
Sync Up Your Marketing and Inventory Teams
Have you ever driven yourself into a stockout because of your aggressive PPC efforts? Or had to cancel a Lightning Deal because you were low on stock? This happens because sellers plan promotions or run PPC campaigns too aggressively without coordinating their marketing plans with their inventory plans.
If you had an overly aggressive PPC campaign a month ago, or worse, paid a digital ad agency, and their team stocked you out, then that's even more lost profit because you paid to run yourself into a stockout.
You suddenly realize how much money is wasted on stockouts because the marketing and inventory aren't working as one cohesive machine. This is one of the major reasons sellers end up in an out-of-stock situation. And that's one of the reasons why we continue to talk about Inventory-Minded Marketing or marketing with inventory in mind.
Inventory-Minded Marketing involves syncing up your inventory, marketing, and even your accounting team throughout a marketing campaign to ensure all teams are working together to assist each other in making as much profit as possible by avoiding stockouts and overstocking.
For instance, your marketing team plans out their Prime Day marketing strategies to maximize the number of sales they expect to make over that period. Your head of marketing should communicate this to the inventory manager so that her team can then build a sound forecast around that plan. The inventory team makes sure this plan does not create any inventory stockouts, and then provides vital data so that marketing can understand when they can push and when to hit the brakes.
The accounting team then uses this composite inventory-minded marketing plan and takes care of budgeting, securing any needed funding, and paying suppliers promptly to avoid delays in manufacturing and releasing your inventory.
Use a Reimbursement Service to Save on Amazon Fees
Claim the money Amazon owes you with the help of reimbursement service providers. Just because Amazon rejects your reimbursement request doesn't mean it's a closed case.
I recommend working with a service provider that understands the process in detail, like Getida. They specialize in recovering your money and can usually find a lot more money than your typical Amazon software suite that happens to have automated reimbursement management as just one of their many features.
Getida knows how to get requests approved that have been rejected in the past. If you’ve had issues with getting approved, you need a service that understands the ins and outs of Amazon’s reimbursement program.
The sooner you try to get back the money you’re owed, the better, as you only have 18 months to file reimbursement claims. Requests submitted after the deadline are not eligible for reimbursement.
Control FBA Expenses to Stay Profitable
Whether you're a newbie or a seasoned seller, gaining a deeper understanding of Amazon FBA fees can help you protect your profit margins and inform your pricing decisions.
Use the FBA calculator to determine your product’s profit potential before pulling the trigger. Running your profit calculations will also help you decide whether or not it’s a good idea to sell it through FBA – or at all.
Finally, streamline your inventory processes to avoid the costly consequences of stocking out and overstocking to increase your profit margin. And if you currently have a large volume of excess units, consider selling them at a discounted price to increase sales, boost rankings, and ultimately improve your overall inventory health.
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