Starting a business on Amazon can be a good source of income, especially now that people are compelled to stay at home and just have their needs delivered. However, before your business can be profitable, it should first cover production, selling, and shipping costs. Not accounting all possible costs can set your business up for failure. To ensure that your Amazon business can be a stable source of income, you must plan strategically and take note of these six more fees that come alongside Amazon FBA shipping charges.
How does Amazon FBA work?
Fulfillment by Amazon (FBA) is a program that allows Amazon to store, pack, and ship a seller’s product on their behalf. Amazon also takes charge of the customer service and returns management of the brand.
In FBA, the seller will have to do product research and production. The items should already be packaged and ready for shipping anytime the orders come in. The seller can either drop off the products to the nearest Amazon Fulfillment Center or pick up at their address. Either way, Amazon FBA provides cheaper shipping charges for its subscribers in the U.S. If you’re a seller from Canada, Amazon offers the same privileges through the help of third-party courier partners. These courier partners will ship your items to the U.S. border, where they will be picked up by UPS and delivered to the fulfillment centers.
Once the products reach the Amazon Fulfillment Center, the Amazon staff will take care of the storage and packing based on your instructions or packing recommendations. Amazon will also do the shipping and communication with the clients on your behalf. In addition, you will have the benefit of Amazon fulfillment services tracking. With Amazon running the business, you can focus on further product development and marketing. You can think of FBA as hiring staff to manage your business operations while you do the planning and selling.
Why Use Amazon FBA
First and foremost, selling on Amazon provides sellers the opportunity to make a living and the buyers to have their needs delivered at the height of today’s global health crisis. While Amazon is home to thousands of loyal buyers, Amazon is also home to an overwhelming amount of sellers and products. If not appropriately managed, your listings can easily get lost in the sea of products available in the e-commerce site.
Amazon FBA provides an opportunity to assist sellers in managing their business. Besides the product and customer management services that FBA provides, FBA also gives sellers a boost in sales and marketing. Subscribing to FBA gives you a Prime Badge. This means that Amazon Prime members can buy your product free of shipping charge and receive the items within two days. Amazon Prime members alone are a huge market as they are proven to spend more, both in terms of amount and frequency.
Amazon FBA also prioritizes your listings in the search results over listings under individual selling accounts. To top it off, FBA exclusively offers the chance to advertise through Pay-per-click campaigns. When used strategically, Amazon FBA can provide maximum exposure to your listings, ahead of your competitors.
Lastly, one of the most significant advantages of subscribing to Amazon FBA is being eligible for the Buy Box. The Buy Box can be seen on the lower right side of product pages where the “Add to Cart” button can be found. The Buy Box is responsible for more than 80% of purchases made on Amazon. Needless to say, getting the Buy Box could be equated to a guaranteed increase in conversions.
Amazon FBA Shipping Charges and Other Fees
Selling on Amazon comes with a price, and it entails more fees than just paying for Amazon FBA shipping charges. All the services they offer have equivalent prices, depending on plan subscription and item size and weight. If you're already aware of how much Amazon shipping is, the following are six of the additional basic fees you should expect if you want to sell on Amazon:
1. Selling Plan
If you’re selling on Amazon, you will be required to subscribe to a selling plan depending on how well you think your business will perform on the e-commerce site. You can choose between two plans. First is the individual plan, which costs CAD $1.49 fee for each item sold per item sold. This plan is fit for sellers who have not yet established their final product line and are expecting to sell less than 20 pieces in a month.
The second is the professional plan, which charges a fixed amount of CAD $29.99 per month regardless of the number of products you sell. A professional plan is best for sellers who are looking into expanding their business and competing in the marketplace. The professional plan comes with numerous privileges such as access to marketing tools, API integration, ability to sell under different categories, avail of free shipping services, and the chance to be included in the magical Buy Box, among others.
2. Fulfillment Fee
Fulfillment Fee is the cost of shipping your orders to your customers. The price of the Fulfillment Fee depends on the plan you’re subscribed to, product size, and product weight. If the seller does fulfillment, the seller will have to pay the shipping credit dictated by Amazon. The shipping credit is decided by Amazon’s standard shipping rates (depending on the item) and the buyer’s chosen shipping service. Below are the shipping credits based on item and shipping method:
Local Shipping Credits
All other categories
CAD $4.99 + $1.99/kg*
*Weight of the item excluding seller’s packaging
International Shipping Credits
All other categories
There will be instances where the shipping credit will be less than the actual shipping cost. If the item’s price does not have enough profit margin to adjust to the shipping difference, the seller will incur a loss and will have to make up for the remaining amount for shipping.
On the other hand, sellers subscribed to Fulfillment by Amazon (FBA) will be charged a fee per unit inclusive of picking up and being able to ship directly to Amazon FBA, packing, shipping, handling, and management fees (customer service and product returns). The total of these fees will also depend on the weight and dimension of the product.
For a guide on standard product sizes and Amazon FBA shipping rates, you may refer to this link.
3. Referral Fee
The referral fee is required per item sold, regardless if you’re under Fulfillment by Amazon or Fulfillment by Seller. This referral fee is similar to a commission fee that you pay to Amazon for selling on their platform. The referral fee is usually 15% of the total bill (original item price plus shipping and wrapping charges). For example, if you sold one shirt costing CAD $10 with a shipping fee of CAD $3.11, you would pay the referral fee of CAD $1.97 (15% of $13.11).
However, you should know that although there is a predetermined 15% usual referral fee amount, this amount would still vary per product. The minimum referral fee is CAD $0.40, while the percentages could range from 3% for watches to 45% for Amazon device accessories.
4. Storage Fee
The storage fee is something that you have to pay if you’re subscribed to FBA. The amount will be calculated based on how much space (per cubic feet) your products occupy in Amazon’s storage centers. Below are the long term storage fees to be paid bi-annually effective starting September 1, 2020:
January - September
CAD $24 per cubic metre
CAD $17 per cubic metre
October - December
CAD $33 per cubic metre
CAD $23 per cubic metre
5. Storage Inventory Fees
The storage inventory fees are the charges that incur additional to storage-related services. These services can be long-term storage fees or the removal order fee. The long-term storage fee is charged per item that has remained in Amazon’s fulfillment center for more than a year (365 days).
If you want to avoid paying the long-term storage fee, you can file for a product removal before the designated monthly inventory check. Filing for product removal gives you the option to have the items shipped back to you or disposed of by Amazon. The product removal fee also comes with a price and is charged per unit, depending on the size weight of the item. You can refer to this table for the breakdown of the fees effective starting September 1, 2020:
Removal/Disposal Fee per Unit
More than 1 kg
Each additional kg above 1 kg
Oversize and special handling items
More than 5 kg
Each additional kg over 5 kg
6. Refund Administration Fee
The refund administration fee is applicable when you refund an item that has already been paid by the buyer. Amazon will return the referral fee from the items. However, they will deduct a refund administration fee, which either costs $5 or 20% of the referral fee, whichever amount is the lower one.
How to Price your Products
Considering all the fees mentioned above, unstrategic pricing of products can ultimately make or break your sales. Take note that one of the factors considered in search ranking is competitive pricing. This means that your price should only be around the usual market price, if not lower. Some brands might even set an MSRP (Manufacturer’s Suggested Retail Price) for retailers and resellers to abide with. With these limitations, here are some tips on how you can balance profit and competitiveness:
1. Determine your floor and ceiling price
Your floor price is the breakeven or the lowest price you can offer without incurring a loss. This price is determined by adding all the amount spent in producing and selling the product. The ceiling price, on the other hand, is the highest price that you can offer. The ceiling price would depend on how much profit margin you want to achieve. However, a competitive ceiling price tends to be around 20% more than the highest price available in the search results.
2. Stick with the market price
Amazon can predict how much your product should cost based on the common market price, but at the end of the day, you, as the seller, will still make the decision. For the most competitive price, you can charge your product 15% more than the lowest priced competitor. However, if you want to gain a semblance of class and higher quality, you can price your product slightly higher than the usual cost. Your price can vary depending on what value you sell your product for as well as the buying power of your target market.
3. Avoid selling products lower than CAD $10
There will always be products that cost less than CAD $10. However, the said price will barely cover the Amazon selling fees and will leave you with little to no profit. Selling a single sticker, for example, for more than CAD $10, can cover the selling costs, but it can be considered as too expensive for the product type. However, you can try to sell in bundles or packages so both the seller and the buyer can get their money’s worth. A set of five stickers for CAD $12 is definitely more buyable than CAD $10 per piece.
4. Be consistent but flexible
Keeping a stable, consistent price can help build your credibility as a seller and improve your product’s perceived value. The more stable your price is, the more that you can justify the price. However, don’t cancel the idea of offering discounts through sales as it could create a sense of urgency for the buyers. A product’s market value can also rise and fall from time to time. It is acceptable to change the price if the rest of the industry does so in response to market changes.
Starting your Amazon Business
It’s a normal initial reaction to be overwhelmed, given the breakdown of expenses above. Even with the fees, selling on Amazon still remains to be a good option for business owners because 1) it can be relatively cheaper than running your own website; and 2) it already has a captured market and is home to the biggest community of online shoppers. It is only a matter of properly pricing your products to guarantee profit despite the fees, and properly promoting your listings so the right audience can find your items at the right time.
No matter the nature of the business, it is essential to maximize all the tools and resources that you can get. And though consulting professionals can incur additional costs, it is a good form of investment that you need to spend on in order to set your business up for greater heights. If you want to know more about Amazon FBA shipping charges, send us a message and get a free consultation from our experts today.
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Nicasio is the co-founder of Stallion Express - the leading eCommerce shipping company in Canada. Through his unique experiences in tech and digital marketing, he is on a journey to disrupt the logistics industry.
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