At first glance, selling on Amazon seems like the perfect way to build a strong, profitable eCommerce business. After all, Amazon is the largest eCommerce website in the world, and it gives your store unprecedented access to consumers across the globe. However, there’s a catch. Actually, there are quite a few catches. The reality is that it is not free (or even cheap) to sell products on Amazon.
As an Amazon Seller, you’re probably already very familiar with monthly subscription fees and referral fees, but there are also some less common fees that may catch you by surprise. Additionally, many of the hidden costs associated with selling on Amazon are not fees at all; they’re simply costs that many or even all Amazon Sellers will incur. While some are unique to specific situations and can be avoided, others are not.
So, what are the hidden costs of selling on Amazon? How much can these costs affect the profitability of your business? Finally, what can you do to keep track of these costs and calculate your profit margin?
In today’s guide, we will answer all of these questions and more, so let’s get started!
Again, not all of the costs in this guide will apply to every seller on Amazon. Some are more common than others, but it’s still important to understand exactly how these costs could impact your business and your profits. So, here are the 9 hidden costs of selling on Amazon:
While it’s not a fee that you might think of as a direct cost, there is certainly a cost that comes with acquiring each sale. Sometimes referred to as the Customer Acquisition Cost (CAC), this is a simple formula that takes the amount you spend on advertising and divides it by the number of sales that can be directly attributed to those advertising costs. The final number will give you your ad spend per sale. In other words, how much it costs you to get each sale. If you haven’t been keeping track of your marketing costs on Amazon, you could be spending way too much in comparison to what you’re actually getting in return.
If you only sell one type of product on Amazon, then you probably know how much these products cost you in Amazon referral fees. These fees can range anywhere from 8% (consumer electronics) to 45% (Amazon device accessories). Moreover, these fees are always subject to change.
However, if you start branching out into new product categories, you might encounter unexpected fees that come out of each sale. For example, products that fall within the media category are subject to a special Variable Closing Fee (VCF) that is charged in addition to the referral fee.
Certain common products like books or movies can be returned and Amazon will cover the cost of the fees charged. However, if you’re a seller with products that don’t fall within the media category, you may be subject to a refund administration fee when products are returned by customers. So, not only do you lose out on the money you would have made from the sale, but you also have to shell out a percentage of the fees you paid in the first place. This can be a shocking figure on your Amazon sales report, especially if you have a lot of returned items.
Offering your customers coupons is a good way to boost sales, but it also inherently means that you’ll make less money from each sale. You already have to cover the cost of the discount; Amazon won’t do it for you. On top of the reduced return, Amazon charges a fee every time a customer redeems a coupon. As of this writing, Amazon’s coupon redemption fee is $0.60 per redeemed coupon, regardless of the value of the product sold. So if you’re selling items that cost $10 or less, you’ll definitely want to think twice before creating coupons for your customers, as you could end up completely chipping away at your profits.
If you use Amazon FBA, you may have already encountered removal or disposal fees. These fees apply if and when you request that Amazon return items from the fulfillment center to you, or you ask Amazon to dispose of the items. This is most common if you have items that are not selling, and you don’t want to pay for storage any longer. Amazon will charge removal and disposal fees that can vary based on the weight of the product, though these fees generally start at $0.97 per returned or disposed item.
As long as your products are not hazardous and are valued at less than $2,500, you usually won’t have to worry about dealing with customs when importing your products. However, at some point you will almost certainly need to hire a customs broker to manage your imports. A customs broker may charge a flat fee for their services, though they will generally charge a percentage based on the value of the items shipped. Naturally, these costs will not show up in any reports provided by Amazon.
The Amazon FBA calculator will generally tell you how much it’s costing you to use the service. However, as you can see, there are a lot of fees and costs that may not be included, or may catch you by surprise in unique situations. Brand registration fees are not directly charged by Amazon, and on the surface, Amazon brand registry is free. However, to qualify for brand registration, you will also need to acquire trademark registration. This application can cost you anywhere between $225 and $275 per class of goods you intend to sell.
If you feel like you’re leaving a lot of money on the table by selling with Amazon, you’re not alone. There are many fees and hidden costs to consider, and the only way to know exactly how much you’re spending to sell on Amazon is to get a true, 100% accurate P&L report. By combining the power of QuickBooks and ConnectBooks, you can get a P&L report with all of Amazon’s hidden costs factored in. ConnectBooks allows you to quickly and easily sync your data and automatically categorize different expenses so that you know exactly how much these costs are affecting your profitability. By using ConnectBooks, you have the power to better understand the financial health of your Amazon business and make more informed decisions going forward.
Do you want to learn more about the hidden costs when selling on Amazon? If so, reach out to the experts at ConnectBooks today!
