Amazon is continuing to grow at lightning speed. With around $386 billion in net sales for 2020, the firm is light years ahead of any other e-commerce platform. More importantly, all indicators and forecasts suggest that this triumphant run of Amazon is not going to end anytime soon either.
Amazon becomes a natural choice for many new sellers due to its trustworthiness, consistency, and better business scope. However, the confusing nature of the cost of selling on Amazon often deters many sellers to use the platform.
From inventory costs to a laundry list of Amazon selling fees and marketing/advertising overheads to price changes based on the nature/class of the product and size— there is too much to wrap your head around. This also makes it harder to estimate how much it actually costs to sell on Amazon.
In this guide, we want to break down how much it costs to sell on Amazon. By having an idea of how much money you need to start selling on Amazon, you can set much more realistic goals for your gig.
Before getting too deep into the cost of selling on Amazon, we will first address some important questions. These questions might pop up in any aspiring Amazon seller’s mind while doing a cost analysis of their upcoming venture.
It most definitely is worth selling on Amazon. There is a reason why there are 1.9 million active sellers on the platform. For a more detailed answer to this question, you can read our post that thoroughly dissects this question - “Is it worth selling on Amazon?”. There you will find arguments from both sides and also how FBA and FBM match against each other.
If becoming rich means pocketing seven-figure revenue in a year, you can certainly get rich from selling on Amazon. There are thousands of people who have become millionaires through Amazon gigs. Once you have the drive and determination to success, the possibilities are endless.
On average, Amazon takes 8-15% from sellers on every item sold. The percentage varies with product categories. For reference, eBay charges a flat 10% on every sale made.
You can’t sell on Amazon as you do on Craigslist where there are no checks and balances on sellers. Everyone can sell anything there without needing to fulfill any requirements. With Amazon, you need to take care of a list of prerequisites to get off to a flying start as a seller. Sorting out those prerequisites also entails expenses. Therefore, you should always include them in the accumulative cost of selling on Amazon.
Once you are done with your product scouting and have found a supplier/manufacturer, we suggest you build your inventory. This might be the biggest standalone cost you need to deal with when you are about to start your selling career. You need to procure and build your inventory in line with what you have aimed for with your monthly sales.
We suggest having at least 3 months of inventory, particularly if you’re sourcing it from an offshore supplier/manufacturer. For instance, if you expect to sell 100 units a month, try to have 300 units ready and lined up all the time for fulfillment and delivery. Also, check with your supplier first if they use Minimum Order Value (MOV) on their orders when you’re procuring the listed item in a small number.
Your manufactured/sourced inventory (per item) should cost you 10-20% of your Amazon selling price.
If you’re sourcing your product from any other country, you will have to take care of freight costs and import duty as well. The freight cost will depend on the volume of your consignment and which type of freight service (LTL, FTF, air freight, etc) you opt for. Similarly, import duty will be different for different sets of goods.
Delivery Duty Paid (DDP) is the most suitable shipping mode for new sellers. In this shipping method, the shipper assumes the responsibility and risks of shipping the inventory to the agreed-upon destination. A DDP shipper is also liable to take care of the import duty, tax payment, and import clearance.
Assuming that you’re sourcing from China to North America, your DDP cost could be around $2-5 per kilogram.
Whether it is products lined up in roadside supermarkets or digital aisles of e-commerce stores, they’ve barcodes. Those barcodes make it easy to track things and streamline the entire wholesale and retail operation. Before Amazon assigns its own label Fulfillment Network Stock Keeping Unit (FNSKU) to your products, you need to get a barcode called Universal Product Code (UPC) for them.
You can buy these barcodes from Global Standards 1 (GS1)— the most reliable barcode supplier. You need to get a unique barcode for each variation of your product. The following chart makes it easier to understand how many barcodes you may need to buy for any given product, depending on its variations.
You can get a pack of ten barcodes at the initial fee of $250 and the annual renewal fee of $50. If you don’t have any product variations and just need a single barcode, then opt for Global Trade Item Number (GTIN). It is also available on GS1 for $30 with no annual renewal fee.
Note: Always buy UPC barcodes from the official GS1 website and avoid all the cheap alternatives you may find in your Google search. Getting those cheap barcodes not matching against the GS1 database may get your product invalid on Amazon. Also, there is no difference between UPC and GTIN when it comes to product identification.
Amazon generates FNKSU for free. You have to download, print, and affix it to every item. You can do it yourself, make an arrangement with the supplier, or pay Amazon to do that. The platform charges $0.30 per item for standard FBA and $0.10 per item for FBA Small and Light to affix every item with FNKSU labels.
If you want to venture as a private label seller, you must get your brand registered with Amazon’s brand registry. You can only do that if you fulfill the following requirements.
In the US, you can register your trademark with the US Patent and Trademark Office for anywhere between $225 and $600, depending on the type and class of goods and services your brand sell. The creation of a logo, corresponding website, custom packaging, and product photography/videography will also need money. These costs can vary a lot depending on the details and level of services/expertise you get. Nonetheless, you might need at least $500-600 dollars to cover those expenses.
From keyword and product research to listing optimization and business analytics, you may need various tools or a single comprehensive software suite. This software-based assistance will take care of the backend and analytical part of your journey as an Amazon seller. This can also cost you anything between $50 and $200.
Amazon selling fees are the most confusing aspect for sellers when they carry out the cost analysis of doing business on Amazon. There is an entire list of Amazon fees one has to consider under different conditions to sell on the platform.
So, let’s just break down all those fees in as short and simple descriptions as possible.
First of all, you’ve to register as an Amazon seller and pay a fee. You can either opt for an individual or professional seller account. As an individual seller, you have to pay a selling fee of $0.99 for every item sold. In contrast, a professional account works on a subscription model where you have to pay $39.99 every month irrespective of how many sales you make.
A professional account is a more suitable option for those who want to earn some serious income from the platform. If you are confident that you will sell more than 40 items a month, a professional account is a better fit for you. Not just does it enable you to pay a fixed selling fee with no caps on monthly sales, you also manage to win placements in the Buy Box and access to gated product categories as well.
The referral fee is just another word for a commission or percentage that Amazon takes on every sale. The referral fee is not a fixed outlay. Amazon applies different referral fees for different classes of items. They usually start from 8% and go up to 15%. For some items like Amazon device accessories, it even moves past 40%.
For Fulfillment By Merchant (FBM) sellers, the referral fee applies to the total sales price as well as the shipping cost they charge a customer. For instance, if you’re selling a raincoat (17% referral for clothing) for $60 with the shipping cost of $5.99 and wrapping cost of $1.99 (as an FBM seller), you’d have to pay:
Referral Fee = 0.17x (60+5.99+1.99) = $11.55
For Fulfillment By Amazon (FBA) sellers, the referral fee will be the percentage of the price of the product plus the fulfillment fee. The following chart outlines Amazon referral fees for different classes of items:
Closing fee confuses many sellers. Many of them often confuse it with the referral fee. However, that’s not the case. The closing fee is another fee altogether levied on almost all the items that belong to the media category. This includes gaming consoles, DVDs, music-related devices/peripherals as well as books. The closing fee has a fixed rate i.e. you have to pay $1.80 on every applicable item.
This fee hasn’t been around for long. In fact, Amazon introduced it in October 2019 with no explanation whatsoever. It is generally believed that the closing fee is just a way for Amazon to capitalize on the soaring sales of media items on its marketplace(s).
The fulfillment fee applies to all those sellers who opt for the FBA program. Historically, the fulfillment feature has proved to be a gamechanger for the platform. It won’t be wrong to say that fulfillment services are one of the primary reasons why Amazon is the undisputed king of the e-commerce space.
When you ask Amazon for fulfillment, you essentially outsource most of your logistical workload to the platform. From picking to packing and shipping products to consumers, Amazon takes care of everything for its FBA merchants. This extraordinary feature comes at a price. Amazon levies the fulfillment fees based on the size and weight of the products classified into different categories.
The following charts sum up the FBA fees sellers have to pay for items belonging to different size and weight categories.
Fulfillment Fee for Standard Size Products (Non-Apparel)
Fulfillment Fee for Oversize Products (Non-Apparel)
Fulfillment Fee for Standard Size Products (Apparel)
Fulfillment Fee for Oversize Products (Apparel)
If your product can be packed in envelopes, weighs equal to or less than 12oz (0.75lb), and bears a price tag below $7, you can enroll it in Amazon’s Small and Light program. The program entails lower fulfillment fees, which means better margins for sellers on smaller and cheaper items.
Amazon classifies products as Dangerous goods if their transportation, storage, packaging, and overall management involve any added or extraordinary risk. Since Amazon handles those products with more diligence, it charges a slightly higher fulfillment fee for them. The following chart outlines the fulfillment fee structure for dangerous goods.
Sellers that use FBA are most likely to use Amazon’s fulfillment centers as their inventory facilities. They can do that by paying an inventory storage fee. This fee is based on the size/volume of the inventory and the months it’s supposed to spend in Amazon centers. This chart indicates the storage fee price brackets for different volumes and months.
Use this simple formula to calculate your monthly inventory storage cost.
Inventory storage cost per item = average daily units (for a month) x volume per unit x applicable rate
If you’re keeping 50 standard-size items in the Amazon inventory in any month from January to September, you’ll have to pay:
Inventory storage cost = 50x0.05x0.75 = $1.875 per item
Besides the basic selling fees discussed above, you may have to factor in some miscellaneous fees too in the cost of doing business on Amazon. It’s worth mentioning that we’re not going to discuss every last miscellaneous Amazon fee. Our focus will remain on the ones that most sellers have to take care of more often.
If a seller’s inventory has been in a fulfillment center for more than a year, Amazon charges a long-term storage fee on the given inventory. The long-term inventory storage fee is $0.15 per unit per month or $6.90 per cubic foot (if accumulative long-term storage per unit cost of inventory is less than $6.90).
Amazon takes 20% of the applied referral fee per item when it refunds a customer order for which the seller has already been paid. It is called a refund administration fee.
This fee applies to all the SKUs that haven’t witnessed any sale for the last 12 months. Amazon charges this fee to cover the cataloging management and costs. It’s $0.005 per SKU.
If sellers want to remove any item from the fulfillment center, they have to pay a fee for that based on the shipment weight of the given items.
If you’re operating from a state where marketplace facilitator law applies, you have to pay the sales tax on each given item. Amazon can collect and pay that tax on a seller’s behalf at a fee that is 2.9% of every tax transaction.
Advertising/promotion is a crucial bit of business for every retailer, and Amazon sellers are not exceptions. As a new player in the game, you must be aware of the marketing avenues for your products and their corresponding costs.
You can run three types of PPC campaigns on Amazon. These campaigns are:
The sponsored product ads for the search keywords “mobile charger”
Various sponsored brands ads popping up on a relevant product page.
The PPC cost of Amazon is pretty fluid. You might be paying $0.0.2 to $3 per click depending on the product category, marketplace, and how much money your fellow competitors are willing to bid in the PPC auction for certain keywords.
You can also use these tried and tested promotional methods on Amazon to stay ahead of your competitors. All these promotional efforts will cost you a fortune and that is entirely contingent on your overall budget.
You can also promote your listings on non-Amazon platforms e.g. Facebook. You can use one of the biggest social media platforms to improve traction and conversion on your listings. Moreover, you can promote your listings through Amazon’s robust Affiliate Program. Influencers/associates promote and endorse your product on their website and get a particular commission on every sale.
You can garner a good amount of genuine reviews for your product to boost sales by enrolling in the Amazon Vine Program. This program invites Amazon customers with a long and reliable history of buying and reviewing on the platform. Amazon provides those customers or “Vine Voices” with a free product in exchange for a review. As a seller, you don’t have to pay any fee to get enrolled in the program. You only have to cover the cost of products provided to Vine voices.
Once you get a Seller Central account, go to the Advertising drop-down menu to learn how you can leverage different promotional and marketing methods to stay ahead with your listings.
There is no definitive answer to how much does it cost to sell on Amazon due to a list of variables. Nonetheless, we can roughly estimate that cost. For example, you would need at least $3,500-4,000 to start a single-product FBA venture with a $3-5 manufacturing/sourcing cost per item.
This includes the manufacturing/inventory cost, freight and duty charges, FBA and other fees, and advertising expenses.
At this stage you should be able to get a fair estimate of the prices and costs needed for selling on Amazon. However, that doesn’t mean that it’s easy to calculate costs on your own, and the calculator Amazon offers is not much help either.
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