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Table of Contents

  1. Ways to Sell a Product on Amazon: Amazon Vendor vs. Third-Party Seller
  2. Individual vs. Professional - Choosing the Right Selling Plan
  3. Shipping and Fulfillment Related Amazon Fees
  4. Selling on Amazon Referral Fee
  5. How to Understand Amazon Selling Fees

Ways to Sell a Product on Amazon: Amazon Vendor vs. Third-Party Seller

Before we go into the details of selling on Amazon and its fees, let’s go through the types of sellers on the platform. These include third-party or 3P sellers and Amazon vendors or 1P sellers, both with access to different seller accounts.

How Does Amazon Vendor Central Work?

An Amazon vendor has access to Vendor Central. This is an invite-only platform made up of businesses, distributors, and manufacturers that sell products directly to Amazon. Once you get into the program, you essentially become one of Amazon’s many suppliers. Vendors receive purchase order listings and are expected to deliver the inventory as per Amazon’s requirements. 

Amazon Vendor Central Interface

A Vendor Central interface is where vendors manage seller affairs and functions much like a Seller Central dashboard for third-party sellers. Once all outstanding orders are fulfilled, it’s up to Amazon to advertise and sell the products. Compared to third-party sellers, vendor duties appear relatively easy. However, that’s hardly the case. 

Amazon vendors have to face plenty of challenges including—but not limited to—adhering to strict contract terms, low-profit margins, and having to face and overcome hurdles on a routine basis. 

Try to become an Amazon Vendor if:

✔ Advertising is not your forte. 

✔ Logistics is your strong suit and you’re confident in your ability to deliver as per Amazon’s requirements

✔ You don’t want to sell directly to customers

✔ You don’t want hijackers taking over the product listing (which undergoes inspection by Amazon before going live)

✔ You want access to unique tools not available in Seller Central

✍🏼 Note: Amazon Vendors are also known as 1P or first-party sellers since Amazon directly sells the product to customers without a separate, third-party entity.  

How Does Amazon Seller Central Work?

An Amazon Seller Central account becomes available to third-party sellers after the registration stage. Like Vendor Central, there are plenty of features available within the dashboard to assist users with inventory management, marketing, product listing and optimization, and other facets of selling. 

Third-party sellers should create a unique brand to list products on Amazon via a Seller Central account. Unlike vendors, sellers need to self-manage online selling. This usually starts with product research and ends in post-launch product management. There are greater levels of control when it comes to logistics, fulfillment, pricing, and advertisement. 

Percentage of 3P sellers on Amazon by Q4 2020

The graph above shows how 55% of all units sold on Amazon’s platform came from third-party sellers. Sellers like 3P because even though it involves greater risks, it also yields greater rewards. 

Try to become a third-party seller if:

✔ You want to target the millions of customers that visit Amazon daily 

✔ You want more control over business affairs

✔ You want to sell items at significant profit margins 

✔ You can’t wait for an approval to become a vendor from Amazon and want to start selling ASAP

✔ You want to leverage the plethora of selling tools available within the Seller Central dashboard

Now that we’ve gone through the pros and cons of both selling options, which one is best for you?

Amazon Vendor vs. Third-Party Selling – The Verdict

We suggest becoming a third-party seller for the obvious reason that Amazon Vendor Central is an invite-only program. The bulk of invites are sent to top-performing 3P sellers and influential brands operating outside the platform. So, even if you’re interested in selling directly to Amazon rather than the customers, you’ll need to begin with 3P selling. 

Individual vs. Professional – Choosing the Right Selling Plan

The next step is to sign up for a Seller Central account and subscribe to a selling plan. If you’re interested in knowing the requirements and steps to take to successfully register as a third-party seller, check out our complete Amazon FBA checklist guide.

After being approved to sell, you’ll be asked to subscribe to one of two selling plans: the Individual plan or the Professional plan. Take a look at what both plans have to offer to determine which one best suits your needs and goals as a seller.

  • The Individual Plan: Follows a pay-per-sale format and charges $0.99 per item sold plus additional selling fees. This plan is better suited to beginners with little to no idea of how online selling works and who want to test the waters first. It's also suited to sellers that haven't decided what to sell yet. And to those projecting sales of 40 items or less a month.
  • The Professional Plan: Sellers subscribed to the Professional plan have to pay a flat $39.99 monthly fee plus any additional selling costs. This plan opens the doors to product advertisement, access to advanced selling tools like reports and APIs, the ability to sell in restricted categories, and the potential to break into the top ranks. If you’re more experienced in selling on Amazon, we recommend you opt for the Professional plan. 
Features available for Individual and Professional selling plans

✍🏼 Note: there’s no wrong choice here; Amazon allows you to cancel or change your plan at any given moment.

Shipping and Fulfillment Related Amazon Fees

FBA (Fulfillment by Amazon) and FBM (Fulfillment by Merchant) are two popular methods of fulfilling customer orders. Before we get into that, though, let’s go through the costs of bringing your products safely to your chosen storage facility or one of Amazon’s fulfillment centers. 

We think it's important to understand the costs associated with transporting products from the manufacturing hub to a storage point too.

First, US sellers will need to purchase UPCs (Universal Product Codes). UPC (EAN in Europe) is a 12-digit long product identification number assigned to each item that helps track and identify as it moves across the global supply chain. The most trusted supplier of UPCs in the US is GS1.

GS1 – the most trusted barcode supplier

Secondly, if your products are manufactured in the same country as your Amazon marketplace, then you’ll save up on shipping costs. However, if you decide to manufacture and ship products from China, get to know the costs. It is highly recommended to outsource the task to a reliable freight forwarding company, so that you don’t have to deal with clearing customs, paperwork, and ensuring import compliance.

Now, let’s move onto the main types of Amazon fulfillment and shipping methods.

Key Differences Between Amazon FBA and FBM

After setting up an account, you’ll have the choice to fulfill customer orders yourself ( FBM) or pay Amazon to do it on your behalf (FBM). There are many factors to consider when deciding whether to go for FBA, FBM, or both (which can  increase visibility and boost sales velocity). 

In the FBA model, inventory is stored in one of Amazon’s fulfillment centers. Once a purchase is made, Amazon picks, packs, and ships the order to the customer. It also takes care of customer support. By choosing the FBM model, sellers have access to none of these features. Of course, all the benefits that come as a result of selling via FBA come at a cost. 

Let’s take a look at the upsides, downsides, and fees involved with both fulfillment models.

Advantages of FBA

By paying a percentage-based FBA fee on every item you sell, you’ll get these benefits:

  • The Buy Box: When multiple sellers offer the same product, a ‘buy box’ is awarded to one. When a customer buys the product, the seller with the buy box makes the sale. There are several ways to up your chances of getting and keeping the buy box and FBA is one of them. Product price and seller feedback are the other two factors that Amazon considers.
  • Ease of Selling: A large percentage of Amazon sellers manage the A-Z of selling all by themselves. In exchange for a nominal fee, sellers won’t need to store, pack, transport products to customers, handle refunds or customer support. Needless to say, this will be impossible for one person to manage once those sales start rolling in.
  • Target Prime Buyers: It’s no secret that Amazon only allows FBA sellers to target Prime customers. That’s a lot of traffic—almost 150 million additional buyers. An increase in buyers means more sales and more sales translates to more profits.
  • Remain Operational 24/7: Sellers need sleep but Amazon does not. Once your Advertising Cost of Sales (ACOS) begins to dip and sales pick up, they need to remain operational around the clock and become more of a necessity than a luxury.
  • Focus on Growing the Business: With logistic concerns out of the way, you have more time to focus on other aspects of your business.

Disadvantages of FBA

Here are a few not-so-desirable aspects of FBA:

  • FBA fees: Convenience comes in the shape of fulfillment fees—a per-unit, percentage-based cost that varies depending on the product category, weight, and dimensions. 
  • Decreased Control: Control over your inventory ends once it reaches Amazon’s fulfillment center. As an FBM seller, it’s still possible to take corrective measures in case of faulty products or packaging. 
  • Tax Considerations: Tax considerations are also a concern for sellers depending on where the inventory is located. 

Amazon FBA Fees (For Amazon.com)

Fulfillment fees on Amazon are complicated, to say the least. Aside from the fee considerations we mentioned above—product category, weight, and dimensions—there are other determining factors to consider including apparel and non-apparel items (visit this link to know more), product tier size (standard or oversized), and the shipping weight. 

The FBA and referral fee structures are updated as of June 1, 2021. Take a look at core FBA fulfillment changes or the Multi-Channel Fulfillment fees.

The following are FBA fees based on various factors:

Standard-Size Product Tiers

Fulfillment Fee for Dangerous Goods

Fulfillment Fee for Dangerous Goods

Note: Amazon has removed separate rates for dangerous non-apparel and apparel goods post June 1, 2021.

Oversize Product Tiers

✍🏼 Note: For standard and oversized products, lithium batteries and products that either contain or are sold alongside the substance incur an additional, Per-unit Fulfillment fee of $0.11. Also, for oversized products, an extra $40 Special Handling fee is applied to large-screen plasma and projection televisions sized 42 inches or more. In some instances, smaller televisions may also be charged with the same fee because of factors like fragility and weight.

Calculate Shipping Weight

✍🏼 Note: The unit weight refers to the weight of a single unit/item plus the product packaging provided by the manufacturer. The dimensional weight is equivalent to the unit volume divided by 139. For oversized items, the default dimensional weight is a minimum of 2 inches for both width and height. To better understand how shipping costs are calculated, check out Amazon’s Shipping weight article.

FBA Monthly Inventory Storage Fees

Amazon charges monthly and long-term storage fees based on the unit size (measured in cubic feet) when it’s packaged and ready to ship. Costs change from monthly to long-term if the inventory remains within a fulfillment center for more than a year. Monthly fees for the current month are charged around the 7-15th of the next month.

So for example, the monthly storage fees for June will appear within the July payments report from July 7th to 15th. The fee changes based on the time of the year and the product-size tier the item fits into. Oddly enough, oversize items incur less storage fee than standard-sized products due to complexities related to placement and disposal.

The following are monthly storage fee tables for normal and dangerous goods (items that require special handling and hazmat storage). 

Monthly Inventory Storage Fee

Monthly Storage Fee for Dangerous Goods

✍🏼 Note: The sale of dangerous goods on Amazon is subject to approval. For more details, go to the FBA Dangerous Goods Program page.

FBA Long-Term Inventory Storage Fees

Should your inventory remain in a fulfillment center for more than 365 days, a long-term storage fee will come into effect. This will cost $0.15/unit or $6.90/cubic feet, whichever value is greater. Long-term storage fees (LTSF) are charged on the 15th of each month. 

Amazon calculates inventory on a FIFO or First-In, First-Out basis. This means that whenever an item is removed or sold, the sale is associated with the oldest unit in its fulfillment center. To determine which ASINs are approaching the 1-year mark, visit the Inventory Age page by going to the Inventory tab in your Seller Central account and clicking on Inventory Planning.

View Your Inventory Age by Visiting the Inventory Planning Section

Both the Inventory Health and Inventory Age reports will show how long it’s been since your inventory has remained in a fulfillment center based on these timelines:

  • 0-90 days
  • 91-180 days
  • 181-270 days
  • 270-365 days
  • 365 days and longer

We also have the Recommended Removals report. This scours through individual ASINs and informs sellers regarding the number of items that need to be removed to prevent long-term storage fees (provided no future sales take place). To access the Recommended Removals report, hover over the Reports tab and select Fulfillment.

Download the Recommended Removals Report by Visiting the Reports Section

✍🏼 Note: There is another lesser-known penalty/fee for inventory that crosses the stated storage limit known as the FBA inventory storage overage fee. This fee may be charged alongside the monthly and long-term storage fee if applicable.

Sell on Amazon by Avoiding Long-term Storage Fees

Reduce the chances of incurring long-term storage fees by focusing on inventory management along with accurate sales forecasting. Remove older inventory by submitting a removal order or setting up automated removals for items subject to LTSF.

🧠A few things to keep in mind:

  1. Items that have crossed the 1-year limit are not eligible for a refund.
  2. Once the removal process begins, items still in a sellable condition can be sold until the process is complete.
  3. Suppose the removal process is initiated before the 15th of each month. In that case, inventory that would otherwise incur long-term storage fees will not be charged until its removal.

To access the automated removals feature head on over to Settings and click on Fulfillment by Amazon.

Fee for Products Enrolled in the Small and Light Program

Products enrolled in the Small and Light program enjoy reduced fulfillment costs and come with free shipping for Prime customers. These products need to be priced at $7 or below, weigh 12 ounces or less, or measure 18x14x8 inches or less. Not every item that fits the bill is considered Small and Light. Here are some prohibited products:

❌ Adult products

❌ Restricted products

❌ Dangerous or hazmat goods

❌ FBA banned products (take a look at the complete list of prohibited items).

❌ Products that feature manufacturer and not Amazon barcodes

❌ Slow-moving products or products that manage less than 25 sales during a 90-day period

❌ Temperature-sensitive products, e.g. chocolates

Here’s the fulfillment fee structure for the Small and Light program:

✍🏼 Note: The FBA Small and Light program has its own preparation and packaging requirements, including a minimum of 24 units per ASIN that must be sent with each shipment. Also, products part of the Consumables category (but not apparel) and are priced below $5 are eligible for a 5% discount provided customers order 2 or more of the same units simultaneously.

Recent Changes to the FBA Inventory Storage Limit

Just last year, Amazon imposed a 200-unit inventory storage limit on all new ASINs to cope up with the effects of the pandemic. The policy change became a significant roadblock for both new and seasoned sellers alike. Sellers were forced to turn to 3PL or third-party logistics providers which ramped up costs in an already difficult business environment.

Only recently has Amazon made amends to its inventory storage limit policies after receiving feedback from sellers. According to the new rules, instead of a 200-unit cap on all individual products, there are inventory storage limitations based on the product tier size.

What this means is that, at any given moment, sellers can store a combined 1,000 units for all Standard-size products and 1,000 units for all Oversize products (there might also be additional storage categories such as Apparel and Footwear based on the types of items you’re selling). The storage cap increases based on seller performance.

Is this change an improvement from the previous 200-unit ASIN storage cap? Definitely. Is it what we were demanding? Not quite. The most obvious downside is for sellers offering multiple products who still need to rely on a 3PL provider to maintain required stock levels. Also, a product with a slower sales velocity might occupy most of the allotted space and prevent fast-selling or newly launched products from entering Amazon’s warehouse.

Amazon is even sending out emails asking sellers to cancel inbound shipments to its fulfillment centers to prevent overstocking and in some cases, canceling existing shipping plans. The only way around the problem—aside from 3PL—is to increase your IPI (Inventory Performance Index) score which in turn increases storage limits. Factors that increase IPI include higher sales velocity, avoiding long-term storage fees, reducing excess inventory, and fixing listing problems.

Storage limitations increase once sufficient sales history is built up but this may take some time. In a nutshell, once the daily order count increases, 3PL providers will be necessary up until the point where Amazon recognizes your performance and allows you to store more items (per product tier size) in its fulfillment centers.

Note: Since the change is relatively new, we’re expecting (or at least hoping) Amazon realizes some of the drawbacks and makes amends to its inventory storage limit policies. If it does, we’ll be sure to keep our readers updated!

Other FBA-Related Fees

Here’s a rundown of a few other situation-specific FBA-related fees, including upcoming changes.

Disposal and Removal Order Fee & Changes

✍🏼 Note: This per-item fee is applied when the seller requests Amazon to remove or dispose of their inventory present in one of Amazon’s fulfillment centers. 

Manual Processing Fee & Changes

Returns Processing Fee & Changes for Apparel and Shoes

Returns Processing Fee & Changes for Jewelry, Watches, Sunglasses, Luggage, & Handbags

✍🏼 Note: Returns Processing fee is charged for all free return shipping orders. From June 1, 2021, the fee is reduced for products within the Apparel and Shoes category and entirely removed for products within the Jewelry, Watches, Sunglasses, Luggage, and Handbag categories.

Finally, there’s something called Unplanned Service fee. This is applied to products that are missing an Amazon barcode once they reach a fulfillment center and could also be used in case of safety-related problems.

Let’s go through the pros and cons of engaging in FBM, and the fees associated with self-fulfillment.

Advantages of FBM

Self-fulfillment can be a far better alternative to FBA for a few reasons:

  • No Fulfillment Fees: Although FBA can prove advantageous for smaller products, selling larger and bulkier items through FBA can take a good chunk out of your profits. If it’s large dimensional or heavy products you’re selling, opt for FBM.
  • Greater Control over the Inventory: You will have more control over inventory. With that, mistakes with the packaging or faulty items can be rectified before they end up in the hands of unfortunate, unsatisfied buyers.
  • Avoid Losses Due to Changes in Amazon’s Policies: It’s not uncommon to be charged with unexpected fees owing to changes in Amazon’s policies. Most sellers are occupied with running their businesses and can’t afford to keep track of shifts in Seller policies. Also, there’s the opportunity to save up on monthly storage costs during the October-December period.

Disadvantage of FBM

The majority of third-party sellers avoid FBM for the following reasons:

❌ Inability to Target Prime Buyers: Targeting Prime buyers is a privilege given only to FBA sellers. There’s also Seller-Fulfilled Prime (SFP). Still, it is open to qualified sellers who need to join a waiting list to be considered. This program can also be costly and forces sellers to adhere to strict fulfillment terms and conditions. 

❌ Fewer Chances of Winning the Buy Box: FBA is a major consideration for winning the buy box. Without it, FBM sellers experience decreased sales and revenue.

❌ Added Strain of Fulfilling Orders: Unless you have an established logistics network in place, expect to spend a lot of time shipping orders and handling customer support. Although new sellers can manage, once sales start to pick up, you’ll eventually need to switch to FBA out of necessity.

FBM-related Fees

FBM fees vary and depend on how well sellers manage the shipping aspect of their business. Other than that, they have to pay the same monthly subscription fee as FBA sellers.

Selling on Amazon Referral Fee

The Referral fee is a fixed percentage-based cost applied to each item sold. It’s calculated based on the sales price and doesn’t consider taxes stemming from Amazon’s tax calculation services. The sale price is the amount paid by a buyer, including any gift-wrapping or delivery charges. 

This fee varies from one product category to another. It can go as low as 3% (in the case of watches sold at a price higher than $1,500) and as high as 45% for Amazon Device Accessories.

There are other miscellaneous selling fees sellers should know about.

High-Volume listing fee

Amazon charges sellers with a High-Volume monthly listing fee to make up for costs related to cataloging and maintaining a large number of SKUs (Stock Keeping Units). The fee is waived for the first 1.5 million stock keeping units after which it is applied to all products irrespective of category, sales history, or creation date. Once the number crosses 1.5 million, a listing fee of $0.001 is applied to each eligible SKU starting from the 5th - 31st each month.

For example, let’s say you have 2 million eligible SKUs listed for August. Your High-Volume listing fee for that month will be $500. The first 1.5 million SKUs are exempt from the cost, which leaves 500,000 units x $0.001 equaling $500. You can view the amount that has to be paid by going to the Inventory tab, selecting Inventory Reports, and downloading the High Volume Listing Report.

Download the High-Volume Listing Report for a Complete Breakdown

✍🏼 Note: Need more clarity? Take a look at the commonly asked questions about the High-Volume listing fee.

Refund Administration Fee

Once a seller refunds a customer, Amazon applies a Refund Administration fee on the referral amount it gives back to the seller. This fee can either be 20% of the referral fee or $5—whichever amount is lesser.

For example, a seller offers a full refund of $20.00 in total sales price on a 20% referral fee product, the Refund Administration fee will be calculated as follows:

$20.00 x 20% referral fee = $4 x 20% Refund Administration fee = $0.8. 

Closing and Rental Book Service Fee

Sellers must pay a $1.80 per-item closing fee on all media-related products. Media categories include DVD, Books, Video Game Consoles, Video, Music, Video Game Accessories, and Software & Computer Games.

A rental book service fee of $5.00 is applicable on each textbook rental sold. 

Understanding Amazon Selling Fees

In this guide, we covered everything from how to sell on Amazon to storage fees, shipping fees, and more. But with so many expenses to stay on top of, even the best can get the numbers wrong. Don't worry, we have your back. We created an Amazon fee calculator that shows the profit margin on each sale to make things easier. This beauty is super helpful if you're new to selling, or numbers just aren't your thing.

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