This post was written by our friends at PingPong for the TurnKey Success Blog
If you sell on Amazon, it can sometimes feel like there’s a different fee hiding around every corner. But what are sellers really paying for and why? Is it possible to pay less in fees and make more money on Amazon? Yes, it’s possible! The first step is knowing what you’re being charged for and what to do instead.
In this post, we’ll cover 6 types of fees Amazon sellers run into, and how to keep those fees from cutting into your profits. From FBA fees to high currency exchange rates, we’ll take a look at a few of the costlier Amazon fees and strategic ways to lower them, so you can increase profits.
Amazon Fee #1: Fulfillment Fees
When you have items stored in an Amazon FBA warehouse, they need to be moved around when someone orders from you. Sometimes by robots, sometimes by humans. The items also need to be packaged and sent on their way. Amazon’s fulfillment fees pay for these services.
Amazon FBA fees are charged per unit of product and based on two factors:
- The size of your packaged product (dimensions on each side)
- The weight of your packaged product
Based on these two qualities, a product falls into a pre-determined bracket and gets charged accordingly.
Here, we can see an example of a dry erase board and how the fees are calculated:
How to Lower Your Amazon Fulfillment Fees
It might seem like there’s not much you can do about it, and there’s no point in dwelling on it since Amazon charges according to product size and weight.
But if you pay close attention, you may be able to make a slight change that puts you into a lower bracket. For example, you can try making your packaging more compact or adjust your product to make it weigh less.
Obviously, it’s not always an option, but it’s worth examining your products for smart opportunities to reduce their size and weight (and increase your profit margins).
Amazon Fee #2: Multi-Channel Fulfillment Fees
Multi-Channel Fulfillment by Amazon is a service that’s not limited only to orders from the Amazon platform itself. Amazon allows you to use its system to fulfill orders that are sold on other platforms or your own website.
The fees Amazon charges are calculated by unit, which is placed in one of the predetermined fee brackets. They’re based on the product’s weight and size, plus speed of delivery. There are three options:
- Priority shipping (next day)
- Expedited shipping (2 day)
- Standard shipping (3-5 days)
How to Lower Your Amazon Multi-Channel Fulfillment Fees
Again, a way you can save money here is by studying your brackets to see if it’s possible to reduce the weight and or size of a single product unit.
You may also choose to have your products delivered via a longer delivery period. This is a tradeoff, obviously, however, note that your can pick and choose delivery times on a product-by-product basis to maximize profits.
Amazon Fee #3 – Amazon Storage Fees
When you have inventory in an FBA warehouse, you’re essentially paying rent to store your items with Amazon. Unlike the previous fees that are paid on a per unit basis, here you’re charged by the cubic foot of space your inventory takes up.
Exactly how much you pay in Amazon storage fees depends on three factors:
- The amount of cubic space taken up by your inventory
- The time of the year
- How long the product has been housed in the warehouse
How to Lower Your Amazon Storage Fees
Amazon increases the storage fees during the 4th quarter or the last three months of the year. Not surprisingly, this is due to increased holiday shopping. If your product is seasonal and know you won’t sell many items during the winter, you can avoid higher storage costs during the holidays by having a summer blowout. You can also potentially save money by adjusting your packaging to make your products more compact.
Amazon Fee #4 – Amazon Referral Fees
These are the fees Amazon charges you for successfully selling an item on their platform. It’s charged by the percentage of the total sale price. In most cases, it’s 15%, but for Kindle and digital products it can zoom up to almost 50%.
How to Lower Your Amazon Referral Fees
Consider changing the way you categorize your product with Amazon. By carefully choosing your category, you may be able to find new categories to list your product where the fee is lower. It’s a potential instant boost to your bottom line.
Amazon Fee #5 – Return Processing Fees
Most items sold on Amazon come with a no questions asked, 30-day return policy, which can be very painful for a seller. Here is what happens on Amazon when a customer returns an item:
- The customer gets refunded the total sum they paid from your account.
- Amazon refunds you for the referral fee that was charged when the purchase was made.
- Amazon charges you a return processing fee which is equal to the fulfillment fee that was initially charged on the total cost of the product sold.
- Your item either goes back to your inventory or is deemed unfulfillable and destroyed.
So essentially, not only do you miss out on a sale, you also end up paying the fulfillment fee twice on that order (once when it got shipped to the customer and once when it was returned to the fulfillment center by the customer) even though you might not even get to keep the product that got returned.
How to Lower Your Return Fees
Avoiding returns can be a huge boost to the bottom line for your Amazon business. The best way to combat profit-killing returns is to educate your customers and prospective customers about what your product does and how to use it.
Educating customers reduces the chances of these two likely scenarios from happening:
- The customers buy the product thinking it’s something that it’s not (wrong product)
- The customers buy the product without knowing how to properly use it (needs instructions)
Another reason to take returns seriously is to keep in mind that getting too many of them can hurt your seller rating and even get your listing suspended.
Amazon Fee #6 – Currency Conversion Fees
Currency conversion is an important factor in your Amazon business if you sell internationally. Amazon has its own way of converting currency. Although it’s not prominently displayed, there are fees that comes along with this service. These rates tend to be on the high end of the conversion rate spectrum at around 3.5%. That’s quite a chunk of your earnings, especially since it’s taken off your profits after paying the fees you owe Amazon.
To avoid these fees, you can try to set up a foreign bank account that would allow you to receive the funds in the same currency as the Amazon marketplace where you’re selling in. In the old days, this meant facing the possibility of having to visit that country to set up a bank account, plus provide a business address in that country. Not exactly the easiest option.
How to Take Control of Amazon Currency Fees
Another option that makes cross border payments easier and cheaper is a global currency account. In one fell swoop, you may be able to slash 2-3% off what you were paying to exchange money using Amazon Currency Converter.
With a global currency account like the one from PingPong, you’ll have an account that’s licensed, regulated, and trusted around the world. PingPong has more than 43,000 customers who rely on them to get the best rates on currency exchange.
You can also control when you exchange your currency to take advantage of the best FX rates. Better control, lower rates means higher profits for your business. Plus, make free VAT payments and free supplier payments from the same multi-currency account to save even more.
Setting up a multi-currency account online is a simple fast, process – your account may be approved within 48 hours. You can even ask for a free rate comparison to see how much you’ll save first.