As one of the world’s e-commerce giants, Amazon has benefited sellers around the world, but in recent years, sellers’ sales costs have also risen, especially FBA sellers. For most sellers, the main costs that affect profit margins include delivery fees, sales commissions, storage fees, advertising fees, and related costs incurred by refunds. This article will break down the top four cost factors that affect sellers’ profits and introduce how to reduce FBA costs so that platform sellers’ business profits are more controllable.
1. Logistics costs
Amazon FBA’s logistics costs include two parts: product size grade and shipping weight. The size grade is determined by the shipping weight, which is calculated based on the larger data of the unit weight or volume weight.
Amazon and other shipping companies use volumetric weight because their trucks are not only limited by weight, but also by the physical space available on each truck. Therefore, Amazon also charges sellers based on the total volume of the product in the truck transport.
In addition, in order to check whether the size has changed, Amazon regularly rescans the product through the Cubiscan measurement system. If the product size becomes larger, Amazon will use the new data as a benchmark and charge a higher delivery fee.
To prevent and recover additional fees, sellers should regularly check Amazon’s measurements with data provided by manufacturers, and cross-compare with Amazon data monthly by tracking everything in a spreadsheet.
2. Platform Commission
Amazon charges a commission for every item sold on the platform. The sales commission is a percentage of the sales price of the item and may vary by product category.
Sellers can choose a niche market with lower recommended costs. For example, home furnishings, kitchen supplies, toys, games, office supplies, etc.
3. Storage Fees
Like logistics costs, storage costs are charged based on the volume occupied by the product in Amazon’s fulfillment center. However, the best way to save on storage costs is not to reduce the size of the product or its packaging, but to process the products that are about to enter and leave the warehouse as quickly as possible. Because every day that unsold products are stored, the storage cost of each item will increase a little.
This is why sellers should ensure that the appropriate amount of inventory is shipped to Amazon. To prevent sellers from overstocking inventory, Amazon recently developed an FBA storage capacity system. Sellers should also keep inventory levels low and only send fast-selling products to Amazon. In addition, keep a close eye on your Inventory Performance Index (IPI) score to track inventory status and not to overstock slow-moving products.
4. Advertising Fees
Amazon offers a variety of advertising solutions to help sellers promote their products on their platform, including product promotion, brand promotion, and display ads. The cost of these ads varies depending on keywords, competition, and bidding strategies.
In addition, in order to reduce advertising sales costs, sellers should regularly track advertising performance and adjust bidding strategies accordingly.