Selling on Amazon is a dream come true for many entrepreneurs. It has millions of active buyers, you get free marketing, and if you do Amazon FBA, your customers would be delighted to avail the one-day shipping option.
But how much does it cost to sell on Amazon?
Selling is not free. There are many types of fees that you have to pay, and they also vary according to what type of seller you are. For example, you have to pay for storage fee if you are in the Amazon FBA program, but you do not have to pay this if you are shipping your own items.
There are four types of fees we will cover, and these are:
- Amazon Seller
- Amazon Store
- After Sales
- Amazon FBA
By the end of this article, you should know how much you have to save, and how much fees you would be paying on a monthly basis. Use this knowledge to price your products accordingly and avoid financial losses.
Amazon Seller
Amazon makes money through the subscription and the fees that their sellers pay them. These fees are either paid on a per item basis or on a monthly basis.
There are two main types of Amazon sellers. These are called Individual Seller and Professional Seller.
As an individual seller, you pay $0.99 per item you sell. With this account, you can sell on the platform without monthly fees, but you are limited to selling only 40 items per month. This works great if you are a small business, or if the product you sell has a high profit margin.
For the professional account, Amazon charges you $39.99 per month even if you did not make any sale. If you made a sale, the $0.99 selling fee is waived. This type of account also comes with a service called inventory management and gift wrap offers—but only if you are in the Amazon FBA program, too.
With an Amazon Professional Account, you have no monthly limit of 40 products. Both types of accounts have a Referral Fee, which is a fee you pay to Amazon for sending customers to you. The Referral Fee is between 6% and 45%, depending on the type of product you sell.
Amazon Store
Before you can sell on Amazon, there are other expenses you need to think about. You cannot just sell on Amazon. It is not like eBay. On eBay, most of your competitors are home-grown businesses. On Amazon, you are competing against big brands, including large manufacturing companies in China.
Here are some of the costs you have to pay to get started with your Amazon store.
- Registration
- Logo
- Box design
- Research tool
- UPC Barcode
Not all of these are required, but they are all important if you want to succeed in selling on Amazon.
Registration
The registration cost of Amazon is $39.99. We have discussed earlier that you can opt for $0.99 per item, but you are better off paying $39.99 a month if you are planning to sell high volume.
Logo
If you sell on Amazon, you need a brand. If you are a graphic artist, you can certainly skip this and just make one on your own. But if not, you have to pay for someone’s services to create a logo for you. If you buy this from online marketplaces like Fiverr, you have to prepare at least $15.
Research tool
Before you can sell on Amazon, you must know what products sell and which ones don’t. You cannot do this with manual research. Besides, where are you going to get the data?
The good thing is that there are tools like AMZ tracker and Keyword Inspector. But one of the leading companies that can tell you which products are selling the most worldwide is Jungle Scout.
Jungle Scout helps you find winning products in Amazon. If you know what products have demand, then you have better chances in succeeding on Amazon. Jungle Scout is not free. The three plans you can choose from cost between $19 and $49 a month.
The plan that costs $19 is not of any help. It only gives you ten product searches in a month, and you can only search ten times for suppliers. With this tool, your best choice is the Jungle Scout Plan, which costs $39 per month. It is billed annually.
UPC Barcode
What is a UPC barcode? It is a barcode that Amazon requires for each product. It stands for Universal Product Code. Each of your products must have a bar code label, which Amazon would scan for each sale. This is how they track the inventory, and this is how the Amazon system knows that the product it sold is yours.
To get a UPC Barcode, you have to apply for a license. You can get it from GS1 Company Prefix, which would cost you about $250. The other option is to buy barcodes from resellers like Barcodemania. Here, you can buy ten barcodes for $15. You then have to print that and paste it on each product you sell.
After Sales
You have to pay fees to Amazon after each sale. Even of you have a Professional Account, you have to pay these fees.
Here are the after sales fees you have to pay to Amazon:
- Referral fee – costs between 6% and 45% of the item you sold. The percentage is based on the product price plus the shipping price.
- Media Item Fee – if you are selling media products like DVD, books, and video games, and software, Amazon charges a flat rate of $1.80 per item. This fee is on top of the per item fee and the referral fee.
- Refund Fee – if your customer asked for a refund, Amazon will refund the full amount of the seller fees, but it will charge you a refund fee that is either $5 or 20% of the item cost, whichever is higher.
- High Volume Fee – if you are selling more than 100,000 non-media items on Amazon, you would be charged $0.005 per product per month even if you did not make a sale.
Now, let us use an example. Let us say that you are selling a wristwatch for $20. The shipping rate is $5. And let us say that you are a small business so you chose the Individual account where you pay $0.99 per item sold.
How much will be your total cost?
- Referral fee – for watches, the referral fee is 16%, which is equal to $25 X 16% = $4
- Sales Fee – you would pay $0.99
Your total cost is $4.99.
From the $20 selling price, $4.99 is immediately taken off, and now you would only receive $15.01. Now, you have to ask yourself, do you still make a profit after paying these fees?
Now that you know the fees, you have to factor that in when you price your products. Make sure you do not lose money. In our example, there is no media fee because a wristwatch does not belong to that category.
Amazon FBA
What is Amazon FBA? It stands for Fulfillment by Amazon. In this business model, you have to ship your items to Amazon, and these items will be cataloged and stored in the Amazon warehouse. After the items are recorded in the Amazon system, you can start listing them on Amazon.
Once a seller buys, it is Amazon who will ship the item to the consumer, not you. This is how one-day shipping is made possible by Amazon. If you register as an Amazon FBA seller, you have to pay two types of fees:
- Packaging, Handling, and Shipping
- Storage Fees
Storage fees vary. The price you pay for “renting” the Amazon warehouse depends on the cubic foot size of your product. If the products are less than 21 pounds, you pay $0.69 per cubic foot from January to September. During peak season from October to December, this price increase to $2.40 per cubic foot per month.
For products heavier than 21 pounds, you pay $0.48 per cubic foot during the lean season, and $1.20 per cubic foot during the peak season. The storage fee is paid monthly even if you did not make a sale.
For the Amazon Fulfillment fees, which you pay for their effort for packaging, handling, and shipping your items the prices vary depending on the size. Generally speaking, you would pay between $2.41 and $137.32 for packing, handling, and shipping.
The Important Amazon Costs
Whether you are selling on Amazon FBA or you ship your own items, the most important costs that you have to prepare for are:
- Membership fees – $39.99 per month
- Inventory costs – varies per product
- Logo cost – $15 one-time payment
- Barcode – at least $30 for 20 different items
Overall, you need at least $84.99 to get started on Amazon only. This does not include the cost of your inventory, your marketing, and your own packaging. If you are going to brand your items, you also have to spend on your brand stickers.
Other Optional Costs
If you are serious about marketing your business, there are other things you have to pay to start an Amazon business. These costs do not have anything to do with Amazon itself, but many sellers do this to set themselves apart from the others.
Product Photography
If you are going to sell on Amazon, your product photos must be clear and taken by a professional. On Amazon, you can put as much as eight photos per product. If you have no camera, you can buy one. If you do not want to, you can hire a professional photographer.
The cost of product photography can bet between $50 and $300. It really depends on the photographer’s level of experience, and the other services you want him to do, like photo editing.
Marketing
You will compete against thousands upon thousands of sellers on Amazon. The sad truth is that there is almost no product on Amazon that has no duplicate. So, how will you stand out from the crowd?
What you can do is to advertise your products, or you can give free stuff that comes along with your main products. This, of course, means you have to shell out money from marketing.
If you are selling watches, how about giving free wristbands? If you are selling smartphones, why not give away free phone casings?
This free stuff does not have to last forever. Perhaps you can do this only for the first 100 customers. Nevertheless, you still have to pay for the cost of your free stuff.
If you prefer to go the advertising route, set aside $100. You can advertise on Facebook or Instagram, and these are the best places to attract buyers for physical goods.
Product Testing
If you are not manufacturing your own product, the last thing you want to do is to sell on Amazon without testing them. If your supplier happens to offer low-quality products, you would end up with so many returns and refunds.
As you have seen earlier, refunds have a cost. Amazon does this to maintain quality. They want the sellers to be responsible for their actions, and the most effective way is to make these bad sellers lose money.
If your product’s capital cost is $20, then you have to spend roughly $30 to get a sample shipped to your house. Inspect it and check if it works. If it passes your standards, you can start ordering more for your inventory.
Summary
Selling on Amazon is great, but there are so many costs associated with it. Also, the process of getting barcodes and labelling each item requires a lot of work. There are so many fees to pay, and you may consider starting out in the online business industry through some models like dropshipping or affiliate marketing.
In Amazon, you need to keep an inventory. This means that you have to save at least $500 to buy the items in bulk. If these products do not sell, then your money is sitting in your basement or Amazon’s warehouse. The best alternative to this is to do Amazon dropshipping.