Online retail - a buzzword that is becoming increasingly important in 2020! And rightly so: between 2013 and the end of 2019, turnover in online retail almost doubled. It is therefore not surprising that more and more people are interested in this topic. Setting up an online store or registering on one of the well-known retail platforms is becoming easier by the day. However, you should not forget that there may be hidden costs that you don't even notice at first. Today, we would like to introduce you to the different types of costs that you can expect when starting out with the Sale on Amazon should definitely pay attention to!
Online retail - a simple business model
Many self-proclaimed "gurus" on the Internet insist that making money on the Internet is probably the simplest business that can be realized today. And that may be true at the beginning: The costs of starting a business are rather low. If you want to open a store in the city center, for example, the initial and running costs are much higher. First of all, there is the deposit and rent for the store itself - depending on the city and area, this can involve enormous costs. Then, of course, furniture and inventory, because you want to offer something to the customer's eye. Last but not least, security measures and employees are required. So it takes some time before you can really start selling in a city center store.
The situation is different in online retail: register or create a store, embellish your own brand presentation, add images and products - and you're ready to go, at least in theory!
Monthly fixed costs when selling on Amazon
To be able to sell on Amazon at all, you have to register as a retailer on the platform. Logically, there are monthly fees that you cannot avoid. The monthly fixed costs for a professional seller account are currently €39.00 plus VAT. If this seems like a lot at first, you should read the paragraph above again, as these costs are peanuts compared to conventional trading in your own store. You also get your own retailer profile on what is probably the largest trading platform in the world and your products are now visible to millions of customers. However, these fixed costs are not all you pay when you start selling on Amazon: Merchants have to expect additional fees, which we will explain in more detail below.
Sales fees may vary
In addition to the monthly fixed costs on Amazon, there are sales fees that are charged as a percentage of the sales price of your product. This fee is charged for every sale on the platform. The lowest sales fees are charged for large electrical appliances or computers. At 7%, these costs are quite low. This category does not include any kind of product accessories. If you sell video game consoles, for example, the sales fee rises to 8%. Beer, wine and spirits as well as bicycles cost 10%, and When selling electronics and computer accessories as well as DIY items, musical instruments and DJ equipment, you should expect to pay an additional 12%. For example, if you sell products in the car and motorcycle categories, Amazon charges an additional fee of 15%. The same applies, for example, to video games, products from the "Sport and leisure" category, books, music, VHS and DVDs. Products that do not fall into any of the above categories will automatically be charged a fee of only 15%. For a better overview, you will find the sales fees per product category on Amazon in the following table:
Shipping costs with Amazon FBA
Anyone selling on Amazon can have their products shipped by Amazon. This model is known as Amazon FBA (Fulfillment by Amazon). Amazon itself takes care of shipping your products to the customer and handles refunds. This is an advantage for you as a seller, as you now only have to worry about making the customer aware of your product. This means that once you have persuaded a customer to buy your product, you have very little to do with the process yourself.
But what about the shipping costs? At first glance, these can seem very confusing. Amazon tries to support retailers with prices that are as fair as possible so that they can remain competitive. You do not pay any fixed costs for shipping, but only for what you actually use. The shipping fee is paid per unit and depends on various factors, including storage location, product type, dimensions and weight. Amazon offers a shipping fee calculator on its website that allows retailers to easily work out exactly how cost-effective Amazon shipping is for individual situations. You can find the calculator here: https://services.amazon.de/programme/versand-durch-amazon/preisgestaltung.html
In addition to the shipping costs per item shipped, you must of course also bear in mind that you first have to send your goods to Amazon's warehouse. Since you usually send quite a large number of products to Amazon, it is usually not enough to send just one package, so shipping to Amazon also involves a lot of costs. You also have to attach special labels to the boxes so that Amazon can store them easily. Especially for small private label sellers, it makes sense to use the Amazon FBA service and accept the costs that Fulfillment by Amazon entails. However, Amazon also offers the option of shipping the items sold itself. Especially for larger companies that have already built up an existing infrastructure for handling shipping to the customer, it should be checked on a case-by-case basis which method is more cost-effective for handling shipping.
Amazon FBA storage costs
Another factor that you should not forget when using Amazon FBA is the storage costs. The concept of Amazon FBA is simple: the goods to be sold are sent by the retailer to an Amazon warehouse and then sent from there to the customer via Amazon Fulfillment. In order to be able to store the goods at Amazon, additional fees are charged. Fortunately, these are much more manageable than the shipping costs or product fees. Storage costs are charged monthly per cubic meter. However, the amount of the costs varies depending on the season and size. First of all, something about the time frame:
Amazon defines the peak season as the period from October to December each year. This can be explained by the fact that this period includes many holidays and promotions during which customers are particularly willing to buy (e.g. Christmas or Black Friday). As most retailers make more sales at this time and competition is higher, storage costs are also higher. Costs then fall again from January to September.
Product size also has an influence on storage costs. Most products fall under the standard size. A further distinction is made here between clothing, shoes and other products. There are also oversized products.
But what exactly are the Amazon storage costs? In the low season, you currently pay €15.60 per cubic meter for clothing and shoes, €26.00 for other standard-sized products and €18.00 for oversized products. In the high season, prices rise slightly: clothing and shoes are €21.60, other standard-sized products €36.00 and oversized products €25.00.
Amazon FBA - Marketing costs
With the costs mentioned above, every retailer should be well served to start with. Once you have dealt with this sufficiently, you can basically start selling straight away. Perfect! So here we go... but nobody buys. After you have spent months setting up your own online presence, selecting products and managing costs, customers are suddenly unwilling to buy. This is probably the experience of everyone who tries online retailing for the first time. And it is also completely logical that a mere presence on Amazon does not generate high sales. Just imagine how many different retailers there are on this platform, let alone how many direct competitors want to sell similar or even the same products! The right marketing strategy is therefore also essential if you want to be successful on Amazon. One fact in advance: it is impossible to say across the board how much capital you should plan for marketing a product. The costs here depend on factors such as the campaign goal, the target group size and the willingness of potential customers to buy. As a retailer, you can be successful and profitable with just €10 a day. However, there are also times when you need to invest several hundred euros to find the right target group. Anyone who wants to be successful with Amazon FBA should therefore plan enough capital to find the right marketing for themselves. The motto here is: test, test, test!
Costs for returns with FBA
Now we are almost at the end and have reached a topic that is a thorn in the side of most retailers: returns. Who likes to hear that the product that they expected so much from doesn't arrive at all? The goods may also have been delivered damaged or broken during the first few days. Whatever the reason for a return, as a retailer you bear the responsibility for happy customers. The customer is king - this phrase may sound far too jaded, but there is a lot of truth in it. After all, Amazon lives by this motto more than any other company these days. And if you don't have satisfied customers, you won't be successful in the long term. So what costs can online retailers incur as a result of returns? Let's first take a look at how returns work with Amazon FBA.
The customer realizes that, for whatever reason, he does not want to keep the goods and sends them back. The goods are returned to the Amazon warehouse and the customer is refunded the purchase price by Amazon. As an online retailer, you receive 80% of the sales commission charged by Amazon for each sale, while Amazon itself retains 20% as a refund fee. It looks good for you if the goods have been returned directly to the warehouse and have not been damaged. Now the item can simply be sold to the next customer. However, if the goods are damaged, they will appear in the retailer's overview under "Unsaleable goods". The problem: items in this listing are automatically transferred to Amazon's inventory. This means that Amazon can now sell these items itself. As a result, even private label products have appeared later under Amazon Warehouse Deals. Defective items can also be returned to the retailer's address. This costs 25 cents per item, so it is quite inexpensive and, considering the possible consequences, also recommended.
If you do not use Amazon Fulfillment and ship your products yourself, you will of course not have anything to do with the costs for returns on Amazon. You will then have to handle your returns yourself with the respective customer and bear the costs.
Summary of costs when selling on Amazon
So what can be concluded from this amount of costs? Well - the online retail business model on Amazon has many notable advantages. With FBA, fulfillment is handled almost entirely by the retail platform and it is now very quick and easy to get started in online retail. One thing that should definitely not be overlooked is the variety of costs that this business model can entail. For you as a retailer, we definitely recommend calculating all product price scenarios before the actual launch in order to find out how profitable the business with Amazon really is for the planned products. You should also have enough capital in reserve to deal with possible returns or problems and keep the business running. Basically, however, selling on the world's largest retail platform is an opportunity that offers enormous opportunities. And once you've found the right marketing strategy, it's easy to be profitable with this model and make significant profits.