Online trade - a buzzword that will become increasingly important in 2020! And quite correctly so: from 2013 to the end of 2019, sales in online trading have almost doubled. Therefore it is not surprising that more and more people are interested in this topic. Setting up an online store or signing up on one of the well-known trading platforms is becoming easier every day. However, you should not forget that hidden costs can arise here as well, which one does not take into account at first. Today we would like to introduce you to the different types of costs that you should be aware of when you start selling on Amazon!
Online trading - a simple business model
Many self-proclaimed "gurus" of the Internet insist on the fact that making money on the Internet is probably the simplest business that anyone can do these days. And at first this may be true: The costs of starting a business are rather low. For example, if you want to open a store in the city center, the initials and also the running costs are much higher. First of all, there is the deposit and rent for the store itself - depending on the city and area, enormous costs can be incurred. Then, of course, furniture and inventory, because one naturally wants to offer something to the eye of the customer. Last but not least, you need security measures and employees. So until you really start selling in a downtown store, a lot of time will pass.
It's different in online business: register or create a store, embellish your own presentation of the brand, add pictures and products - and you can start, at least theoretically!
Monthly fixed costs when selling on Amazon
To be able to sell on Amazon at all, you have to register yourself as a merchant on the platform. Logically there are monthly fees that you will have to pay. The monthly fixed costs for a professional seller account are currently 39.00€ plus VAT. If this may seem a lot at first glance, you should read the upper paragraph again, because compared to the conventional trading in your own store, these costs are only peanuts. In addition, you get your own trader profile on the world' s largest trading platform and suddenly your products are visible to millions of customers. However, these fixed costs are not all you have to pay when starting to sell on Amazon: Merchants have to expect additional fees, which will be explained 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 applies to every sale on the platform. The lowest sales fees are charged for large electrical appliances or computers. With 7% these costs are quite low. Not included in this category are any kind of accessories of the products. For example, if you sell video game consoles, the sales fee increases to 8%. Beer, wine and spirits as well as bicycles add 10%, and if you sell electronics and computer accessories as well as DIY products, musical instruments and DJ equipment, you should expect 12% additional costs. For example, if you sell products that can be labeled as cars and motorcycles, Amazon charges an additional 15%. The same applies to video games, products from the category "sports and leisure", books, music, VHS and DVD. Products that do not fall into any of the above categories are automatically charged a fee of 15%. For a better overview, the following table shows the sales fees depending on the product category on Amazon:
Shipping costs with Amazon FBA
Whoever sells on Amazon can have their products shipped by Amazon. This model is known as Amazon FBA (Fulfillment by Amazon). Amazon itself takes care of the shipping of your products to the customer and handles refunds. This is an advantage for you as a seller, because now all you have to do is to make potential customers 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.
But what about the shipping costs? At first glance, these can seem very confusing. Amazon is trying to support the merchants with the most justified prices 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 a number of factors, including storage location, product type, dimensions and weight. Amazon offers a shipping fee calculator on its website that allows merchants to easily calculate how cost-effective Amazon shipping is for their specific situation. 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 should not forget that you must first ship your goods to Amazon in the respective warehouse. Since one often sends quite a large number of items to Amazon, it is usually not done in one package, so shipping to Amazon is also quite expensive. You also have to attach special labels to the boxes so that Amazon can easily store them. Especially for small private label sellers, it makes sense to use the service of Amazon FBA and to accept the costs that Fulfillment by Amazon entails. However, Amazon also offers the possibility to ship the sold items themselves. Especially for larger companies, which have already built up an existing infrastructure for handling the shipping to the customer, it should be examined from case to case, in which way it is cheaper to handle the shipping.
Amazon FBA storage costs
Another factor 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 from the retailer to an Amazon warehouse, from where they are sent to the customer via Amazon Fulfillment. In order to store the goods at Amazon, additional charges are incurred. Fortunately, these fees are much clearer than shipping costs or product fees. Storage costs are calculated monthly per cubic meter. However, the amount of the costs varies according to season and size. First of all, something about the temporal delimitation:
Amazon defines the main season as the period from October to December of each year. This can be derived from the fact that many holidays and promotions are held during this period, to which customers are particularly willing to make purchases (for example, Christmas or Black Friday). Since most retailers make more sales during this time and the competition is higher, storage costs are also higher. From January to September the costs drop again.
Product size also has an influence on storage costs. Most products are under the standard size. Here we once again differentiate between clothing and shoes and other products. Additionally there are products with oversize.
But how high are the Amazon storage costs exactly? In the off-season you currently pay 15,60€/cubic meter for clothes and shoes, 26,00€ for other products in standard size and 18,00€ for products with oversize. In the high season the prices rise a little: Clothing and shoes are 21,60€, other products in standard size to 36,00€ and oversized products to 25,00€.
Amazon FBA - Marketing costs
With the above mentioned costs every dealer should be well served for the beginning. If you have dealt with this sufficiently, you can basically start selling directly. Perfect! So here we go... but nobody buys. After months of working on building your own online presence, product selection and cost management, you suddenly find that your customers are not willing to buy. This is probably the experience of anyone who is trying online trading for the first time. And it is also completely logical that you don't make high sales with a mere presence on Amazon. Just imagine how many different merchants 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 also essential if you want to be successful on Amazon.
One factor in advance: it is impossible to predict how much capital should be invested in the marketing of 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 only 10€ a day. But there are also times when you have to invest several hundred Euros until the right target group is found. So anyone who wants to be successful with Amazon FBA should plan enough capital here to find the right marketing for themselves. Here is the motto: Testing, testing, testing!
Costs for returns to FBA
Now we are also almost at the end and thus have reached a topic which is a thorn in the side of most dealers: returns. Who likes to hear that the product, which one had expected so much from, does not reach the customer at all? The goods may have been delivered damaged or have already been broken during the first few days. Whatever the reason for a return, as a retailer you are responsible for happy customers. The customer is king - this sentence may sound far too jaded, but it carries a lot of truth in it. Because Amazon lives this motto more than any other company today. And if you do not have satisfied customers, you will not have long-term success. So what costs can online retailers incur due to returns? Let's first look at how a return is handled with Amazon FBA.
The customer notices that, for whatever reason, he does not want to keep the goods and sends them back. The goods are sent to the Amazon warehouse and the customer is refunded the purchase price by Amazon. You as an online merchant will receive 80% of the sales commission, which is calculated by Amazon for every 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 item is damaged, it will appear in the merchant's overview under "Unsaleable goods". The problem: Items in this listing automatically go into Amazon's inventory. This means that Amazon is now allowed to sell these items themselves. So it already occurred that even private label products later appeared under the Amazon Warehouse Deals. You can also have defective items returned to the retailer address itself. This costs 25 cents per item, so it is quite cheap and, considering the possible consequences, also recommendable.
If you don't use Fulfillment by Amazon and send your products yourself, you have nothing to do with the costs for the return on Amazon. Then you have to handle your returns yourself with the respective customer and bear the costs for this.
Summary of costs for selling on Amazon
So what can be drawn from this amount of costs as a conclusion?
Well - the business model of online trading on Amazon has a lot of advantages worth mentioning. At FBA, fulfillment is almost completely taken over by the trading platform and the start of online trading is now very quick and easy. What definitely should not be ignored is the variety of costs that this business model can entail. For you as a trader, we definitely recommend to calculate all scenarios with the product prices before the actual start 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, it is an opportunity that brings enormous opportunities to sell on the world's largest trading platform. And once you have found the right marketing strategy, it becomes an easy game to be profitable with this model and to make significant profits.
