As a high-volume e-commerce platform, Amazon charges dozens of fees to its sellers, and those fees can eat away at your profits. In this post, we’re covering three ways you can reduce the percentage of your COGS that are eaten up by Amazon fees.
Amazon Fee Overview
Amazon charges seller fees for everything from warehouse storage to listing products to use of their FBA service, but no matter what you’re selling, there are some fees that are guaranteed across the platform.
For sellers who do 90% of their e-commerce business on Amazon, we as accountants expect to see about 30% of COGS going to Amazon expenses. Sellers across the board will also pay 15% commission to Amazon for hosting their product listing, regardless of product category.
So how can you use this knowledge to lower your Amazon fee percentage?
Method 1: Charge More Money
The easiest way to make more money on your product without changing your spending strategy is to increase the price of your product. Your “pick and pack” fee, the amount you’re charged per product for an Amazon warehouse staffer to package your item and ship it to the customer, stays static over time, so increasing your price point decreases your product COGS and increases your margins for that product.
Method 2: Reduce Packaging
Amazon’s Seller Central dashboard offers a number of report views for sellers, but one of the most important is the Fee Preview Report. This report includes the dimensions, weight, and shipping cost for each product in your brand, data you can use to determine which SKUs might be racking up the most fees in shipping costs.
If you spot an oversized package in your product line or you’ve realized you can ship your product in a smaller Amazon box by making changes to the packaging, you can greatly reduce your shipping cost per product (and help the planet by wasting less packaging, too).
Method 3: Diversify Your Sales Channels
This one may seem like a bit of a cheat, but relying less on Amazon as a sales channel will reduce the overall impact Amazon sales have on your business.
Using platforms like Shopify, Wayfair, Walmart, Etsy, eBay, or Woocommerce means that your brand’s success doesn’t hinge on Amazon performance, and as such, Amazon becomes one of several sources of income for your brand. Since extraneous fees are lower on non-Amazon platforms, you can sell the same product for the same price and take home more money than a seller who’s completely Amazon dependent.
While these three methods can help reduce the money you’re losing to seller fees, sometimes the best strategy really is to go whole-hog into Amazon. Depending on your product – such as a commodity that isn’t specific to your brand and won’t have a loyal customer base off of Amazon – it makes more sense to list within a marketplace with a huge amount of visibility.
However, if you’re more of a direct-to-consumer business, you’re probably better off diversifying your sales channels and concentrating on increasing your margins overall. (For more information on e-commerce business models, check out this post!)
If you’re ready to take control of your accounting and making profitable decisions for your business, contact us for a free 15-minute discovery call today.