Amazon FBA sellers already deal with significant fees in order to use Amazon’s pick and pack service. How should sellers respond to increased fee hikes to offset changes in their net profits?
Fee Overview
Amazon’s FBA service solves a lot of logistics problems for e-commerce sellers, taking care of warehouse, shipping, customer service, and return responsibilities. Along with this service comes multiple fees, among them charges for shipping items of a certain size and weight.
Beginning on January 18, 2022, Amazon has increased their fees by an average of 8%. Fee increases vary by size and weight; small standard items increased by 8%, large standard items 2-8% depending on sales category, and some oversized items increased by up to 12%. You can find a full table explaining these increases on your Seller Central dashboard.
These fee changes likely come from Amazon’s reaction to increased wage expenses for FBA fulfillment workers and supply chain issues that arose during Covid-19. In the future, we may see Amazon reaching out further into the global logistics market, using its influence and investment to corner the global market to circumvent supply chain issues.
Sometimes these fee increases lead to a push by sellers to find other 3PL providers, but for now, we’re predicting that most sellers will continue to rely on Amazon’s extensive network for reliable two-day shipping.
Seller Impact
An 8-12% increase seems intimidating, but how will it actually impact an FBA business?
At Seller Accountant, we’ve seen our clients spend an average of about 15% of their profits on FBA fees (not including commissions). Taking Amazon’s new fees into account, we expect this number to rise by about 2%, averaging around 17% in 2022. This means that without adjusting prices, FBA fees will eat up a greater percentage of net profits than they have in past years.
How to Respond
Your FBA business needs to take action to offset the effects of a fee hike, and considering the average increase on these fees, we recommend a 1.5-2% price increase on all affected products. (For more information about how this price increase allows net profit to remain fairly stable, check out the video embedded above.)
In order to keep your customers happy and help them avoid sticker shock, you may need to do some market testing and insure that you’re not losing conversions. Depending on your product niche and the state of the market, it may behoove you to increase by smaller intervals week over week until you’ve reached your full increased amount.
Work With Us
If you’re looking for more CFO-level advising for your Amazon business, contact us for a free discovery call – or check out more posts on our blog.