Amazon as a marketplace is flourishing and getting more and more popular. Everyone wants to be a part of it and make “easy” money, but is it as easy as it seems?
Unfortunately, the reality is that it’s not quite so simple. You need to invest not only money, but time. However, if it is done right – selling on Amazon – remains a lucrative business.
Now the most pressing and common question arises: “How much money do I need to put down to get started?”
You have to bear in mind that it is impossible to provide an all-purpose calculation of the variable costs on Amazon and some of the figures used will be averages.
There are a few different factors that vary for each seller and affect costs:
- Location (which countries you are going to sell from)
- Production costs
- Landed costs (this includes packaging, shipping to Amazon, commissions, etc. )
- Size and weight of your product
- Category of your product
- Initial number of units (how many items you’re going to sell)
- Are you registered as a brand?
- Promotional budgets (how much you are willing to pay for ads)
Getting Started as a Seller
The first step in starting your Amazon business is deciding what product you’re going to sell. If it’s tricky for you, Shopify lay out the different ways you can research a product to sell.
Once you know what it is you want to sell, you can sign up with Amazon. Setting up your new account will take about 15 minutes to complete.
Amazon may require additional information or documents for your registration:
- Credit card. You will need a valid, non-expired credit card. Amazon currently accept internationally chargeable credit cards.
- Phone number. You will be asked to provide a valid phone number with the country code.
- Company registration details. You will need to specify the business type, business registration number, registered business address and the date the business was registered.
- Primary contact information. You will need to provide a number of a valid passport or national ID and residential address of the primary contact. In some cases, you may be asked to submit a utility bill or bank statement as proof of address.
- Beneficial owner information. For the beneficial owners, you will need to provide their details (you can use a valid passport or national ID) and residential address. In some cases, you may be asked to submit a utility bill or bank statement as proof of this address.
- Bank account information. You must provide your bank account details to complete the registration. This account will be used to receive the proceeds from your transactions.
Please note, when you complete registration, a required credit card validation will occur with a one-time charge of £0.16 (excl. VAT).
When signing up as a seller, Amazon gives you two options: the Basic Seller Account and the Professional Seller Account.
The Professional plan gives you the opportunity to sell an unlimited number of items and pay a £25 monthly subscription fee.
With a Basic plan you don’t need to pay monthly fees, but instead pay per transaction a £0.75 per item charge.
£0.75 per item sold
£25 per month
In order to be prepared to sell on Amazon the next tasks you will have to complete will be – find a supplier, build your inventory and set an item’s price.
Find a supplier
You’ve decided which product you would like to sell, signed up on Amazon, but what about suppliers?
The simplest way to find wholesale vendors in the UK is by Googling the company of the product you want to sell, going on to their website, and finding out who their wholesale distributors are.
The Wholesaler site has a large directory of UK wholesalers for you to browse and research. A better option is to visit a large trade show or exhibition to meet new contacts. They can be a valuable networking opportunity and your fledgling business gets a feel for what products are on offer.
You want to find a supplier who can provide you a good cost, has great communication and is willing to meet your product demand and build a lasting partnership. Once you’ve done your research, you can determine the top three suppliers. The best way to verify quality and move forward with the best supplier is to order samples and compare.
Build an inventory
Once you’ve chosen your supplier, it’s time to put down some money to purchase your products!
Inventory costs depend on how much your product costs, and how many units you want to start out with. Sometimes suppliers require a Minimum Order Value, it is worth checking beforehand. We would recommend to start with around 200-300 units.
You could order a smaller quantity, if you can negotiate this with your suppliers, but generally that means they will charge you more per item, so it may not be worth it and your results may be minimised.
Set a price
Your goal is to generate as many sales as possible. Setting the right price on Amazon doesn’t have to be that hard for private label products as you don’t have any competition in Amazon’s rankings.
If you are going to sell products that already exist in the Amazon catalogue, you should set a competitive price in order to stand out among other sellers. Remember, if your price is higher than other sellers, you will struggle to reach the top of Amazon’s search results or win a buy box.
First, consider all of your costs, include the Amazon fees and a percentage for your profit margin. Calculate your prices to make money on Amazon with these costs and fees included.
Here is a breakdown of a formula(step by step):
1) x = cost + (% of profit margin*cost) + (Amazon commission*x) + (x – x/1.2)
2) x = cost + 0.6*cost + 0.25*x + (x – x/1.2)
Here, x = selling price and we’re adding together the cost price (an item’s cost price and shipping), 60% margin from cost price, 25% Amazon commission from the selling price(Jewellery category) and 20% VAT, again from the selling price.
3) Evaluate the formula here: https://www.mathpapa.com/calc/tutorial/evaluate-expressions/
Let’s look at the result:
x = 96*cost/35
If the cost price is £435, the selling price will be £1193.14.
Please note that you have to include an item’s cost price and shipping, then amend the values for Amazon commission, percentage of margin and VAT amounts that are appropriate to the product category you sell in and the margin you want to make.
How to Sell: Self-fulfilled or FBA
Now you should decide how to sell your products. As an Amazon seller, you can either handle fulfilment yourself or use Amazon’s own fulfilment service – Fulfilment by Amazon (FBA).
Fulfilling your orders yourself does not cost you anything extra, just the normal packaging, shipping and customer service expenditures.
If you choose to take advantage of FBA, you send your goods to Amazon, where they are then stored. As soon as a customer purchases one of those items, Amazon will pick, pack, and dispatch it for you.
There are no subscription fees, contracts or minimum inventory requirements. Ship your products to fulfilment centres and pay for fulfilment services and storage space used.
Fulfilment by Amazon fee depends on a products type, dimensions and weight of the item (standard or oversized). Use this Fulfilment Fee Calculator to see just how cost-effective it is to sell your chosen products with FBA.
Storage fee is based on the daily average volume in cubic feet per month and varies between low season (January to September) and high season (October to December).
January to September
October to December
These are the most important fees charged by Amazon FBA.
Once you are an Amazon Seller, your monthly costs will pay a variety of different fees.
The Amazon Referral Fee is charged for each active listing and varies depending on the product category. The fee is between 6-45% of the product price, and usually averages out at 15%. The Amazon Referral Fee per category is as follows:
|Amazon Device Accessories||45%|
|Beer, Wine and Spirits||10%|
|Books, Music, Videos, DVDs||15%|
|Business, Industrial and Scientific Supplies||15%|
|Car & Motorbike||15%|
|Tools & Home improvement||12%|
|Flow Control & Filtration||12%|
|Home & Garden (Including Pet Supplies)||15% *6% for eligible ASINs|
|Industrial Electrical Supplies||12%|
|Industrial Tools & Instruments||12%|
|Large Appliances (With the exception of Accessories, Microwaves and Range Hoods)||7%|
|Musical Instruments & DJ||12%|
|Renewable Energy Supplies||12%|
|Videogames – Games and Accessories||15%|
|Videogames – Consoles||8%|
Sellers also pay a closing fee per media item that is sold. Media categories are Books, Music, DVD, Video, Video Games (Games, Accessories and Consoles) and Software.
Closing fee is £0.50 per media item.
High-volume Listing Fee
Amazon calculates the monthly High-Volume Listing Fee based on the number of active non-media SKUs you offer for sale on Amazon. The High-Volume Listing Fee will only apply if you exceed 2 million SKUs in a given month and it will be applied to the highest number of SKUs above 2 million at any time during that month. For each active, non-media SKU over 2 million a fee of £0.0003 per SKU will apply.
For example, if during the month, a total of 3 million active non-media SKUs were made available by you, the fee applied for that month would be £300 (3,000,000 – 2,000,000 SKUs = 1,000,000 SKUs x £0.0003).
The High-volume Listing Fee is £0.0003 per SKU.
You’ve gotten acquainted with the main steps involved to start selling on Amazon and their respective costs.
The next steps will help you launch faster and with more successes. If you are just starting out and simply want to test if your product sells on Amazon, it might seem like a lot of time and effort. But if you take the time to implement these ideas your time-to-profit can be improved.
As a private label seller or owner of your original, it makes sense to trademark your brand and register with Amazon’s Brand Registry.
This not only helps you in protecting your products, but also opens up additional benefits and allows:
- Owners to control the listing descriptions of their products, including product titles, product details & images
- File complaints against counterfeits on the platform
- Get responses to infringement claims more quickly and reliably than non-registered sellers
- Expedite the process of removing counterfeit products
- List products without EANs
- Reduce matching errors
Amazon’s Brand Registry costs around £300.
Advertise your products
Amazon has two advertising solutions – Sponsored Products for promoting individual listings, and Sponsored Brand Ads for registered brand owners to promote their company and product portfolio.
Sponsored Products help you grow your sales on Amazon by reaching customers who are searching for products like yours and driving them to your product listing.
Ads are charged at cost-per-click, so you pay only when customers click your ads.
Are available for professional sellers who are enrolled in the Amazon Brand Registry: vendors, book vendors and agencies.
Whichever you choose, you’ll bid the maximum amount that you’re willing to pay when a shopper clicks an ad for your product. The more competitive your bid, the more likely your ad is to be displayed when it matches an Amazon customer’s search.
When adding up all the aforementioned costs, it’s obvious that selling on Amazon is not cheap. Another key variable is time. If you are strapped for time, resources and are unable to conduct tasks such as product research, design and product listing setup yourself, then consider outsourcing some of this setup to experts to take the pressure off the business and focus on what you can achieve.
You need to take into account that if the item you’re selling is positioned in a highly competitive market, selling fees can quickly swallow up what’s left of your profits.
However, if your item is in a niche-market or can bring in a good margin against competitors, Amazon can be a great place to make money.
We hope this article has helped to answer some of your questions with regards to the fees involved with building your eCommerce business on Amazon.
To start your eCommerce business on Amazon properly, stop by Spark Sales Online and speak to one of our consultants.