The Ultimate Amazon Profitability FBA Calculator – Understanding All the Costs Associated When Selling on Amazon with FBA
Palmetto Digital Marketing Group is a company that specializes in Outsourced Amazon Storefront Management Services. We help Amazon sellers grow and manage their Amazon Stores.
We work with Amazon sellers of all sizes. Most of our clients opt to use FBA (Fulfillment by Amazon) Services. Sellers who use FBA “typically” are automatically Prime eligible. Ironically, we have found over time that most of our clients don’t fully understand all the associated costs for FBA. And it’s not their fault - there’s a great deal of misinformation on the internet. Amazon’s FBA Calculator lacks in detail and does not include all the associated costs of using an FBA program.
The Amazon FBA Calculator
Amazon’s FBA Calculator lacks, period! If you input product information into Amazon’s FBA Calculator, you will get very limited visibility into all the associated costs. You will be waiting for your first payment and your next call will be made into Amazon asking “where’s my money?” It won’t make sense and you will end up scratching your head in dismay. There are so many moving parts to selling on Amazon, understanding your profitability is critical and PDMG’s Amazon FBA Calculator will provide valuable and actionable insights.
Amazon’s FBA Calculator Input
Determining All the Associated Costs with FBA and Selling on Amazon
At Palmetto Digital Marketing Group we use a proprietary FBA and Selling Calculator that we share with our clients. We urge you to contact us today to learn more about selling on Amazon profitably using FBA.
FBA Cost/Fee Factors:
Amazon Retail Price
To start the process, we start with your Amazon retail price. This is the retail price that sellers sell their products for within the Amazon catalog.
Amazon Commission Percentage
In most cases this is 15% for now (it might increase in the future). There are some products where the commission rate is 20%, for example jewelry products.
Amazon FBA Fees
These fees are variable and are based off your product dimensions. The calculation is based on your product’s L x H x W in combination of Weight.
Learn more about Amazon FBA fee Calculations.
Products are sent to Amazon and they are measured at Amazon. The FBA fee is then assigned to the ASIN. Insider tip: we find often that Amazon mis-measures in Amazon’s favor and that fees are higher than they should be! So make sure to double check your FBA fees.
Amazon Inbound Freight Charges
Sellers MUST understand that it costs money to get their products into an Amazon DC (Distribution Center).
· Sellers have the option of using Amazon partners/carriers at extreme discounts to get their products into the Amazon DC. 95% of our client base opts for the discounted rates vs. normal retail rates.
· Sellers can also choose to use LTL Palletized shipping programs or Small Package UPS/Fed Ex Boxed shipment methods. Both methods have discounted rate options.
Regardless, most sellers don’t anticipate for inbound shipping costs.
Amazon FBA Placement Fees
This is an additional “variable” fee (based on your product’s weight) that sellers can choose to use to maximize “inbound” shipment cost and efficiencies. For example, sellers can (for a fee) send in a full pallet to Amazon to (1) assigned Amazon DC location. Doing this ensures that Amazon won’t break up an FBA shipment into various locations, therefore disrupting the full pallet. Insider tip: for serious sellers who send in hundreds or thousands of units, we recommend taking advantage of this program.
Got UPC’s? Paying for Amazon FBA Labeling Services
Most sellers with manufacturing capabilities use UPC’s as their product identifier. If that’s the case there will not be a need for Amazon Barcode Labeling. However, as the number of Private Label sellers rise due to the advent of Alibaba, some products are not manufactured with UPC codes placed on the product. If this is the case, Amazon sellers need to use Amazon barcodes. Amazon barcodes are an identifier used for NON-comingled products. If you use Amazon barcodes, you have 2 options. Option (1) the seller labels themselves. Option (2) they pay Amazon to label their products. The cost is $0.20 per label. Any larger seller who moves thousands of units per month typically opts in for Amazon Labeling Services.
Amazon FBA Package Prep Services
Ok, so you want to sell on Amazon and use FBA. Are your products breakable? Do they have the potential to leak? If so, extra FBA prep services will be needed. And guess what - it’s an extra cost. If prep is needed then your product will need to use Amazon barcodes, because the barcode will need to be placed on the outside of the extra packaging material.
Budgeting for Amazon Marketing Services
The days of “set-and-forget-it" on Amazon are over - way over. Marketing/Advertising is essential to selling on Amazon. If you look at the search results you will see sponsored ads everywhere. We recommend that our clients be prepared to spend anywhere between 5% to 15% of gross sales on advertising (depending on their product margins). Sellers who have high repeat purchase rates can afford spending up to 15%+ on Amazon Marketing Services in order to acquire new customers. Clients with low margins or higher manufacturing costs typically must dedicate less to advertising to see ample profits.
Budgeting for Amazon Returns (Return Allowance)
This is always overlooked. No one thinks about this when they start selling on Amazon. Unless you have a retail background you wouldn’t have too. That said, be prepared for returns. Any experienced seller will say there’s some fuzziness around how Amazon credits returns. Some products are refunded, some are not. Furthermore, some of your returns will be unsellable. Therefore, you should account for this in your profitability calculations. While some sellers experience minimal returns, certain categories experience very high return rates (for example clothing or jewelry). These factors will determine your bottom line.
Budgeting for Amazon Management or Consulting Services
Most large Amazon sellers or companies dedicate resources to Amazon. PDMG an Amazon Management Company works for commissions on sales. These commissions are variable and based on sales volume. Other sellers may hire individual consultants or freelancers to help them with Amazon. Regardless, sellers need to account for these incremental expenses. PDMG typically bakes these expenses into our FBA profitability calculator so sellers understand what their net profit margins will be.
Budgeting for Amazon FBA Storage Fees
Now this is very tricky and to be honest, is very hard to calculate. So, we typically add a small fee into our FBA profitability calculator to account for storage fees. This input is meant to be directional only. Insider tip: if you have a product that moves through inventory with ease, these fees will be minimum in the grand scheme of things. However, if you send products into Amazon and they DO NOT sell, be prepared for some hefty storage fees. We have seen storage fees increase as fulfilment centers are packed with products. It’s simple supply-and-demand economics. Amazon wants to make their money and this will occur either through sales commissions or storage fees.
Palmetto Digital Marketing Group’s FBA and Amazon Selling Calculator
We spoke to all the potential costs above, now let’s look at it visually. Our Amazon FBA profitability calculator has helped close to 100 sellers/companies get a better understanding of FBA and Amazon Selling costs.
Still Want to Sell on Amazon?
For newbies who plan to sell on Amazon, I am sure you might be having second thoughts now. For those who are selling veterans, you have learned about Amazon selling costs the hard way. The good news is that with the right product and guidance you can CRUSH IT on Amazon. It all starts with the product. Is the product Prime eligible? Are the FBA fees low compared to the retail price? Finding the right mix is critical.
About Palmetto Digital Marketing Group:
PDMG offers its clients end-to-end Amazon store management. Our account managers run every aspect of your Amazon Store. From inventory management, marketing, listing creation, and customer service, to sales reports, inventory analysis, creating FBA shipments, SFP set up and monthly account reporting. We tailor each program to our client’s specific needs. Our end-to-end account management offers our clients turnkey solutions.