As an entrepreneur, you need to optimize your selling chances to gain more revenues. Although these strategies require you to spend, specified costs will give you outstanding returns. One of the strategies you can utilize is Amazon’s FBA program.
Because Amazon is known for its global reach, you know that teaming up with an organization as huge as this can help you kickstart a business. If you want to know more about the FBA (Fulfillment by Amazon) program, the program’s benefit to your business, the fees that come with it, and tools that will help you calculate it, we encourage you to read on.
Fulfillment by Amazon Program: Helping One Seller at a Time
Wouldn’t it be nice to have your business soar without putting in the effort and time to let it reach new heights? As unrealistic as it may seem, a smart business owner can now effortlessly manage his business without the additional hassle. Amazon’s FBA program accredits such success.
If you’re asking how this outstanding program works, we’ll give you an example. Business owner A manufactures wooden book stands and wooden laptop tables for home and school use. Initially, owner A uses his garage to store products and sticks with a schedule for shipment to his customers. However, as his business grows popular, owner A is now having a hard time building, handling, storing, shipping, and even accounting for his sales from the operations.
He is slowly sinking into despair as his inefficiency is costing him, customers. He wants to focus on building the book stands and tables and increase their quality. At first, he thinks that hiring additional workers would help, but it only adds to the cost.
Since he’s losing money, he turns to a friend who runs a handbag business. This person tells business owner A about Amazon’s FBA program, and for him, it’s the ultimate solution. The integration of Amazon’s FBA program brings the following solutions to owner A’s business:
- Instead of using his garage for storage and handling, Amazon’s FBA program lets him utilize Amazon’s fulfillment centers as warehouses for his products.
- Owner A can now focus solely on the construction of laptop stands, and book stands as Amazon takes charge of shipping and delivery to customers.
- Product promotion is now taken care of by Amazon because of its massive customer following.
- Owner A doesn’t have to hire additional employees as he can solely focus on the construction of laptop stands and bookstands. This means fewer costs to be incurred.
Now that we’ve discussed the positive impact of enrolling your business to the Fulfillment by Amazon Program (FBA), let’s talk about the fees integrated with this innovation.
Using the FBA Fees Calculator: What To Know and How To Use It
Aside from calculating for FBA program fees, there is more to the usage of FBA fee calculators that most sellers fail to optimize. For one thing, the use of the Amazon FBA fee calculator is helpful when you have the desire of extending your product line with new additions.
The FBA Fees calculator provides you with a quantitative display of profit margin that is valuable for decision-making and gauging the projected performance of an item. Profit margin is a calculation that determines how much profit you gain from the sale of a product.
One more practical application of the FBA fees calculator is the assessment of whether to raise or lower the selling price of an item. This will allow you to set a budget for the continuation of selling your products or if you should discontinue it because of massive costs.
Moreover, a side-by-side comparison of whether to enroll your products into Amazon’s FBA program or a merchant-fulfilled model provides you with a comprehensive cost and profitability analysis.
Amazon FBA Fees: An Inside Look
To the naked eye, it seems like a lot is going on with the Amazon FBA fees. Without an understanding of each item, you’ll have a hard time tracing what costs you incur for an item’s sale. Luckily for confused sellers out there, there are tools such as the Amazon FBA fee calculator that illustrates which charges are incurred with the Amazon FBA program.
Selling on Amazon Fees
Placing your products on Amazon is like renting space from the world’s largest marketplace. Of course, you have to pay for the increased visibility of your items. A sign that says “Selling on Amazon Fees” is displayed with the item.
This particular cost item is broken down in two parts called the variable closing fee and a referral fee. The referral fee consists of charges made by Amazon for letting them put your products on their platform.
To calculate the referral fee, take a percentage from the selling price or the minimum determined dollar price. For most parts, 15% is the defined percentage of the sale price rate that is being used for the referral fee. On the other hand, the minimum dollar amount for referral fees is $1.
A business owner must know that referral fees are category-specific. This means that depending on how your products are categorized, you may have to pay higher or lower referral fees.
Variable closing fees only apply to media BMVD (books, music, video games, DVD, gaming console, and software) products.
Fulfillment By Amazon Fees
Now that we’ve had a basic understanding of one part of FBA fees, let’s discuss the second part for you to have a comprehensive guide of the overall costs you will incur upon enrollment to Amazon’s program.
First, the Fulfillment by Amazon fee is calculated to the basis of an item’s weight and dimensions. Also, these charges are divided into two components, identified as a monthly storage fee and fulfillment fee.
The fulfillment fee is composed of the following charges: costs for labor for packaging, shipping, product handling, and customer service. The monthly storage fee, which is the second part of the fulfillment fee, is calculated based on the product’s volume (in cubic feet).
The Application of Amazon’s FBA Calculator
As we continue to discuss the nitty-gritty of several charges being taken into account for Amazon’s Fulfillment Program, some may admit that they haven’t fully grasped the implications of those fees. To get a grasp of how these calculations work, here’s a little experiment you can try:
- When you’re researching for an item, look up its identifiers such as the product’s EAN, ASIN, or ISBN. Input the code on the Fulfillment by Amazon Revenue Calculator’s search box.
- After seeing the results of the product, you can now begin inputting values on the calculator. Start by determining the item price on Amazon’s fulfillment column. If you aren’t sure of what to put as your selling price, you can research more about the price range of similar items.
- The next thing to do is to input an amount on the “Ship to Amazon” field. If you’re already using Amazon as a selling platform, you’ll have an idea of how much Amazon charges per unit. You can have a standard $1 or less as a starting amount for an item. You also have the option of leaving this area blank but, you’ll see more expensive shipping costs or other additional costs.
- Lastly, input any amount under “Cost of Product”. In this portion of the calculator, you’ll need to input the cost per unit from manufacturing or purchase of your products. The price of the product per unit should have all the related expenses incurred that resulted in the item’s completion.
- Once you’ve completed the inputs of the fields mentioned above, the one thing left to do is push the “Calculate” button. You’ll see the results for “selling on Amazon” fees, “fulfillment by Amazon” fees, net profit, and net profit margin.
Interpretation of Results from the FBA Fees Calculator
After successfully inputting the values on the FBA Fees Calculator, you’ll notice that the Total Fulfillment Cost is already computed. You’ll have a comparison of the costs you’ll incur and the costs related to the FBA program.
Moreover, the calculator will also give a graphical result of your fulfillment and Amazon’s FBA program. You can play around variable costs to see whether you need to find a supplier or adapt more efficient resources (to lower cost per unit). Raise or lower selling prices (because of low profitability), and other business decisions that will affect your organization’s performance.
As helpful as the FBA Fee Calculator is, certain costs aren’t covered with this tool. Some of them include long-term storage charges, returns processing, unplanned service fees, and removal charges. Make sure to account for them by having a per-unit margin to cover these unavoidable charges.
Being a business owner is not an easy task. The good thing is, you can outsource mundane tasks like product handling, storing, and shipping for a considerable cost. Don’t forget to utilize tools like Amazon FBA Fees Calculator to guide you with business decisions that will affect your business. In this manner, you can focus on more income-generating strategies to ensure profitability and sustainability.