Here is a thorough guide on how you can save through Amazon referral fees.
As an Amazon seller, you must understand how the platform’s referral fees work. That can help ease you as you know that the prices you’re paying are spent on proper use, not on liabilities to your disadvantage. That will also guide you in properly calculating your expenses and income as you boost your Amazon profit margins.
Although many sellers complain about the collection of fees, you should know that there are underlying benefits that come with it. You can always choose to build your platform or transition to other sites, but there’s no denying that Amazon’s benefits are too great to forsake. We’ll highlight some benefits on this article.
Now, let’s dig deeper and unravel the technicalities that will guide you in setting the right decisions.
What is the Amazon Referral Fee?
The referral fee pertains to the charges of Amazon for every product you sell. It’s the price percentage overall sales and is typically at 15%. The rate, however, can differ depending on the type of product. Some products, such as personal computers, can incur as low as 6% charges. But for products like Amazon Device Accessories, the fee can go as high as 45%.
It’s essential to keep track of these fees and to understand how they work for the following reasons:
- For you to determine the amount Amazon charges you for their perks and how that slices through your bottom line
- For you to generate more accurate report income on your taxes – the IRS entails the overall worth of your store and its products inclusive of the fees you pay for Amazon
- For you to save money since you can cut seller fees on your tax return
Is Amazon too much for Taking out Percentage from my Sales?
The answer is no and for good reasons. To better understand this, let’s narrate a scenario.
Let’s say you’re selling lots for a living, and my buddy, Mecka, wants to purchase a 1-hectare lot to build a resort. I then inform Mecka that you can help him and he then buys the 1-hectare lot. For doing that, you pay me a “referral fee” because I told Mecka to buy from you. Technically, it’s me who brought the sale to you. That’s why the fee you gave me serves as my commission. Instead of you spending time and financial resources marketing before you found Mecka, I brought him straight to you; thus, you made a sale.
But in this case, you are not selling lots but products on your Amazon store. Through Amazon, your store becomes exposed to thousands or even millions of prying customers. It’s like you’re renting Amazon to get access to prospects in a crowded city. Therefore, it makes sense for Amazon to charge you a referral fee. After all, they are referring consumers to you.
Think about this. If you have your website for selling products, there’s a high chance that you’ll spend thousands solely for marketing before. Otherwise, you cannot attract significant traffic. That means you’ll not be making high income. On the other hand, Amazon helps you achieve faster results compared to other ecommerce platforms.
How Does Amazon Calculate Referral Fees
For every price a customer pays, Amazon deducts a percentage that is usually around 15%. Let’s say you are selling charcoal soaps for $350 but went for a sale for $100; then Amazon calculates the fee off of $100, not $350.
$100 x .15 = $15 referral fee.
But what if you are shipping the products via the fulfillment by merchant (FBM), and the consumer pays you $3 for the shipping? Amazon will calculate the fee this way:
($100 + $3 x .15 = $15.45 in fees.
Now, if the consumer takes care of the wrapping fees, then the charges will be calculated off the overall cost of sale price + wrapping fees + shipping cost.
But why is it that when I run a sale, the seller central’s fee preview does not change?
That’s right but don’t fall into that. That’s because no matter what the fee preview states in seller central, you’ll only pay the fee percentage that is off the price which the consumer pays.
Does Amazon charge a Minimum Referral Fee?
That’s correct. For products with very low prices, Amazon will base the minimum $1 referral fee on the product type. Let’s say you are selling metal candlelight for $8, and the referral fee is $0.80, most likely, you will have to pay a minimum of $1 referral fee rather than $0.80.
The minimum fee applies to a per-item basis, not on categorical terms. But why does Amazon have to charge that fee even for low-cost items? That’s a practical measure. Every other ecommerce platform out there also does that to ensure sustainability and profitability. That is not only helpful for the platform but the seller as well.
Every Seller Pays a Referral Fee
Every seller in Amazon pays the referral fee, and there is no exception. Regardless if you bought the professional selling plan or the individual selling plan, you’re not exempted from paying the referral fee. But of course, there is always a difference.
For the individual account, the closing fee is fixed at $.99 for every product sold, including the referral fee. But if you have a professional seller account, the monthly payment is $39.99 every month, and there is no fixed closing fee. Furthermore, you will have to pay variable closing fees. With the professional selling plan, you’ll also have access to powerful seller insights and tools.
That is why you should upgrade to a professional selling plan when you’re already selling more than 40 products a month. That is cost-efficient and will allow you to avail of extra features and benefits. Among these are the eligibility to compete for the buy box, volume listing, management tools, and many others.
With that plan, you can also list products under multiple categories, and you can sell as many items as you wish without the worry of being flagged. Not just that. You can also save time since the plan has a feature that allows you to upload multiple listings in a few clicks.
You need to pay the referral fee whether you are selling via the Fulfillment by Amazon or the Fulfillment by Merchant.
For every product sold via the FBM, Amazon charges you via the percentage between the shipping amount and the combined item price. Let’s say you are selling a children’s book for $10, and your customers handle the $2.25 shipping; then, you’ll pay a referral fee of $1.84.
Adjustment of Referral Fee for Claim Codes and Coupons
When your customer inputs a discount code at checkout for a discounted product, Amazon computes the referral fee via the sale prices’ percentage. In other words, you are only charged based on the discounted percentage.
Let’s say you’re selling an Apple cord for $20 and your referral fee is 15% of $20 (which is $3) and you give the consumer a 50% discount claim code so that they buy the cord for $10, you will only pay 15% of the $10. That is just around a $1.50 referral fee. If you note that math carefully, you’ll notice that the fee is minimal, and it does not drain your finances the way many sellers think.
Don’t Cringe with the Referral Fee, Note these Benefits
When you have a website of your own for selling products or services, you could be devoting a significant amount for marketing alone. That can be way more the amount you spend when you sell on Amazon. Amazon dominates all the ecommerce landscape that millions trust the products and services it provides. Likewise, Amazon takes care of all the marketing needed to boost online visibility, which you would be doing if you have your platform.
Until today, however, many Amazon sellers complain about the fees without understanding that using the platform is already a significant advantage. Many of them end up falling to bankruptcy or get driven to the losing edge.
Every year, Amazon rakes in over $80 billion, and more than 54 million users continue to grow rapidly. Based on statistics, 44% of all online shoppers in the United States visit the platform, resulting in more than 2 billion products disposed of per annum.
Therefore, putting your product on Amazon significantly boosts your store’s visibility even if no person has ever heard of your listing before. Every baseline has been laid out for you to identify and optimize products to showcase and sell. In that way, you can focus on other priority areas of your Amazon store.
So if you ask, “Is Amazon’s referral fees something that should concern you when you use the platform?” No. Because the opportunities out there far outweigh that tiny amount deducted for every item sold. It’s just a small piece of the slice of costs, and once you get your store running, implement best practices, you’ll start generating substantial income. That will make you forget the referral fees.
Patrick Panuncillon is a digital marketer who has been helping Amazon companies improve their online visibility and increase conversions and sales.