Get to grips with the different Amazon FBA costs and learn how to optimise your packaging
Jens Vittrup
When you are considering selling products on Amazon, it is crucial to understand the costs involved with Amazon FBA (Fulfilment by Amazon). The FBA service allows you to outsource storage, packing and shipping of your products, but there are also various fees that will impact your bottom line. In this article, we cover all aspects of the Amazon FBA fee structure so you can calculate your costs accurately and ensure your business remains profitable.
Amazon FBA (Fulfilment by Amazon) is a service where Amazon takes care of warehousing, packing and shipping your products. As a seller, you send your goods to Amazon’s fulfilment centres, and when a customer buys your product, Amazon handles the entire delivery process – from picking and packing to shipping and customer service.
This system allows you to focus on other areas of your business, such as product development and marketing, while Amazon handles the logistics. However, it is important to note that this convenience comes with different Amazon FBA fees which you must understand in order to assess whether it is profitable for your business.
Before we dive into the specific costs, it is important to understand the different types of FBA fees. Each fee type covers different aspects of the service and together they make up your total FBA costs:
Let’s take a closer look at each of these fee components to get a deeper understanding of what Amazon FBA costs mean for your business.
When you start selling on Amazon, the first thing to be aware of is the monthly account fees. There are two types of seller accounts on Amazon:
It is important to note that there is no specific “Amazon FBA monthly fee” as such. The FBA fee is a separate cost on top of your account fee. However, you will also have to pay monthly storage fees for goods you store in Amazon’s fulfilment centres, which are part of your ongoing FBA costs.
If you sell more than 40 products a month, the Professional plan is typically more cost-effective. This plan also gives you access to advanced sales tools to help manage your Amazon Seller Central account more efficiently.
Fulfilment fees (handling fees) are a core part of FBA costs. These fees cover the cost of picking, packing and shipping your products to customers. Amazon FBA shipping fees are actually included in these fulfilment fees, so you do not pay extra for shipping.
Handling fees vary depending on the size and weight of your products. Amazon has different Amazon FBA size tiers, which determine how much you pay:
Standard size products weigh under 20 kg and have dimensions under 45 x 34 x 26 cm. They are divided into:
Oversize products exceed standard sizes and are divided into:
It is important to note that these fees can change, and Amazon regularly updates its fee structure. Therefore, it is essential to check the current Amazon fulfilment fees on their official website.
When you send products to Amazon’s fulfilment centres or when Amazon ships your products to customers, FBA dimensional weight is a key factor in calculating your costs. Dimensional weight is used when a product’s volumetric weight exceeds its actual weight.
Amazon calculates dimensional weight by multiplying a product’s length, width and height and then dividing by a dimensional factor (typically 139 for metric measurements or 166 for imperial units).
For example, if your package measures 30 cm x 25 cm x 20 cm:
Amazon will use the higher value between the actual weight and the dimensional weight to calculate your FBA shipping fees. This means that even lightweight products can incur higher shipping costs if they take up a lot of space.
To reduce costs related to dimensional weight, you should optimise your product packaging to minimise unnecessary space. This may mean redesigning packaging or choosing more compact shipping solutions.
In addition to fulfilment fees, Amazon also charges fees for storing your products in their fulfilment centres. These storage fees come in two forms:
These fees are calculated based on the daily average volume (in cubic feet or cubic metres) of your inventory in Amazon’s fulfilment centres. Fees vary depending on the time of year:
As you can see, storage fees increase significantly during peak season (October to December) due to higher demand for warehouse space around the festive sales period.
For items stored in Amazon’s fulfilment centres for more than 365 days, Amazon charges long-term storage fees. These can be substantial and are calculated as $6.90 per cubic foot (approx. $243.79 per cubic metre) or $0.15 per unit – whichever is higher.
To avoid these fees, it is important to monitor your inventory closely and remove products that are not selling well. Amazon offers tools in Seller Central to help identify products that may incur long-term storage fees.
Amazon also charges a referral fee for every item you sell. This can be considered Amazon’s commission for providing access to their marketplace. What is the Amazon referral fee for FBA? It is actually the same fee whether you use FBA or not.
Referral fees vary depending on the product category and can range from 8% to 45% of the sale price. Here are some examples of referral fees for popular categories:
These fees are calculated based on the total sales price including product price and shipping, but excluding VAT. It is important to include these referral fees in your profitability calculations as they can have a significant impact on your gross margin.
In addition to the basic fees, there may be special handling fees for certain types of products or situations. These include:
Products classified as hazardous materials (e.g. batteries, perfume, aerosols) are subject to additional fees due to special handling requirements. These fees vary based on hazard classification and product size.
Clothing and textiles often incur slightly higher fulfilment fees compared to non-textile products in the same size category.
During periods of high demand, especially in the festive season, Amazon may introduce temporary surcharges on standard fees.
This fee is charged when you have too little stock to meet expected demand. Amazon may charge a fee to compensate for inefficiencies in their warehouse system when your products frequently go “out of stock”.
This fee may be applied if Amazon has to refund shipping costs to customers due to issues with your product or inventory.
It is important to be aware of these potential additional fees when planning your Amazon marketing and inventory strategy so you can minimise unnecessary costs.
One of the most common questions from prospective Amazon sellers is: “How much does it cost to start an Amazon FBA business?” The answer depends on several factors, including your products, business model and ambitions. Let’s break down the typical start-up costs:
Therefore, the basic costs for starting an Amazon FBA business typically range from about 15,000 DKK for a very simple start-up to over 100,000 DKK for a more comprehensive launch with a larger product range.
In addition to the basic costs, you should also consider:
It is important to note that many successful Amazon sellers started with a limited budget and gradually scaled up their business. A common approach is to launch with a single product, learn from the experience, then reinvest profits to expand the product line.
When selling through Amazon FBA, there may be situations where you want to remove inventory from Amazon’s fulfilment centres. This could be because products are not selling well, you want to update the packaging, or you wish to switch to another inventory strategy. In these cases, you should be aware of Amazon’s removal and disposal fees.
If you want your products returned from Amazon’s fulfilment centres, a removal fee is charged. This fee varies depending on product size and weight:
The products are returned to the return address you have registered in your Seller Central account.
If you would rather have Amazon dispose of your products, a disposal fee applies:
In this case, Amazon will destroy or recycle the products and you will not be able to get them back.
“FC transfer” (Fulfilment Centre transfer) refers to when Amazon moves your products between different warehouses to optimise stock levels and delivery times. This may happen to keep your products closer to customers in different regions. Amazon does not charge direct fees for these transfers, but they can affect your storage costs.
“FC processing” refers to the process of receiving, checking and registering your products when they first arrive at Amazon’s fulfilment centres. This is included in your fulfilment fees and is not a separate cost.
Amazon also implements something called “account level reserve” for some sellers. This is a safety measure where Amazon withholds a portion of your sales income to cover potential refunds or A-to-z Guarantee claims. This is not a fee, but it can affect your liquidity as part of your income may be held for up to 14 days or longer.
This is particularly relevant for new sellers or during periods of growth, when Amazon may withhold a larger percentage of your funds. As your account builds up history and trust, this reserve may be reduced.
A critical question for all Amazon sellers is: “What is a good profit margin on Amazon FBA?” While the answer varies depending on product category, competition level, and business strategy, there are some general guidelines to follow.
Many successful Amazon FBA sellers aim for products that provide a net margin of at least 20% after all fees and costs. For products with higher turnover, a lower margin (10-15%) can still be acceptable due to faster capital turnover.
ROI (Return on Investment) is an important metric for Amazon FBA sellers. It is typically calculated as:
ROI = (Net Profit / Total Investment) × 100%
For example, if you invest 10,000 DKK in a product (including purchase cost, shipping, FBA fees, etc.) and earn 20,000 DKK in revenue with a net profit of 5,000 DKK, your ROI is 50%.
What is a good ROI for Amazon FBA? Many experienced sellers aim for an ROI of at least 100%, meaning they double their investment. However, some sellers accept a lower ROI for products with higher turnover or lower risk.
Your profit margin on Amazon FBA is influenced by several factors:
It is important to regularly recalculate and analyze your profit margins using current FBA fees and market conditions. Amazon frequently updates its fee structure, and marketplace prices can change rapidly.
With a thorough understanding of the Amazon FBA fee structure, you can now focus on how to reduce these costs and maximise your profit. Here are some effective strategies to minimise your FBA costs:
Amazon FBA size tiers have a significant impact on your fulfilment fees. By reducing your product’s dimensions and weight, you can potentially move your product into a lower size category:
Even small reductions in size or weight can lead to significant savings over time, especially for high-volume products.
Storage fees can quickly add up, especially long-term storage fees:
By keeping your inventory “lean”, you can reduce monthly storage fees and avoid expensive long-term storage fees.
Amazon offers various programmes that can help reduce costs under specific circumstances:
These programmes can offer significant savings if your products qualify and fit your business goals.
To ensure you have accurate calculations of your FBA costs:
These tools can help you identify opportunities to optimise your products and reduce costs.
By implementing these strategies, you can significantly reduce your Amazon FBA fees and improve your overall profitability. Remember, even small savings per unit can add up to substantial amounts when scaled across many products and sales.
With all these fees and costs, it’s natural to ask: Are Amazon FBA costs worth it? The answer depends on your specific situation, but here are some factors to consider:
For many sellers, the benefits of Amazon FBA outweigh the costs, especially for products with healthy margins and moderate to high sales volume. However, for products with very low margins or special handling requirements, FBA may be less advantageous.
It may be valuable to consult with Amazon consultants experienced in your product category to get a tailored assessment of whether FBA is the right solution for your business.
To ensure your Amazon FBA business remains profitable, it is crucial to plan and calculate your costs accurately. Here is a structured approach to estimating your total Amazon FBA costs:
Use a spreadsheet to track all your costs, including:
Your break-even price is the minimum price you need to sell your product at to cover all costs. To calculate this:
For example, if your total costs are 100 DKK per unit and the referral fee is 15%:
Break-even price = 100 / (1 – 0.15) = 117.65 DKK
After calculating your break-even price, you can set your target price based on your desired profit margin and market conditions:
It is important to be realistic about your margin expectations based on competition in your product category. In some categories, even a 15% net margin can be challenging to achieve.
Amazon FBA fees and market conditions change regularly. Plan to review your profitability at least quarterly:
By maintaining this discipline with regular cost and profitability analysis, you can ensure your Amazon FBA business remains financially healthy in the long term.
Amazon FBA offers a powerful solution for e-commerce sellers, but it comes with a complex fee structure that requires careful planning and management. To succeed with Amazon FBA, it is essential to understand all cost components and how they impact your bottom line.
Remember, while FBA costs are significant, the service also offers substantial benefits in terms of logistical support, customer trust and access to Amazon Prime customers. By implementing strategies to reduce costs and optimise your product strategy, you can maximise the benefits of FBA while keeping costs under control.
For the most up-to-date information on Amazon FBA fees, and for help optimising your Amazon strategy, you can contact WeMarket – a dedicated Amazon agency with expertise in helping businesses navigate the Amazon ecosystem and achieve profitability in this dynamic marketplace.
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