Amazon has one of the most complicated fee structures known to mankind. It’s as if they want the question “What does it cost to sell on Amazon?” to be completely unanswerable. But you need the answer to turn a profit!
To determine the real cost of selling on Amazon, we’re going to have to dive in deep. It’ll get complex. If you’re just looking for a quick, rough estimate, check out “How to Sell on Amazon for Beginners” instead.
Still with me? Awesome! Grab a cup of coffee and buckle in.
We’ll start by identifying your costs per sale. Later, we’ll tally them up and set a price that will absorb all of your Amazon fees. Finally, we’ll walk through a sample cost calculation together.
Selling Plan Fees
Amazon offers two different selling plans: Individual and Professional.
Sellers who choose Individual have no monthly fees for their account, but must pay $0.99 for every sale.
Professional sellers get to skip that fixed fee in exchange for paying $39.99 a month. It’s therefore clearly the best choice for anyone who makes at least 41 sales per month.
You may want to count your Professional selling plan fees in your costs to make sure they get completely covered. If so, just divide the Professional fee by your average sales per month.
Example: Say you make 100 sales per month. 39.99 / 100 = 0.40 after rounding up, so that’s an extra $0.40 you have to incorporate into your costs per sale.
Amazon charges referral fees on every item sold. In most categories (including books, clothing, office products, and sports products), this fee is 15%, though it can be much lower or much higher.
Just to make things even more complicated, Amazon applies referral fees differently depending on the item you’re selling.
If you’re selling media products (books, videos, music, etc.), Amazon determines the referral fee based on the item price. This is the price visible to the customer on your listing and does not include shipping and handling.
If you’re selling anything else, the referral fee is generally determined based on the total price charged to the customer, including the shipping and handling charge.
Some categories may have even more complicated rules, charging based on things like the item price and gift wrapping charges but not shipping. Be sure to research the ones you’re selling in carefully!
Thankfully, taxes charged using an Amazon tax collection service are not included in the referral fees.
Note that if you’re selling something for a low price, you may end up having to pay the minimum per-item referral fee rather than the percentage. This is typically $1.00 or $2.00. Some categories and specific items are exempt from this kind of minimum fee.
Variable Closing Fees
Amazon’s variable closing fee, or VCF, is one of their most bewildering charges, and the information available on the public-facing Amazon website is incomplete and often contradictory. You have to log in to Seller Central and drill down into the FBA FAQ to get a straight answer.
If you’re selling media items, the VCF is $1.35 at the time I’m writing this (June 2016).
If you sell non-media items and use Fulfillment by Amazon, you don’t have to pay a variable closing fee. Pretty simple so far.
Next, if Amazon allows you to set your own shipping rate, then you don’t have to pay a VCF.
If you’re selling non-media items and Amazon requires you to charge a certain amount for shipping every time (for example, if you’re on an Individual selling plan), then things get really fun. You can find your VCF on the Amazon referral fees page. This consists of a flat fee and a variable fee based on the weight of your item.
So if you’re selling a heavy item as an Individual seller, not only do you have to deal with paying more for shipping and handling, your fees go up as well. Sounds . . . fair?
Speaking of shipping and handling, that’s the next expense you need to take into account.
Shipping and Handling
Amazon usually determines how much you openly charge customers for shipping and handling.
If you’re an Individual seller, you can find the amount Amazon will charge to the customer for shipping and handling on the Shipping Credits for Individual Sellers page. Amazon will then give most of this amount to you after taking out the applicable fees.
If you’re a Professional seller, the same fixed rates still apply for BMVD (Books, Music, Video, and DVD) products. You generally get to choose your shipping and handling costs only if you’re selling non-BMVD products and not using FBA.
The fixed shipping costs are often much lower than what you’d actually have to pay to ship the item. Never assume Amazon shipping credits will cover your shipping expenses. Odds are, you’ll have to cover part of your shipping expenses and all of your handling and packaging costs in the price of your item rather than in the separate shipping charge.
Warning: Punching your computer will not help you determine how much it will cost to sell on Amazon.
I strongly recommend you read our article on determining shipping and handling costs. This will help you find out how much your shipping and handling will run you. Then you can subtract your shipping credit from your actual shipping and handling expenses to determine how much you need to increase the price of your item by.
Example: Say you have a $3.99 shipping credit. The actual cost of shipping and handling the item is $4.99. You should then account for $1.00 of extra expenses when calculating the sale price of your item.
This applies even if you’re selling via FBA. You’ll have to ship your items to an Amazon fulfillment center, so even though Amazon will take care of shipping the item to the buyer, you still have shipping and handling costs. Take the time to determine what those costs are so you can cover them in your item’s price.
FBA sellers should note that they can get discount shipping through Amazon-partnered carriers.
Fulfillment by Amazon Fees
If you use Fulfillment by Amazon, you will have to pay a series of fees. These are variable and sometimes cumulative. For example, you have to pay a monthly storage fee for each item, and this rate is higher during the holiday season than the rest of the year.
FBA fees may change from time to time as well. For example, as I’m writing this in June 2016, they have notifications up about planned fee changes for October and November.
It’s therefore important that you get the rates directly from the horse’s mouth. You can find current FBA rates here.
In order to calculate the full cost of selling on Amazon as an FBA seller, you’ll need to estimate how long each of your items is going to stay in storage. Then use that estimate—plus the weight and dimensions of your product—to determine your average FBA fees per sale.
Luckily, the FBA revenue calculator can make determining your fees per item easy.
Since Amazon deposits your payments directly into your bank account, you should get the full amount of each sale after you’ve paid their fees.
Some banks, however, may charge you a flat fee per transaction. This is particularly common if you’re having the money transferred to you across international borders. To make sure you incorporate this cost if it applies to you, you’ll need to divide the transaction fee by your average number of sales per Amazon pay period.
Example: Say you make an average of 100 sales per month and Amazon deposits your payments into your bank account on a monthly basis. Additionally, your bank charges a $45 flat fee per deposit. 45 / 100 = 0.45, so that’s an extra $0.45 you have to incorporate into your costs per sale.
Are There Any Costs I Don’t Have to Worry About?
If you have sales tax processing set up, then sales tax will be charged to customers after all the other fees are calculated. They won’t affect your per-transaction expenses.
Amazon also absorbs payment processing fees charged by credit cards and the like. One less thing to worry about (finally)!
Advanced Amazon Fee and Expense Calculation
With multiple flat and percentage fees to deal with, how can anyone hope to set a price that will cover all their expenses and get exactly the profit they want? It turns out it’s not that hard to do—all you need is a little algebra. Specifically:
x – [(y*x) + z] = p.
First, figure out how much you want to receive from customers. This amount needs to cover:
- Your shipping and handling expenses (minus your shipping credit or the amount you’re charging for shipping)
- The cost of buying or manufacturing the item you’re selling
- Your desired profit
We’ll use this value as “p.”
Next, add up your fixed fees per transaction. These may include:
- Your selling plan fee ($0.99 if you’re using an Individual plan, or your Professional selling plan fees divided by your average sales per month)
- A referral fee (if you’re charging a low enough price to need to pay the minimum)
- A variable closing fee
- FBA fees
- Bank fees, if any (calculated as the cost per Amazon deposit divided by your average number of sales per pay period)
This value will be “z.”
Next, if your referral fee will be charged as a percentage, then enter this percentage as a decimal for “y.” For example, if you have a 15% referral fee, then you would enter 0.15. If you aren’t getting charged any percentages, enter 0.
Finally, the amount that you want to charge to customers to get your desired profit will be “x.”
Enter the values that you’ve come up with and solve for “x” to find out how much to charge to completely absorb the cost of selling on Amazon. Here’s the formula again:
x – [(y*x) + z] = p.
You don’t actually need to know how to do algebra to solve this—you can just plug it into an algebra calculator like Math Papa to get the answer.
Example: Calculating How Much It Will Cost to Sell on Amazon
Let’s say I’m an Amazon seller with a Professional plan who is not using FBA. My item is a set of three books weighing in at 2 pounds 14 ounces.
First, I determine that I can ship these books via USPS Media Mail to just about anywhere in the US for $3.57. I also estimate that I’ll spend $1.00 on packaging. That’s $4.57 in total shipping costs. Since I’m locked into charging the standard shipping fee of $3.99 for books, I’ll have to cover $0.58 worth of shipping costs in the price of my item.
I already know that sourcing these books costs me $10 per set.
All told, that’s $14.57 in expenses, or $10.58 after my shipping credit, that I have to receive just to break even.
Next, I set my desired profit. If I can’t take home more than $10 per sale before taxes, I don’t want to sell these books.
In order to get those $10 in profits and cover my grand total of $14.57 in expenses, I’ll need to receive $24.57. After subtracting my $3.99 shipping credit, I see that I need to get another $20.58 after fees. I’ll therefore enter 20.58 as “p” in the formula.
Now it’s time to add up my fixed fees.
Since I’m using a Professional selling plan and I average 100 sales per month, my fees average out to $0.40 per sale.
Since I’m selling books, my variable closing fee is $1.35. I also have no minimum referral fee, so I’ll calculate that as a percentage in the next step.
I have no FBA fees since I’m not selling via FBA.
Looks like my fixed fees total $1.75. Not too bad! I’ll enter 1.75 as “z.”
The referral fee for books is 15%. I therefore enter 0.15 as “y.”
Solve for “X”
The formula that I get is this: x – [(0.15*x) + 1.75] = 20.58. I plug that into Math Papa and get $26.27 as the amount I need to charge my customer.
Proof It Works
Using the answer I got above, I charge $26.27 for my set of three books plus the $3.99 required by Amazon for standard shipping. The customer pays $30.26 for the books plus any applicable sales tax. While the sales tax goes straight to Uncle Sam, Amazon and I start splitting up the rest.
Amazon charges me 15% of $26.27 as the referral fee: $3.94. I also lose $1.35 to the variable closing fee and $0.40 to my Professional plan fees. So my Amazon fees total $5.69.
I also spend $4.57 on shipping, and already spent $10 purchasing the set of books.
All told, that’s $20.26 of expenses on my $30.26 sale. My profits are therefore $10—exactly what I was aiming for.
Conclusion: What Does It Cost to Sell on Amazon in Reality?
The real cost of selling on Amazon consists of the following:
- The costs of manufacturing or purchasing the item.
- The costs of packaging, handling, and shipping the item—whether directly to the customer or to an Amazon fulfillment center.
- All per-transaction Amazon fees.
- Any related overhead (selling plan fees, storage fees, transaction fees, etc.) averaged out over each payment period.
In addition to these costs, you may have other setup costs and overhead: fees for government permits, payments to freelancers or employees, and the value of your own labor. Always ensure that your profit margins are large enough to account for these expenses.
Had enough math for one day and looking for something more exciting? Discover what to sell on Amazon and start making money! If you already know what to sell, read up on how to get a great Amazon seller rating to keep the customers rolling in.