on now has a 50% share of the seller revenue
A sample of Amazon sellers provided P&Ls. They show that a typical Amazon seller pays a 15% transaction fee. This is also known as a referral fee. There are also 20-35% Fulfillment fees. These fees include storage and other fees. Advertising and promotional costs on Amazon can add up to 15% to the total fees. The overall costs vary depending on the category, product price and size, weight and seller’s business model.
The 15% transaction fee has been constant for over a decade. However, it can vary from one category to another and as low as 8%. Amazon has introduced yearly increases to fulfillment fees and storage charges for Fulfillment by Amazon (FBA). FBA is a prerequisite for selling on Amazon. Most sellers rely on this service to make it work.
This is not news for many sellers. So I reached out to some Amazon sellers and agencies, and was asked to keep my information confidential. But, I was informed:
“Amazon has been increasing advertising revenue for several years, which has placed pressure on smaller sellers. Brands would still be making money if they weren’t on Amazon. Smart brands are able to diversify to other channels (DTC/Retail), and optimize their business to adapt to changing environments.
This was an eye-opener for me. I am not an Amazon seller and my digital experience is limited to lead generation. It’s not surprising for people who are more familiar with the ecommerce landscape 2023.
“But, it’s not always cheaper to sell elsewhere. Fees have gone up everywhere.”
Selling sellers advertising. Although Amazon doesn’t dictate the amount of advertising money that should be spent, there is competition among sellers who decide to advertise. Advertising on Amazon isn’t an option, unlike other marketplaces. The most prominent screen space is usually reserved for ads.
To increase their chances of being found by customers, sellers need to advertise. While some sellers spend very little on advertising, resellers often spend less than 5% on advertising. Private label sellers spend more than 10% on advertising to build their brand.
Amazon sellers pay more fees as a percentage of their sales every year. This is not because they use more services but because the price of certain services has increased (e.g. FBA) or because some fees are no longer avoidable (e.g. advertising).
There are other options available for ecommerce sellers. Walmart is more affordable than Amazon, especially for new sellers who can take advantage transaction fee discounts. Walmart’s market is smaller than Amazon’s so sellers can’t replace Amazon with Walmart. Shopify, an e-commerce platform that sells direct to consumers, has a completely different business model. Fees are not the only consideration.
Sellers are increasing their prices to meet rising fees or looking for alternatives to FBA. Some sellers don’t realize how much net profit they have at the end, and some even report paying Amazon fees up to 60% to 70% of their revenue. Other expenses such as freight, inventory, and employees must be accounted for.
Dig deeper. Marketplace Pulse has the complete study.
Why do we care? Amazon’s rising fees have an immediate impact on advertising costs as advertising is a major expense for most sellers. Advertising costs rise as more sellers advertise. Advertisers may have to adjust their budgets and advertising strategies to reflect these increased costs.
Advertisers may have difficulty earning a return on their investment as fees rise. This could negatively impact their bottom line. Advertisers need to be aware of the costs associated with selling on Amazon so that they can make informed decisions about how much advertising budgets they allocate.
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