Strategies to reduce Amazon FBA Selling Fees
The Online Seller's News, January 20, 2013, Volume 13, Issue No. 2
Tips, Tools, News and Resources for eBay, Amazon and Independent Online Sellers
I hope everyone has recovered from the holiday selling season. Ours lasted until about the middle of January – probably because a lot of folks got Amazon Gift Cards for Christmas. So now buyers are back to bargain hunting. Our first article in this issue is about reducing your Amazon fees. With margins tightening, everyone should look into doing that.
We had our best holiday selling season since 2007. I don’t think it’s because the economy is back –it’s not. But I think folks are just getting tired of belt tightening and decided to be a little more optimistic this year.
For those of you who bought my book, How To Sell Used Books on eBay and Amazon, Adam Bertrand has a great book called How to Source Used Books that is excellent. If you are not familiar with Adam, he is the real deal. Adam has two published books and a popular blog on online bookselling. How to Source Used Books is a great read for anyone who is looking for ways to expand their inventory – especially for Amazon FBA sellers.
I use a company called Feedback Five to manage my Amazon feedback. They recently had an interesting article that shows how you can use their service to improve your product reviews. Here is a link to the article.
One of our coaches, Suzanne Wells, has just written a new article that will be posted in Online Selling Coach this weekend, - A New Creative Way to Increase your eBay and Amazon Business using Pinterest. OSC members can access the article by signing in.
Speaking of Online Selling Coach, here are the winners of our Holiday Contest. All of them have been contacted or will be contacted soon:
1st Place Grand Prize Winner- Skip McGrath Coaching Program:
2nd Place- Vera Langston
3rd Place- Melinda Thede
We are still accepting members to Online Selling Coach, but we may be limiting it soon as we don’t want too many people sharing the same information, techniques and sources.
Get ready – It’s that time of year again when shipping rates rise. Here is a great article by Ina Steiner about what is coming.
eBay really bounced back financially this year. eBay has done a lot of dumb things over the past few years but one of the smartest things they did was move aggressively into supporting mobile device buying – and advertising that. It worked. The Fourth quarter showed a 19% growth in Gross Merchandise Volume. eBay membership grew 12% in the fourth quarter while year-over-year eBay grew to 112.3 million active users worldwide. eBay also noted that the fixed price sales selling format increased by over 20% to now make up 68% of all sales. eBay’s stock has also been on a roll. eBay started the year in the low 30s and is now selling for $54.
Ship Station announced a new application that integrates Amazon FBA with sales from all your venues (eBay, Sears.com, Buy.com, etc.). Here is how it works: I am using eBay as an example, but Ship Station does the same thing with any of the platforms you are using including your own website.
Of course you get copies of everything and a dashboard where you can track your orders across all the platforms you sell on.
You can get more information at the Ship Station Blog.
Lets get started with this month’s articles:
In general, Amazon is an excellent way to sell, but you can lose money if you are not careful. If you don’t understand Amazon’s FBA fees you can kill any chance of making a profit if you source the wrong items, or price your items incorrectly.
Any discussion of Amazon fees is inherently complex as they have different fees for different categories, different sizes of items and so on. If you sell in Media, Kindle Accessories, Camera & Photo, Sports Memorabilia, Auto Parts, Personal Computers or Consumer Electronics, your fees will be different, but the principles I am going to discuss will still apply – just the numbers will be different.
So I am going to keep this very general and just concentrate on standard items that most small sellers sell.
Before I show some examples, here is a breakdown of Amazon FBA fees:
* The cost to become a pro seller is $39.99 per month.
Ok – Now let’s look for ways to lower our fees.
Let’s look at an example of how selecting the right product can increase your margins:
I sell two different sets of salt and pepper mills. One is priced at $89.95 and the other at $16.98 (But I was selling the lower priced set at $24.95 during the holiday selling season and sold out my entire stock).
Both products are about the same size and weight. So pick and pack, handling, and inbound shipping are about the same. (I am going to ignore the inbound shipping in this example but it averages about 60¢ per set).
When I sell one of the Mario Batali sets on the left, my fees are $16.51 and my net is $73.44. If I do the math that says my fees were 18.3% of the selling price (16.51/89.95= 18.3%)
Now let’s look at the cheaper set. On these at the selling price of $16.98, the fees were $5.57 and my net was $11.41. The math on this one says that my fees were 32.8% of my selling price – almost double the fee percentage as on the higher priced set.
On the expensive set my cost is about $36, so I made a profit of $37.44 or 41.6%. However on the lower priced set, my cost was 9.00 so I only made $2.41 or 14.2 % profit. Amazon’s fees are actually more than my profit.
The lesson to be learned here is if you are going to sell low-priced items on Amazon through FBA, then you want your cost to be closer to 1/3rd of your selling price. That was the case before Christmas when I was selling the Trudeau sets for $24.95 and I sold out at that price. After Christmas, the other sellers lowered their price so I will not carry those again until next November.
One way to get higher prices (and win the buy box) is by bundling. Here is an example of how I do that with another set of the salt and pepper mills.
Here is a set I sell for $56.95 without the salt and pepper, but I sell this one for $89.95 with the Salt and Pepper. As you can see I sold out during the holidays. The salt and pepper costs me $10, so I am getting an extra $33 before fees on this sale. The units without the salt and pepper are sold by several other sellers including Amazon who discounts them pretty heavily, so by adding this to the bundle, I have a unique product that wins the buy box every time and I make a lot more money.
Amazon fees on the $56.95 set are $11.97 or 21% of my selling price. But the fees on the pair with the salt and pepper for $89.95 are $16.92 or 18.8% of my selling price. My net after fees on the set with the salt and pepper is $73.03. So by adding ten dollars worth of salt and pepper, my profit increases by $28.05.
So to review – Here are the key takeaways from this discussion:
This is one of those situations that Ben Franklin wrote about over 250 years ago. “Take care of the pennies and the dollars take care of themselves.”
Amazon is much more liberal when it comes to fixing feedback problems. Here is what Amazon says about removing feedback:
Amazon only removes feedback in the following cases:
*Feedback reviewed and determined to be relating explicitly to fulfillment and customer service for an order fulfilled by Amazon will not be removed, but a line will appear through the rating and the statement, "This item was fulfilled by Amazon, and we take responsibility for this fulfillment experience" will be added.
Alert - We are now handling all customer feedback questions by e-mail only. A team member will respond to your inquiry as soon as possible, typically within 24 hours.
Notice the last two bullet items:
What the first bullet refers to is when a customer leaves a neutral or negative feedback about the product itself. As a seller you are forced to use the Amazon catalog to list items and Amazon requires you to sell new products in the manufacturer’s retail box. Therefore you have no control over the quality of the product. So whenever a customer gives you one or two stars and makes a comment about the product itself, you can click on the help link and select Feedback Problems from the Orders subject tab.
When you click on the arrow under Customer Feedback Problems it will bring up a page where you enter the order number. Then there will be boxes to select the reason for removing the feedback. Just check the box that says Product Review and write an explanation in the text box provided. It usually takes Amazon less than 24 hours to change the feedback.
The second reason you can have feedback removed is when Amazon fulfilled the product through FBA and there was something wrong with the fulfillment experience such as product arrived late, the product was damaged in shipment and so on.
Follow the same procedure as above, except select Amazon Fulfillment as the reason. Once Amazon fixes the feedback it will look like the image below. The feedback score will be removed from your feedback calculation, but the comment will still show up –except there is a note that says Amazon takes responsibility for the fulfillment experience.
The system isn’t perfect. For example, look at the image below. This was a feedback that Amazon would not remove because the customer clicked the box that said “Item not as described.” Even though the feedback is obviously a product review, because they checked that box, Amazon told me to contact the seller, which I did. However when I contacted the seller and explained the situation she came back to me and said if I would refund her $20 she would remove the feedback. Unfortunately Amazon regulations prevent you making any deal in exchange for feedback removal. If I had voluntarily just sent her $20, and then asked to change the feedback, that would have been OK. However I would be out $20 and there is no guarantee she would remove the comment. So I decided to just live with it.
I have emailed other customers and explained the situation and they have agreed to remove the feedback – but to be honest it only works about 20% of the time.
The main thing to remember about feedback on Amazon is that it is not as important as it is on eBay. There are plenty of Amazon sellers with 95% feedback who do just fine, but on eBay that would be seen as terrible feedback.
I like to call consignment selling “the perfect eBay business.” One of the biggest problems eBay sellers have is finding merchandise to sell at a profit. Consignment selling solves that problem.
People give you things to sell. You sell them and take a commission and then pay for the item. Except for eBay fees, there is no payment on your part until the item sells and you collect the money from the buyer.
However, there are some pitfalls to the business. One of the biggest is the risk of not delivering the product when it sells. A few months ago I wrote about a lady who sold some vintage video games for a friend. After they sold, the friend reneged on the deal. That is why I have a strict policy of NEVER selling an item on consignment unless it is in my possession!!!
Another thing that happens to consignment sellers is that they take in items that will not sell for very much. You do all the work and end up making two or three dollars. I don’t do that much consignment selling these days, but when I was active, my policy was to only take items on consignment that would sell for at least $50. Later I raised that to $100. Even with those high values I never had trouble finding goods to sell. So one of the lessons you have to learn if you are going to sell on consignment is how to say, “No”. Believe me, wasting your time trying to sell unsalable items or low value items is nothing more than a waste of time.
Another risk is taking in stolen merchandise. I once had a young man bring me a stereo that was missing most of the cables. It was a pretty expensive unit for someone so young to own, so I was suspicious.
I explained that how I work is I take a copy of his driver’s license and when the item sells, I mail a check to the address on the driver’s license. When I told him that he countered with saying he didn’t want to wait that long, so would I just be willing to give him $100 for the equipment. Since the set was worth closer to $500, I just said no thank you and he left. As he drove away I wrote down his license number and called our local PD and reported the incident. I never heard if anything came of it, but the last thing I wanted was the police coming to my home because I sold stolen merchandise.
If you really want to build a big consignment business then you want to work with businesses instead of individual consumers. Some examples are working with stores to reduce their slow selling merchandise, working with bankruptcy attorneys, and charities that are looking to raise money. The B2B side of the consignment business is far more profitable than working with individual consumers, although a lot of small sellers prefer to do just that as they don’t want to get involved in a big business.
My book, How To Start and Run an eBay Consignment Business comes with complete instructions and even sample letters that show you how to contact these people as well as actual consignment contracts you can simply insert your own name into.
I also saw a recent story in eCommerce Bytes that eBay is experimenting with a program that would find consignors for eBay Trading Assistants who are consignment seller registered with eBay.
If you are superstitious you may think that a year ending in 13 will be unlucky. I certainly hope not. We have had enough bad years lately that I suspect all our bad luck is used up. But luck can only take you so far. If you want to grow your business you have to take things into your own hands. There is only one force that can make you fail and that force is you. Let’s look at some tips that can help you strengthen and grow your business in the face of any adversity the market can throw at you.
1. Take Risks – Any business is inherently risky. You will never grow or prosper if you only take small safe risks. Don’t go crazy –it’s always good to be prudent, but there is just no way to succeed in business without taking risks. And once you take a risk stand behind it. Don’t go all wimpy too soon. I have made buying decisions that at first looked very shaky - only to eventually pan out and become very profitable. Just try and avoid taking any one or two large risks that could totally decimate you if they did not work out.
2. Love What You Do and Do What You Love – If you are selling something online that you just don’t care about, take a look at doing something else. I try and find products to sell that are fun and relate to my tastes and experiences. That is one of the reasons we sell cookware, cutlery, kitchen gadgets and gourmet food. I love to cook and those are things that I enjoy so it’s fun to shop for them and write about them. I always test new products out for myself first to be sure of the quality and value.
3. Get Help With Taxes – Taxes are going up in 2013 for just about everybody. If you haven’t done it yet, this is the year to incorporate or form an LLC. Once you do that find a CPA and sit down with him or her and learn some strategies to reduce your taxes. Last year I learned to fix one small mistake I had been making for years that caused me to overpay my taxes. Just this year alone it will save me over $1400. Over the last five years I have overpaid almost $5000 because of that.
I now use MyCorporation.com to form corporations and LLCs (and I did my will there also). I used to recommend Legal Zoom who you hear advertised all over the radio and TV, but two of my readers complained of delays, bad customer service and constant attempts to upsell them.
4. Manage Not Just Your Time But Your Goals as Well – Having a plan and setting some goals will help you get through the year profitably. The key to setting goals is that they must be both measurable and achievable. A general goal such as “I am going to increase my inventory this year” may sound good but how do you measure it. But if you say, “I am going to double my inventory this year,” that is something you can measure at several points along the way. You would constantly monitor your inventory numbers to make sure they are always increasing and you are on track to double your inventory in any given month.
As for time management – goal setting works here too. I make a list of everything that is important for me to accomplish at the beginning of the week. Then I prioritize the list. I put the things I dislike doing the most, at the top of the list (such as paying bills). By getting those out of the way first, the rest of the week goes smoothly and I usually accomplish 100% of what I set out to do that week.
5. Go Multi-Channel – If you are still selling on just one venue, that is a huge risk. Not only are all your eggs in one basket, you are missing a huge part of the market for your goods. Folks who shop mostly on eBay are different than those who traditionally shop on Amazon, but they buy many of the same things. Why would you want to ignore one group of people, when the one thing they have in common is green?
6. Avoid Negative Influences – Negative influences can be anything from friends and family to stories or blog posts you read. I get email from people who tell me they read a message board post from several eBay sellers who said it’s impossible to make money on eBay today. Well if you think that then it will come true. In the meantime folks like me who don’t have time to read that drivel are quietly making nice sums of money –and yes we are doing it on eBay too as well as other sites.
Most importantly, avoid negative people. There will always be people who have no imagination or self-confidence and believe the world has stacked the deck against him or her.
When those people talk to me I smile politely and let it go right over my head. The last thing you want to do is argue with them. And unless they are your close relatives, just avoid them in the future. This is your business. You are in charge and you are responsible for the outcome. And that means if it fails –it is your fault –not the fault of big corporations, eBay, the government, zombies or some unseen outside force that had it in for you.
7. Be Excruciatingly Honest – the best way to be honest is very simple:
Do not lie, cheat or steal and don’t associate with people who do.
This is one of those policies that is good to follow in both your business and personal life. It will cost you money occasionally, but in the long run with pay huge dividends that far exceed any losses you suffered.
8. Be Generous With Your Customers – Offering a no-questions-asked money back guarantee and a liberal return policy may sound risky, but it’s not. Yes, you will have the occasional person who takes advantage of you, but in the long run you will make far more money because people will trust you and want to buy from you.
9. Work Hard –There really is no substitute for hard work. There is no such thing as a business that runs on autopilot –that only works for boats and airplanes, and even then you have to turn it off when you dock or land. Karen and I work very hard at our business. The important words in that sentence are “our business.” It’s all ours. We take full responsibility for it and we enjoy the fruits of our successes. Between us we put in about 150 to 160 hours a week. That sounds like a lot, but we don’t have to commute, we don’t have a boss and we decide when to take a coffee break, go on vacation or when to buy a new stapler.
Now that you have read this you realize there were no specific “how-to” tips to improve your sell through rate, but general tips that will help you build a successful and profitable business. The other advantage of following this advice is that you will be happier –I guarantee it!
I just returned from the SHOT Show in Las Vegas. SHOT is the largest wholesale trade show for the firearms and hunting & fishing industry. Some of my best-selling products are holsters, hunting knives and pocketknives (No, I do not sell firearms). So I was at the show looking for new suppliers. This industry has hundreds of small to medium-sized companies who tend to work with distributors.
Green Supply is one of the largest distributors of hunting and fishing equipment. Note – when you visit their website, they offer a program called Dealerease which is a pre-packaged website with their products. Do not bother with that. It is almost impossible to make money with one of those sites unless you have a way to drive traffic to it. Recent changes by Google make it difficult to get one of those websites found. Green Supply’s normal pricing for individual items is somewhat high, but if you buy in case lots you can get closer to the true wholesale pricing.
Sentry Solutions is another supplier I found at the SHOT Show. They make non-oil based cleaning and lubrication solutions for hunting and fishing gear.
Artex is a wholesale supplier of GPS locators including the ResQLink+™ a buoyant, GPS-enabled rescue beacon designed for anglers, pilots and backcountry sportsmen. Email them through the website for wholesale and dealer information.
Valors Inc. is a large wholesale supplier of Remote Control Helicopters and cars. Be a little careful with your product selection as sellers selling direct from China are undercutting some of those products online. Sometimes it’s the oddball less popular products that allow you to make more money, as there is less competition. Also think bundling: You can differentiate yourself and realize a higher price by selling a popular helicopter with a set of spare parts as a kit.
Dream Wireless is a large supplier of iPhone and iPad and Smart Phone cases and accessories. Here again – prices for these products are highly competitive so use a bundling strategy to defeat the competitors and price cutters.
Guardian Survival Gear is a wholesale emergency preparedness company, which offers drop shipping for their high quality emergency survival kits. I mentioned them recently but this category is hot so I though I would mention them again –and they are happy to drop ship for eBay and Amazon sellers.
Precision Products sells a complete line of beauty scissors, barber scissors and other products such as magnifiers. Here again is a product line that lends itself to creating kits by bundling.
Roommates sell a line of vinyl wall décor. These are very hot on Amazon and eBay.
Upcoming Wholesale Trade Shows
Click on the links to learn about the show and the products covered
Las Vegas Market, Las Vegas, NV - Jan 28-Feb 1, 2013
Oasis Gift Show, Phoenix, AZ - Jan 31-Feb 2, 2013
IDEX Premiere - Orlando, FL - Jan 31-Feb 3, 2013
Market Square Valley Forge, Oaks, PA - Feb 3-5, 2013
International Spring Fair - Birmingham, UK, Feb 3-7, 2013
G.L.D.A. Gem & Jewelry Show - Tucson, AZ, Feb 4-10, 2013
Tokyo International Gift Show - Tokyo, Japan, Feb 6-8, 2013
Indian Handicrafts & Gift Fair - New Delhi, India, Feb 8-11, 2013
American International Toy Fair - New York, NY, Feb 10-13, 2013
Charlotte Gift & Jewelry Show, Charlotte, NC - Feb 16-18, 2013
Buyers Market of American Craft, Philadelphia, PA - Feb 16-18, 2013
San Francisco International Gift Fair - Feb 16-19, 2013
ACC Crafts Show, Baltimore, MD - Feb 20-21, 2013
Denver Gift, Jewelry & Resort Show - Feb 21-26, 2013
Western New York Gift Show, Henrietta, NY - Feb 23-25, 2013
That’s it for now. See you again in Early February.
P.S. If you missed the last issue, click here to read it.
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