If I asked you how much it costs you to sell on eBay or Amazon, you might know if you would look up the fee schedule and say something like: “Amazon’s commission is 15% or eBay and PayPal fees average around 12 to 13%. If listing and selling fees were your only costs, you would be essentially correct – but the question is not about fees, the question is: “What are your true selling costs?” Knowing how to determine that is the difference between profits and losses.
True product Cost – The first thing you have to know is how much are your products really costing you. Besides the basic wholesale cost, there are other costs you need to add to determine your true products cost. First is your inbound shipping cost. Just yesterday I received a case of an expensive brand name body lotion that I sell on eBay and Amazon.
There were 48 bottles in the case and my cost was $5.30 per bottle. But since lotion is somewhat heavy the shipping cost came to $34.45. So let’s do some math: 48 X $5.30 = $254.40. When you add in the shipping the total is $288.85. Now divide by 48 and you get an item cost of $6.01. Now since I sell through Amazon’s FBA program, I also have to label and ship the product to Amazon. Labels and plastic bags cost about a penny, so I am now up to $6.02. Shipping to Amazon will run me $19. So dividing that by 48, I get an additional cost of 40¢, which makes my total product cost now $6.42 and we are not done yet.
I also have storage costs at Amazon. The 30-day storage cost on those items are only4¢, but we are now up to $6.46. And no – we still are not done.
On this product, I average about 1 customer return per case of 48. So if I take that total cost of $6.44 and divide it by 4, that adds another 13¢ to my cost which gets us to $6.59.
So even though the product originally cost me $5.30, you can see that my true cost is really $6.57. That assumes I pay cash for the product. If I was borrowing or financing on a credit card, I would also have to add in the interest cost on the entire case until it was fully paid off. (Note – We often use credit cards to pay for merchandise, but except for large buys near Christmas, we pay our cards off each month to avoid interest charges.)
OK – that is how you find out your true product cost – now how about selling fees?
Amazon Selling Fees – If you are a basic seller fulfilling your own sales, then whenever something sells, you pay 15% + 99¢ on each sale in most categories. If you are a pro seller, you pay $39.95 per month + 15% of each sale.
Note – Some special categories such as Kindle accessories and computers are different but I am going to use 15% to keep things simple. If you sell in one of those other categories, just change the math to suit your needs.
So if you are selling more than 40 items per month, it is better to pay the $39.95 per month and get rid of the extra 99¢ on each sale. So let’s just use the 15% for the rest of this example.
Going back to our body lotion in the previous example, I sell that for $12.99. We use FBA which I will get to next, but let’s look at it if I were merchant fulfilling.
True product cost: $6.57
Selling price: 12.99
15% Amazon Commission: -1.94
Net After fees: 11.05
Less true product cost: -6.57
Gross profit: $4.48
That means my profit as a percent of the selling price works out to 34%.
Now let’s look at FBA
Amazon commission 15%: -1.94
Order handling fee: $2.04
Weight-based handling fee: -0.46
Net after fees: $8.53
Less true product cost: -6.57
Gross profit: $2.00
So as you can see I make a lot less money when I use FBA. But what you don’t see is that I sell about a dozen of this item a week in FBA, whereas when we were merchant fulfilling I only sold about 1 per week. So I am making $24 a week on this one product in FBA versus only $4.48 per week when I merchant fulfilled.
You may have noticed that I have not included shipping as the shipping credit Amazon gives me for this product actually covers the shipping cost. And there is no cost when Amazon ships through FBA.
eBay selling fees – Unlike Amazon, eBay also has listing fees that you pay when you list an item. First off, eBay gives you 50 free listing per month. After that you pay 30¢ per item whether it’s auction-style or fixed price listing. ($0.05 for fixed price Books, DVDs & Movies, Music, and Video Games listings) Since most full time sellers list far more than 50 items per month let’s just use that in our calculations.
Final value fees are the fees you pay when an item sells. (If you offer free shipping eBay also charges you the final value fee on your shipping cost). eBay used to use a sliding scale where fees went down as a percentage as the price went up, but earlier this year eBay went to a simple 10% final value fee on all sales with a $250 maximum fee on really high priced items.
Let’s use the same lotion product for this example:
Final value fee
Net after eBay fees
In addition to eBay’s fees, about 95% of all eBay sales are paid through PayPal. PayPal’s fees are 2.9% + $0.30. So on this sale, the PayPal fee would be 38¢ + 30¢ or $0.68 total. Take that away from you net after eBay fees and you are left with $10.71. Now let’s subtract our true product cost of $6.57 and you are left with a gross profit of $4.14.
So let’s compare our fees:
Amazon FBA: 2.00
Amazon merchant fulfilled: $4.48
As you can see, from the standpoint of pure profit, merchant fulfilling through Amazon is the most profitable. However, remember when I sell through FBA my sales are far higher than when I merchant fulfill. But let’s add another wrinkle. The latest multi-channel strategy used by professional sellers is to use Amazon FBA to fulfill your eBay (and website or any other venue) sales. Let’s look at how this works.
One advantage of using FBA to fulfill your eBay sales is that Amazon passes on their extremely low shipping rates to you, the seller. This means you can be more competitive on eBay. Here is an example:
Body lotion selling price with free shipping on eBay – $17.99
Amazon pick & pak and shipping cost – 5.95
eBay listing fee -0.30
eBay final value fee -1.80
PayPal fee -0.82
Net after fees – 9.12
Less true product cost- 6.57
Gross profit – $2.55
So I make 55¢ more selling on eBay through FBA than I do on Amazon, but less than if I sell it and fulfill myself. (Again we are assuming that when I ship myself shipping, is covered).
By now, you probably are wondering why do all this? OK – here is how it works in the real world:
When I sell on Amazon through FBA I typically sell about 12 of these per week and net $24, much more as we near Christmas or Mother’s Day.
If I sell these individually on eBay and charge shipping, I typically sell one or two per week. But when I offer free shipping my sales go up to about 4 per week. So my weekly net profit on eBay with Amazon fulfillment is right about $11.52. That means just this one product nets me $35.52 per week. And remember I have over 800 individual products on Amazon and over 200 of them also sell on eBay.
If you wonder why I don’t sell all 800 on eBay it is because the listing fees would run about $255 per month and many of those products just don’t sell that fast to justify that, so we only list our fast moving products on eBay.
And consider this – I don’t have to ship the item every time it sells. Since we average about 40 sales per day on eBay and Amazon, just think how much work it would be to pack and ship all of those items. Since our business is just my wife and myself, there is no way we could do that and would have to hire someone to help. And once you do that, there goes a big part of your profits.
eBay optional fees – In addition to the listing and final value fee, eBay has several optional listing enhancement fees. Some of these are listing designer (10¢), Gallery Plus (30¢), sub-title (50¢) and Bold ($2). Given the cost of this item, it would not make sense to use any of those service, but when I sell very high-priced items such as the $400 camera lens I recently sold, then I sometimes use Bold or Gallery featured.
(NOTE: This post was taken from some earlier information and, I know fees have changed since then, so to be 100% accurate you will want to check the latest eBay & Amazon fee schedules)