Sunday, February 24, 2008

My Cost to Ship Via FBA (Fulfillment by Amazon)

This was originally part of another post, but I thought it was better suited on its own. If a small business owner is considering using FBA, his/her decision almost always comes down to cost. So I thought I would detail my costs to fulfill an Amazon order through FBA and compare it to what it used to cost me to fulfill the same item at Glacier Bay DVD.

This info is based on selling media items through Amazon.com and does not deal with Basic Fulfillment costs which are higher. Basic Fulfillment is for shipments outside of Amazon.com (eBay, Website, etc.)

First let me explain Amazon's FBA Rate card, for Amazon fulfilled orders, based on a single DVD:
Amazon charges sellers for four things:

  1. Inventory Storage - Amazon charges a fee to store your items until they are shipped to fulfill an order. An avg. DVD would cost $0.02 to store for 30 days. They only charge you for the time the item is in the warehouse, so if it sells in 15 days, your warehouse charge would be $0.01. (Warehouse fees do increase during the 4th Quarter)
  2. Order Handling - Media Items do not incur a handling charge. Non-media pay $1.00 per order.
  3. Pick & Pack - Media items are charged $0.50 for items under $25.00 and $1.00 for items over $25.00.
  4. Weight Handling - The rate is $0.40 cents per pound but Amazon only charges you for the actual weight of the item to the nearest ounce. If a DVD weighs 4 ounces it would cost $0.10 cents in this calculation. I am used to calculating the packaged weight for postage but Amazon uses the item weight before packaging.

Additional related costs: (These are costs that you will need to calculate in your overall cost)

  • In-bound Freight - Shipments from your office to Amazon's warehouse. Amazon has a service where you can print out UPS shipment labels using their UPS rates, which saves a lot of money on in-bound shipments compared to UPS retail rates.

  • Labels - A label has a product identifier specific to Amazon Fulfillment Services, including a barcode of the product identifier, item description, and item condition. They are standard 1" x 2-5/8" labels and when purchased in bulk will run you less tha $0.01 per label.
  • Direct Labor - This is the cost a seller incurs to process and ship items to Amazon.

So lets compare an item sold and shipped through Amazon.com and fulfilled by FBA, with that same item fulfilled by Glacier Bay DVD (my previous company). My Glacier Bay numbers may be a little dated because I believe there has been at least one postage increase since I stopped selling.


For this example I am using a DVD called The Ghost And Mr. Chicken which I am selling for $9.16 and weighs 4 ounces before packaging. (This item may be sold by the time you read this so please click on the image to see what it looked like in search)

This comparison includes Amazon.com fees and assumes that the seller has a Pro Merchant Account.

Processing and In-Bound Freight Fees: ($0.20 cents per item)
  • In-Bound Freight - My shipments to Amazon average $0.10 per item, using Amazon's in-bound UPS program.
  • Labels - Labels costs me $0.01 cents per item.
  • Direct Labor - It takes me roughly 3 hours to process and ship around 300 items to Amazon. If I were to pay an employee $8.50 per hour to do this job (3 x $8.50 = $25.50) it would cost me $0.09 cents per item (300 items). This doesn't include any additional G&A burden for that employee.

Amazon FBA Fees: ($0.62 cents)

  • Warehouse Fee. This fee is charged by actual size, based on a $0.45 per cubic foot rate and is charged only for the time the items are in the warehouse. An avg. DVD costs me $0.02 a month for warehouse fees. Since 75% of my items are sold within 30 days. This amount is miniscule. My total warehouse fees for January were under $3.
  • Fulfillment Fees: Since I only sell media, my pick and pack fee, for this item is $0.50
  • Weight Fee: My weight fee for this DVD is $0.10. FBA charges you for the actual item weight, to the closest ounce. Boxsets 2 Disc sets are obviously more.

Amazon Marketplace Fees: ($2.17)

My total cost to list, sell and ship "The Ghost And Mr. Chicken " after 30 days, using Amazon's FBA is: $2.99 (Inbound Fees $0.20 + FBA Fees $0.62 + Amazon Marketplace Fees $2.17)

Now Lets look at Self Fulfillment:

  • Pick, Pack and Ship - $1.81, includes facilities burden, customer service burden, packaging, delivery confirmation, direct labor and postage. These numbers are based on what I remember it used to cost me 2 years ago.
  • Amazon Marketplace Fees - $1.73 ($6.18 x 15% plus $0.80 variable fee)If I was self fulfilling the item, I would charge $6.18 for the item and get the $2.98 S&H reimbursement from Amazon. My total revenue would be the same but I would pay less commision to Amazon.

My total cost to list, sell and ship "The Ghost And Mr. Chicken " after 30 days, fulfilling the order myself is: $3.54 (Pick, Pack and Ship $1.81 + Amazon Marketplace Fees $1.73)

So you can see, by using FBA to fulfill your orders you can save $0.55 cents (in this scenario) and you do not have to worry about customer service, warehouse expense, packaging, delivery confirmation, insurance, shipping and customer service employees, going to the post office, etc. I could go on and on.

If you are an online media seller and sell on Amazon, just replace your costs to ship with my costs from Glacier Bay DVD. See how much you could save.

IMO, FBA, is the ideal fulfilment method for Amazon.com orders (especially media sellers). But don't take my word for it - test it! Take 100 skus, that normally sell well on Amazon and send them to FBA, compare the sales velocity and costs to your current self-fulfillment velocity and costs. After you have the data make your decision.

One more thing: Many of you may wonder why I provide all of my sales info, well it's because I'm a blogger that sells, not a seller that blogs. I sell on Amazon, so I have something to blog about and I can give you the real skinny on how things work. Now, that doesn't mean I want you to always beat my price on Amazon, so be kind when you see any inetmediasource listings and remember who gave you the scoop. Heck, buy one of my items and see how FBA works from the customer's perspective.

21 comments:

Anonymous said...

That's interesting. We're a used bookseller of different sized books not standard size DVDs like you have that is a natural for FBA. We are looking to try FBA on a very limited scale to see what happens. The system definitely has some kinks still to be worked out from what I've read. Not getting a reimbursement for shipping inventory to them is a negative. Their stuffing an Amazon catalog in FBA boxes is a negative. If I'm paying to have inventory sent to a fulfillment house (that I'm also paying a monthly fee to, plus all the other charges), I dang well better be able to have my own inserts in the box.

Randy Smythe said...

Anonymous, I just factor the cost fro freight-in into my numbers and it works for me. Using Amazon's UPS rates halps a ton. Books would be a different story because of weight and size issues.

I certainly think it is worth testing out. Just choose some of your best sellers and check out the process.

Anonymous said...

If you want an automated way to get an estimate for your FBA costs, checkout use this online amazon fee calculator.

Anonymous said...

This looks like such a great service but the Amazon branded boxes and inserts may be a deal-killer for me.

Cliff said...

Hi Randy,

First off, hope you don't mind revisiting these old posts, items such as this FBA series though seem to me something helpful to update.

Okay, Amazon has had my first package just a few weeks now, and I've sold a few of the DVDs I shipped them. I'm not winding up with the amount of money I expected though, is this right:

Orders
Product charges: $50.97
Amazon fees: ($23.92)
Other: $7.46
Total: $29.03
Refunds
Product charges: $0.00
Amazon fees: $0.00
Other: $0.00
Total: $0.00
Other Transactions
Total: ($4.27)
Balance:
$24.76

The "Other Transactions" amount is a fee for UPS shipping label towards my second package.

This looks like Amazon is pocketing 40% of my sales and if you include shipping I'm only getting to keep 50% of what I sell through them.

Is this typical? The handful of DVD's I've sold so far have been in the $6.99-$11.99 range.

The only advantage I'm seeing so far is that I don't have to pack and ship the orders myself (which I do love), but it does take some time to prepare each order for Amazon.

I guess what I'm wondering is if I'm signed up in the correct program. It seems like Amazon is taxing me in the high bracket. Here's a typical single transactions fees:

Product charges
Gallipoli Qty: 1 $9.99

Promo rebates
Shipping: ($1.65)

Amazon fees
Commission: ($1.50)
FBA per order fulfillment fee: $0.00
FBA per unit fulfillment fee: ($1.00)
FBA weight based fee: ($0.06)
Fixed closing fee: ($0.99)
Variable closing fee: ($0.80)

Other
Shipping: $1.65
Transaction Total $5.64

Bottom line:
I got $5.64
Amazon got $4.35

That seems off-kilter. Is it typical?

Thanks, as usual,
Cliff

Randy Smythe said...

Cliff, do you have a Pro-Merchant account?

It looks like you are in the Easy Sell program not Pro-Merchant. They are charging you 50 cents for per item plus the 99 cents per sale.

If you were in the Pro-Merchant program the 99 cent fee and the additional 50 cent fee would go away.

Hope that helps.

Cliff said...

No, Randy, Easy Sell.

I guess if I'm going to keep this up I'll have to look at the Pro Merchant, but at $39.99 per month I'm going to have to get enough stock to them where I'm turning over at least 27 items per month, so the $39.99 becomes cheaper than the $1.49 per item difference.

I'm glad that I'm basically just sending them my own stuff so far. It's a pricey test, but basically I'm just cleaning house of my media items at this point.

Now, Randy, am I limited to the Media categories through either the Easy Sell or Pro Merchant accounts? In other words, if I want to list some Movie Cards or Magazine Back Issues in the "Everything Else" category (and ship myself, not through FBA), can I do that with either program, or is there something else I'd need to sign up for?

Thanks, what I'd really like to see is Amazon stick your face on their help department because you're a lot clearer!

--Cliff

Randy Smythe said...

Cliff, you would have to have a pro merchant account in order to add listings to Amazon.

EasySell is strictly an FBA program so you can't list self-fulfilled product through EasySell.

Make sure to adjust your pricing during the test. Account for the additional fees if you use EasySell and see how fast the items move.

I'm going to be using EasySell for my Dad's library because it is all books and will not move very fast. I just account for all of that in my pricing and then list accordingly.

If you need velocity EasySell sure isn't the way to go.

Cliff said...

Hmm, I'm pretty sure I am Easy Sell, but I did sell one CD to a customer that I shipped out myself before I converted all of my items over to FBA, so does that mean I'm not Easy Sell?

I think I'm going to have to break down and write Amazon and ask them exactly what my account is, I'm super confused now! As a customer on the main site I've had nothing but trouble with their customer service over the years (even though they can never answer any questions I do like how easily they'll implement a refund!), I hope the Seller help can make a bit more sense for me.

I can't argue with the sales though, they're coming quick, I just don't know exactly what I'm being charged for!

Anonymous said...

Randy,

Thanks for the information. My experience with FBA is that this program is a total scam. Here is why:

I purchased about $500 worth of one particular item I knew sold well on Amazon.com. Amazon's listing for the item was the lowest price to be found on Amazon, but I knew I could beat it. Little did I know at the time, but as soon as I set my price to an amount that was slightly lower than Amazon's, Amazon would actually lower its price to beat mine, creating a price war between myself and Amazon.

This problem is related to the much coveted "buy box." The buy box is a big box appearing on Amazon's web pages that provides the customer with a quick and easy way to order the item. Without it, it's very difficult to sell on Amazon.com. Generally, you need to have the lowest price to have the buy box, so what this all boils down to is, Amazon will beat your price each time you lower it, and be awarded the buy box when it does, which means you're basically stuck with inventory you have paid for in advance and cannot sell.

This program was sold to me by an aggressive sales person at Amazon who essentially would not stop calling me until I tried it. I am now in the process of trying to get Amazon.com to return the items to me. Participating in this program and giving Amazon.com the benefit of the doubt that they would treat me fairly was a huge and expensive mistake on my part.

Anyone wishing to participate in this program should be very, very careful. I would recommend against it.

Randy Smythe said...

Anonymous,

I have heard stories like that in the past and I'm sure in some categories this is very true. I've heard that some category managers compete actively with 3P merchants in their category while other treat things fairly.

So I'm sure this doesn't happen in every category.

My experience with FBA is strictly related to media items and I have to say, I've not had any issues with them. I still make extra money every month without having to lift a finger to ship orders or handles customers.

James Thach said...

Hi, Randy.

I'm a small publisher, considering FBA for my fulfilling. I have several questions that I haven't been able to get answers to from their website.

1) If I use them to fulfill sales from my outside website, do I still pay the 15% sales commission?

2) Do they ship to Canada? (They said in a webinar that they do, but their website says they don't.)

3) If I warehouse my whole stock of books at Amazon, can I then have them ship product to, say, a wholesaler's warehouse, or back to me, as the need arises? In other words, can I have them do my shipping that isn't attached to sales? If so, do you know what their rates are like?

4) If all the books I ship to them need to be stamped with their FBA label (and I'm talking about 4,500 books), is there a relatively easy way of doing this? Do I really have to unpack all the cartons and individually affix stickers?

Lastly, is there a way to contact Amazon directly with these sorts of questions? I hate to bug you with them all.

Thanks very much,

James

Bob said...

For sure Amazon's FBA prices are reasonable the problem is their incompetence. I have been detailing all of the problems that occur at www.amazonscam.com

midwest fulfillment services said...

I just factor the cost fro freight-in into my numbers and it works for me. Using Amazon's UPS rates halps a ton. Books would be a different story because of weight and size issues.

WeskerQ8 said...

the question is, when do they charge me? do they charge me the fees before my item sells?

Anonymous said...

I don't see the cost associated with shipping to the Amazon warehouse accounted for. Is this something I missed? I would like to know the rates before I pursue any further but can't find them anywhere.

Thanks

oregontrailster said...

I found your blog while doing a we search about Amazon FBA. I am thinking about how we can use this & am curious about your thoughts about FBA now that more than 5 years have passed.

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