If you’re new to the Amazon FBA program, then one of the very first questions you should be asking yourself is: “how much can I earn?”.
No matter how impressive or revolutionary your product is, you shouldn’t begin to source it until you know whether you’ll actually be able to earn a profit. Otherwise you may come to find that the FBA program is not suitable for selling your item.
I’ll explain everything you need to consider when calculating the profit of sales you make via the Amazon FBA program.
How Do I Calculate Profits From An FBA Sale?
To work out the amount you’ll earn per sale, you need to factor three values into a simple formula.
The Three Values You Need
- Unit cost: how much each item costs you to source and send to Amazon, including all import duties and courier charges.
- Amazon FBA fees (made up of two parts):
- Referral fee: this is a flat fee amount Amazon charge for ‘referring’ a customer to your product. It’s usually 15%.
- Fulfilment fee: this is the amount Amazon charges for ‘fulfilling’ the order — storing, picking, packing, and delivering the item to a customer. The fee is dependent on the size and weight of your item.
- Item price: the amount you charge a customer for the item.
How Do I Calculate The Unit Cost?
It’s very simple to work out the unit cost per item. You should incorporate all regular item fees into this value.
Let’s suppose you purchased a batch of 500 products from a factory at £7.00 per unit, and incurred an import duty of £250 and a delivery charge of £300 to get it to an Amazon FBA centre. This is a pretty realistic scenario.
Note: you may pay for your products and/or fees in another currency (e.g. USD). Just convert everything to own currency before making the following calculations.
Total cost incurred:
- (500 x £7) + £250 +£300 = £4,050
Spread the cost over the 500 items to obtain the unit cost:
- £4,050 / 500 = £8.10
And that’s it. The total cost to source the item is £8.10.
How Do I Calculate The FBA Fees?
Here’s the part that really puzzles new FBA sellers.
The FBA fees are made up of a flat ‘Referral fee’ combined with a ‘Fulfilment fee’ — based on the dimensions and weight of the product. And to be truthful, Amazon’s ‘rate cards’ aren’t particularly easy to understand.
To save yourself some brain ache, there’s a much simpler way to work out your FBA fees. Just follow my step-by-step instructions using Amazon’s FBA calculator.
The Simple Method
- Open up your local FBA Calculator in your browser:
- Search for an existing product by either the ASIN or name. Make sure the product has a very similar weight and size to yours, and is sold within the same category.
- Enter the item price into the ‘Amazon Fulfilment’ column. This is the price you’re aiming to sell your product for — so be realistic with your estimate.
- If you’re sending the item to an Amazon warehouse yourself (and not directly from the source), divide the amount charged by the courier (usually UPS) by the number of units sent. If not, just put 0.
- Enter your unit cost in the ‘Cost per product’ field, as calculated earlier in this article.
- Hit ‘Calculate’ to bring up your ‘Fulfilment by Amazon fees’ as well as the ‘Net Profit’.
Breakdown of Amazon FBA fees from this example:
- The ‘Selling on Amazon fee’ of 15% is £4.50.
- The ‘Fulfilment by Amazon fees’ equate to £5.42, which is made up of the following:
- The total Amazon FBA Fees paid for this sale is therefore £4.50 (Referral) + £5.42 (Fulfilment) = £9.92.
Note that the profit of the sale is calculated using the formula from the first section of this article:
- £29.99 (Item price) – £9.92 (FBA fees) – £8.10 (Unit cost) = £11.97.
Note: there are cases where items of the same weight/dimensions are, rather oddly, charged different fees. I’ve noticed these discrepancies between variations of my own products. In this situation you can contact Seller Support.
What Additional Fees Are Charged By The FBA Program?
Aside from Amazon FBA fees, there are some additional costs that you’ll incur as a Seller. Most of these are variable, and cannot be estimated as easily as the per-sale FBA fees.
Monthly Subscription Fee
To become a ‘Professional’ Amazon FBA seller you need to upgrade from the basic ‘Personal’ plan and pay a monthly subscription fee.
- UK: £30
- US: USD $39.99
- Canada: CDN $29.99
- Australia: AUD $49
This amount is taken from your account balance (if it covers it). If not, it’s charged from your registered card.
You don’t need to become a ‘Professional’. But staying on ‘Personal’ means you’ll incur a ‘per item’ fee every sale. Furthermore, you’ll only have restricted access access too all of Amazon’s features.
There are two types of FBA storage fees you need to know about.
1. Monthly Storage Fees
If you have inventory stored in an Amazon warehouse at the end of the month, you’ll be charged a monthly storage fee. This is subtracted from your account balance, or edited using your registered card if you don’t have enough balance.
2. Long-term Storage Fees
Amazon conducts an inventory clean-up on the 15th of each month. They check for products that have been stored in their fulfillment centers for 180 days or longer and charge the seller a Long term storage fee, per cubic foot of storage used.
For products that have been in Amazon’s warehouses for longer than 365 days, you’ll incur a charge per unit.
Long-term storage fees are subject to change. And, like monthly storage fees, the cost is debited from your account balance or registered card.
My advice is to aim to store 3 months of stock at Amazon.
- UK & European Long-term Storage Fees
- US Long-term Storage Fees
- Canada Long-term Storage Fees
- Australia Long-term Storage Fees
When a customer return is issued for an order, the Seller’s item is returned to inventory (if it’s in acceptable condition), and the money is returned to the customer. However, the seller still incurs a fee from the sale.
The information provided by Amazon about the cost of returns is both oversimplified and confusing at the same time. In fact, there’s a lot of incorrect information on this subject. So I’m going to explain exactly how it works for my products.
Note: in cases where FBA inventory is lost or damaged when Amazon ships an order to a customer, Amazon takes responsibility. Reimbursement amounts are determined in accordance with the FBA lost and damaged inventory reimbursement policy (login required).
Example Refund Transaction
These figures are literally taken from my own sales.m reports.
I sell an item for £29.97 and pay £7.97 total FBA fee (£4.50 Referral + £3.47 Fulfilment). My Amazon Seller account is therefore credited £22.00 per sale.
If a customer returns the item, the £22.00 is effectively taken out of my account — but I’m also hit with an expense of £3.65. That’s my cost for a customer returning this item.
How is this charge calculated?
It turns out there’s a 20% tax of £0.90 applied to the £4.50 Referral Fee, which can be found in my statement for refund transactions.
- £4.50 (Referral) + £0.90 (Tax) = £4.32
This is the exact amount Amazon subtracts from the total FBA fees paid on the original purchase. In my case that’s:
- £7.97 – £4.32 = £3.65
Note: this net fee doesn’t simply show up us as “-£3.65” anywhere in my account. Rather it’s a “-£25.65” transaction that’s subtracted from the original £22.00 credit from the sale, making for a -£3.65 cost. But I wanted to explain the process more clearly.
Unfortunately refunds are extremely costly, and even more so if the item itself cannot be re-sold.
Removal & Disposal Fees
Leading on from customer returns are removal and disposal fees.
Amazon holds unsellable and recalled inventory for 30 days, after which it is automatically disposed of if a removal request is not submitted. Furthermore, Amazon reserves the right to dispose of inventory that poses a safety risk. Either way, Sellers are charged a disposal fee.
Should you decide to create a removal order for the products, it can take 10-14 working days to be dispatched, and up to 30 working days or more during holiday period (Prime week, October, November and December). You will be charged a removal fee within 45 days of the removal.
- UK Removal & Disposal Fees
- US Removal & Disposal Fees
- Canada Removal & Disposal Fees
- Australia Removal & Disposal Fees
If you run any Amazon ads campaigns (available to Professional accounts only), you’ll be charged from your account balance, or your registered card if there’s not enough funds.
“How expensive are Amazon ads?”, you ask.
The impact of your ad spend ultimately depends on the “Advertising Cost of Sale” (ACOS) for your campaign(s). You can learn more on that from my post: How To Run Amazon Adverts Effectively
Package Preparation Fees
You can choose to have Amazon prepare and package products for you — for an additional fee.
Personally, I don’t recommend doing this as most most items can be correctly prepped at your factory at a lower cost.
Amazon allows Sellers with European accounts to store their inventory in their local fulfilment centre (for me that’s the UK), and fulfil orders coming from other European countries. This is known as the European Fulfilment Network (EFN).
Sales from the continent pass additional fees onto the Seller. The customer does not pay anything extra to have your items imported from another country. EFN fees are charged according to Amazon’s FBA rate cards.
It is important the note that additional EFN fees are not applied to Pan-European enrolled products. This is because Pan-EU products are stored around the continent, meaning items are much easier to deliver to customers. The snag is that you, the Seller, are required to register for VAT in every country you store those items in. That’s a lot of accountants you’ll need to employ; which is very expensive.
For beginner’s EFN, the default option, is what you’ll need to sell your products across the continent. Just be aware that sales will incur heavier FBA fees than those made in your home country. So if your margin is low, you may find that EFN fees significantly eat into your profits.
Personally I just charge a little extra for my items in other European marketplaces outside of the UK. That offsets my EFN fees.
Can I Make a Profit from FBA Despite All The Fees?
Understandably, all of these fees might scare you off. But it’s the FBA fees and your profit margin that you’ve really got to pay great attention to when you start out as an Amazon Seller.
As a rule of thumb — assuming you’ve sourced a product that’s suited to the FBA program — you want to sell it for at least 3x the unit price. While there are exceptions to this rule, it’s a very quick and easy formula for determining whether you can make a profit using FBA.
In many cases you may use this formula and conclude “I can’t charge that much for my item”, or “I’m not making enough per sale”. And that’s completely normal: you might just have to keep on searching for another item.
To learn more, check out the following posts: