Amazon Fees: What eCommerce Business Owners Need to Know.

Giuseppe Garcia-Salamone
Giuseppe Garcia-Salamone
A co-founder of Tentho. An exceptional and seasoned accounting expert, a tech-savvy thinker who solves financial puzzles. An educator at heart.

 

As an eCommerce business owner, it is important to be well-informed about the different fees Amazon charges. One of the most common misconceptions about Amazon is that it’s free to sell on the platform. However, there are a number of seller fees associated with Amazon that businesses need to be aware of.

In this blog post, we will break down each of Amazon’s seller fees and discuss the implications for businesses selling on the platform. We’ll also provide some tips on how to minimize these costs.

By understanding Amazon’s seller fees, businesses can make more informed decisions about whether or not to sell on the platform.

Breaking down Amazon's Seller fees, and their transactional impact on an eCommerce business.

Amazon seller fees are made up of four main types: referral fees, variable closing fees, and fulfilment fees (FBA), and advertising fees.

Referral Fees: Amazon charges a referral fee on every item sold. The amount of the referral fee is based on the category of the item sold. Referral fees are a percentage of the sale price, and they vary by category. For example, the referral fee for a book is 6%, while the referral fee for a piece of jewelry is 20%.

Source: https://sell.amazon.com/pricing

Variable Closing Fees: Variable closing fees are charged on a per-item basis and depend on the price of the item sold. Variable closing costs include things like shipping and payment processing fees. They can range from a few pennies to several dollars, depending on the item being sold.

Source: https://sell.amazon.com/pricing

Fulfilment fees (FBA) are charged for storage and shipping and can vary depending on the size and weight of the items you’re selling. FBA fees are charged by Amazon when you use their fulfilment services. These fees cover the cost of storing, packing, and shipping your products.

https://supplychain.amazon.com/pricing

Amazon advertising fees for eCommerce Amazon sellers can be quite complex. For example, sellers typically have to pay a fee when someone clicks on their ad, and they may also be charged additional fees if their ad results in a sale. In addition, advertising on Amazon can be time-consuming, and sellers need to be prepared to invest time in creating and managing their ads.

https://supplychain.amazon.com/pricing

The impact these fees have on your business depends on how you choose to account for them. You can either

–      absorb the fees into the cost of goods sold (COGS) or

–      pass them on to the customer in the form of a handling fee during their online shopping checkout process.

 

If you choose to absorb the fees into COGS, your margins will be lower but your prices will be more competitive. If you choose to pass the fees on to the customer, your margins will be higher but your prices may not be as competitive.

 

Transaction fees on Amazon can have a significant impact on businesses. For smaller businesses, every sale counts, and even a few cents in fees can add up. For larger businesses, though, the impact is lessened because the volume of sales makes up for the fees incurred. If you’re not careful, those fees can eat into your profits. That’s why it’s important to understand how they work and how to minimize their impact on your bottom line and cash flow. 

Adopting a profitable and competitive pricing model for your eCommerce business.

There are a few key factors to consider when pricing your products on Amazon.

–      Cost. Make sure you are factoring in all the costs associated with your product, including the cost of goods sold (COGS), Amazon fees, shipping costs, shipping credit, and any other miscellaneous costs associated with getting your product to the customer.

–      Marketplace. It’s important to set your prices competitively based on what other sellers are offering. Goods that are in high demand can be priced slightly higher, while items with less demand can be priced lower.

–      Profit. You need to make sure you’re setting prices that will allow you to make a profit.

–      Cash Flow. It is imperative that you understand how your pricing affects your cash balance.

Ecommerce is a fiercely competitive landscape. To succeed, you need to have a well-thought-out pricing strategy that compliments your type of business model. There are a few different pricing models you can consider for your eCommerce business on Amazon. Each has its own pros and cons, so it’s important to choose the right one for your products and your overall individual seller business goals.

–      The first pricing model is called cost-plus pricing. This means that you add a fixed markup to the cost of your products. The advantage of this approach is that it’s simple to calculate and easy to implement. However, it can be challenging to compete on price if your competitors use a different pricing model.

–      The second model is called demand-based pricing. This means that you base your prices on what customers are willing to pay. This can be a more effective approach, but it’s also more complex and difficult to implement.

–      Finally, you may also want to consider using a subscription-based pricing model for your eCommerce business on Amazon. This means that customers pay a monthly or annual fee to access your product offerings. This can be an effective way to generate predictable revenue, but it’s important to make sure that you’re offering enough value to justify the price.

By understanding all of the costs associated with selling on Amazon, you can price your products appropriately and ensure that you are making a profit, maximizing cash flow, and reaching your business growth goals.

Profit Implications of Inventory management for Amazon Sellers

Fulfilment by Amazon, or FBA, is a process that can have a significant impact on your bottom line. By understanding how it works and how it can affect your business, you can make informed decisions about whether or not to use it.

FBA is a service that allows you to send your products to Amazon, where they will be stored, processed, and shipped to customers. This can save you time and money on fulfilment, but it comes at a cost.

Using FBA can help you lower your shipping costs and/or shipping rates since Amazon handles all of the packaging and shipping for you, passing on some benefits of the Amazon prime delivery service. However, you will have to pay for storage and processing fees. You’ll also need to factor in the cost of shipping your products to Amazon in the first place.

Weighing the costs and benefits of FBA is an important decision that can impact your business in a number of ways. By understanding how it works and what the potential implications are, you can make the best decision for your company.

Streamlining the bookkeeping and accounting of Amazon transactions.

If you have an eCommerce business, and you wish to start selling on Amazon, you need to be aware of the implications this has for your bookkeeping and accounting. First and foremost, you need to make sure that all of your Amazon transactions are properly recorded in your books. This includes not only the revenue streams for sales themselves but also any fees associated with using Amazon (e.g., listing fees, item fees, referral fees, shipping services fees etc.).

Additionally, you need to be mindful of how these transactions will impact your financial statements. For example, sales made through Amazon will likely increase your revenue but may also increase your costs of goods sold (if you’re using Amazon’s Fulfilment Center by Amazon service). Therefore, it’s important to incorporate Amazon into your full financial picture – both your profit and loss statement and balance sheet – in order to get an accurate picture of your online business’s financial health.

 

Here are a few tips:

 

– First, create a separate bank account for your Amazon online store transactions. This will help you keep track of the money coming in and going out, and it will be easier to reconcile at the end of the month.

 

– Second, set up a system for tracking your inventory. This way, you’ll always know how much stock you have on hand and can easily adjust your prices if necessary.

 

– Finally, make sure to keep good records of all your transactions. This will help you when it comes time to file your taxes or if you ever need to review your finances.

 

By following these tips, you can ensure that your Amazon transactions are accounted for in your full financial picture.

Income and sales tax implications for eCommerce Amazon Sellers.

eCommerce businesses have to take taxes into account when they are planning their business model and determining their pricing strategy. Ignorance of the tax laws pertaining to eCommerce sales is not an excuse that will be accepted by the tax authorities. There are two key types of taxes eCommerce businesses need to be aware of: salestax and income tax.

–      Sales tax is a tax on the retail sale, lease, or rental of tangible personal property as well as certain services.

–      Income tax is a tax on the net earnings of a business.

Depending on the state, eCommerce businesses may be subject to both types of taxes. As an example:

  • In some states, such as Washington, there is no income tax on income made through Amazon.
  • In other states, such as California, sellers must pay income tax on their earnings from ecommerce activity.
  • In California, Amazon sellers may be subject to sales tax unless they meet certain requirements.

While Amazon collects and remits sales tax on behalf of sellers and files the related sales tax return with the applicable state, it’s the responsibility of sellers to accurately track where their business has nexus and to provide Amazon with the proper tax information for reporting purposes.

As an Amazon seller, it’s important to be aware of the income and sales tax implications in your state, as well as the state you choose to sell in. Research the tax requirements in each state in which you plan to do business and determine how to comply with those requirements. Failing to do so could result in penalties, interest, and potential legal action. To ensure you are in compliance with state regulations, it’s best to consult with a tax professional.

Set the right strategy for your eCommerce Amazon Seller business.

Amazon is a great platform for eCommerce businesses to grow and sell their products. However, it’s important to be aware of the different seller fees and how they may impact your business. By understanding Amazon’s fee structure and adopting a profitable pricing model, you can streamline your bookkeeping and accounting processes while maximizing profits and cash flow. Taking tax complexities into account for both income and sales taxes will keep you on the right side of the fence with the tax authorities.

 

The right processes and strategy can give you the confidence and clarity you need to grow your Amazon Seller eCommerce business. Discover which business model innovation strategies are right for your business.

 

– Learn how to price your products for maximum profits 

– Streamline your bookkeeping and accounting processes 

– Get the most out of Amazon Seller eCommerce

 

Contact us to get started today.

#latestpost

5 Tips to Help Your E-commerce Business Prepare for the Holiday Shopping Season

Every year, businesses in the e-commerce world, face heightened sales during the final months of the year. With holiday-related gift-giving in full swing, this is a great time for many businesses to earn a large bulk of their revenue. Part of having a successful Q4 is planning ahead to utilize end-of-the-year accounting strategies and tactics that can help your company to have a prosperous holiday season. This post will highlight five best practices e-commerce companies can utilize to make the influx of holiday consumer purchases easier to navigate from an accounting perspective. 

Read More