There are a lot of well known costs of doing business Amazon, but unfortunately there’s some costs that a lot of brands don’t take into account when they’re figuring out their bottom lines on Amazon. Costs like referral and FBA fees (if you’re doing FBA) are almost universally well known (or become known once you start selling), but there are other costs that are both profit killers and are more often than not overlooked. I’ve chosen four of the most under the radar or hidden costs that brands don’t really consider when they’re figuring out their bottom lines on Amazon.
1. Professional Selling Plan
This one is pretty straightforward: if you plan on selling more than 40 units a month and want to have certain capabilities like access to order reports and the ability to sell in various categories, you need a professional selling plan, which costs $39.99/month.
2. Returns
Returns are a bottom-line killer on Amazon and are probably the most overlooked and misunderstood cost of doing business on Amazon. As anyone who’s bought a product on Amazon and tried to return it knows, a customer can basically return anything bought on Amazon for any reason (even if it takes a few minutes on the phone with customer support). It doesn’t take much effort to get the 30-day return window extended or to send back an opened or used product. While this very flexible return policy is great for buyers, it’s horrible for sellers.
When Amazon receives a previously opened product back from a customer, the seller is usually not able to sell this product again. In some instances, Amazon will even charge the seller a fee to take back the product. In these instances, the seller not only loses money on the product, but also on the transaction. What can be worse, too many returns can hurt keyword rankings and can be even lead to a listing being temporarily disabled by Amazon (if the return rate is considered abnormally high).
For these reasons, it’s critical that you limit your returns to the extent possible. While returns in any retail business are unavoidable, on Amazon, we can limit their occurrence through communicating with customers effectively and setting expectations before the customer places the order. If you have a listing that’s been up for a little while and has generated sales, you will probably start to see customers complaining about some of the same things over and over again. These concerns are probably going to be sent to you through the messaging platform, posted in product reviews, left as seller feedback, or posted in the question and answer section of your listing. If you start to see the same questions and concerns, then you should address them either in your title or bullet points so they are hopefully seen by potential customers.
You want to be upfront and not try to hide anything; include as much information as you think is necessary to set realistic expectations (as a side note, we’ve noticed Amazon getting increasingly strict about taking down listings that make what they consider to be false or misleading claims in listings). The customer will inevitably discover whatever it is they don’t like about your product, which will lead to a return, and maybe even a bad review on top of that. You should do everything you can to stop this from happening.
3. Sponsored Ads
As I have said many times before, any brand that sells on Amazon needs to master Amazon Sponsored Ads in order to be successful in the long term on Amazon. While advertising costs are not hidden in the same sense that returns are, we’ve found that most brands (especially ones that are new to Amazon) don’t know how to appropriately budget for them. Here are a few rules that we like to tell the brands that we work with about sponsored ads:
a) in the beginning budget around $50 per day per product for Amazon Sponsored ads. You’re probably not going to hit this budget unless you’re really aggressive with your bids (which sometimes is a good thing), but you want to have that ability to increase your spend without killing your marketing budget.
b) as the ads becoming optimized (i.e. more efficient), we recommend increasing the daily budget (sometimes up to around $300 per day). The long term goal is to have a healthy balance of paid and organic sales and to keep the flywheel in motion.
c) ad spend should be a function of both aggressiveness and long term goals on Amazon. If you want to grow revenue as quickly as possible, then you’d probably want a higher budget for ads than a more cautious or conservative brand that doesn’t want to grow so quickly would want.
4. Long Term Storage Fees
Similar to returns, long term storage fees are an absolute killer and are widely overlooked. Long term storage fees are fees that you get assessed for essentially not selling through your products fast enough and letting them sit in Amazon’s fulfillment centers too long. Per Amazon, on the 15th of each month, Amazon conducts an inventory cleanup. On these dates, inventory that has been in US fulfillment centers for more than 365 days incurs a long-term storage fee of $6.90 per cubic foot or a $0.15 per-unit long-term storage fee, whichever is greater. In order to avoid these fees, you need to make sure you are constantly monitoring your inventory to see how long it has been sitting in Amazon’s fulfillment centers. If your products are at risk of incurring long term storage fees, it’s probably a good idea to take swift action to get these products sold as quickly as possible!
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