New Seller Fees Just Made Selling On Amazon Harder — But NOT Impossible
A recent article in Fortune sums it up well: these new Amazon fees are complex and expensive. And if you are importing products to sell on Amazon it will most certainly push you to use more of their services (and give them more of your profits).
Making More From Sellers Like You
Amazon has just passed the dubious milestone of making more money from small and medium sellers than they do from their own sales. That means small sellers who are just trying to make a living will find themselves the primary focus of Amazon trying to make more money by you making less.
How are they going to make more money?
They are charging additional fees on inbound placement to the warehouse as well as a new low-inventory fee set to start in April. These are not minor fees. They are based on size and weight of what you sell and can be has high as $6 per item.
The article sums up the problem well: it is not impossible to make money with this new structure but you have to “precisely thread the needle to not get completely killed” as the CEO of Amazon seller Jool Baby eloquently puts it.
As I enter year two of my selling journey, I have to agree. The tools I created last year to manage my new business are even more important this year as I try to grow. Because it is not just low-inventory fees you have to worry about: they also charge for too much inventory. And keeping these in balance will be your second biggest challenge (the first being making sure your product is percieved as outstanding by your customers).
Manufacturing Vs Importing
At the heart of this change is desire to control 3PL.
3PL stands for 3rd Party Logistics. It is essentially a warehouse and delivery mechanism that allows you to store and send inventory as needed.
Let’s assume you are ordering a widget from China to brand and resell. The minimum order quantity is 10,000 units. But you know that is several months of sales and you can’t send Amazon that much without incurring fees for taking up too much of their warehouse space. So you contract with a 3PL company that will store 8,500 units and send 1,500 to Amazon every month. Amazon wants that 3PL contract fee. It’s as simpleas that.
But what if you don’t order in great quantities and need a 3PL?
That’s my challenge as an inventor and manufacturer. Chances are, Amazon won’t make life easy for you either. You are going to have to ship their desired quantities to each of their individual warehouses at the levels they tell you or face “low-inventory” fees. Knowing how much to produce and when to send inventory just got more complicated.
And since this is a new program, it’s not clear how complicated or expensive it will be (and how accurate Amazon’s low-inventory levels will be). As far as I can tell at this point they are asking me to keep about 6 week of inventory on hand at all times. But if you have a product that shows any seasonality, their lack of understanding of your trends can mean they are MAKING you pay for either too much inventory or additional fees for what they consider “low inventory” levels on any day. It’s going to be a very hard game to win.
So for many people that is going to mean they have to raise their prices or get out of the game.
But the tools I created last year will still help. Understanding your own supply and demand (as well as how long it takes Amazon to process orders) will allow you anticipate orders and manage your supply chain. If Amazon projects you should have 500 units on hand but you know you are going into a slow month (usually due to seasonality) then you have to ignore their inventory demands and raise your price to ensure you still make money while they demand higher fees. You will need to be the expert on your product, not rely on Amazon to tell you what to send.
As I detail in the book, if you just rely on what they tell you to send, and it does not sell, you will be on the hook for monthly storage fees which also eat up your profits. The only way to win is to have the knowlege and tools to be the expert on your own business so you can navigate your journey as the captain of your own ship, not just a deck hand taking orders from someone else.
Remember the first thing I said in my book: no one (including Amazon) will ever care about your business as much as you do. Amazon’s objective in life is not to make you a success, it is to make money for themselves!
These new rules will not stop you from making money on Amazon, they will just require that you understand your business and act in your own best interests. These are the same challenges I successfully navigated when I wrote my book and the same principles that have allowed to to grow every month since I published. The game has not changed but the rules have just been tweaked in Amazon’s favor. But you can still win as an Amazon seller: the path to success remains knowing your business and acting in your own best interests at all times.
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