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:
- 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)
- Order Handling – Media Items do not incur a handling charge. Non-media pay $1.00 per order.
- Pick & Pack – Media items are charged $0.50 for items under $25.00 and $1.00 for items over $25.00.
- 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 your overall cost)
- Inbound Freight – Shipments from your office to Amazon’s warehouse. Amazon has a service where you can print out UPS shipping labels using their UPS rates, which saves a lot of money on inbound 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 than $0.01 per label.
- Direct Labor – This is the cost a seller incurs to process and ship items to Amazon.
So let’s 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 minuscule. 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)
- Amazon Referal fee – 15% on media items (this fee varies by category and includes all transaction processing fees) is $1.37 ($9.16 x 15%)
- Variable closing fee – $0.80 on CDs and DVDs
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 let’s 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 commission 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 fulfillment 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.