This coming February, Amazon will raise their FBA fees. I could create an entire post on the details of these fee changes, but all of the information you need is available right HERE. Instead, I decided to create a post about the effects this may have on your business. I also want to talk about my feelings on Amazon, Ebay, fees, and the e-commerce market in general.
SHOULD YOU BE WORRIED?
The short answer to “should you be worried” is no. Rising fees often trigger fear and panic among sellers- particularly individual and small sellers who struggle with finding profitable products and have very little margin to work with. If you click the link above to Amazon’s page on this, you’ll see that the average increase of fees for most standard sized items is less than 10 cents (a bit more for heavier items). Still, whenever fees increase whether on Amazon, Ebay or elsewhere, you’ll find no shortage of sellers participating in forums and blogs acting as if the world has finally come to an end. As someone who has lived through these fee increases several times now, I wanted to share my perspective which may help put your mind at ease.
10 CENTS OR HUNDREDS OR THOUSANDS OF DOLLARS?
First, please understand, I am not minimizing the fact that a 5-10 cent per product increase has real ramifications for your business and mine. Consider this: from January 1st to this moment (about 10:00 AM December 4th) I’ve sold 14,903 products on Amazon alone. If my fees increase by 10 cents per products, that is an extra $1,490 that I will be paying out in fees (even more by the end of the year!) This is no small amount of money! (I can certainly think of some better uses of $1,500!) A fee increase like this can certainly have a big affect on the the money you keep in your pocket from your sales, but this isn’t the only factor to consider…
THE NUMBER ONE REASON IT’S NOT AS BAD AS YOU THINK
The first time fees were raised on me, I freaked out too! At the time I was selling a lot of media (and I still do!) which only profited between $.05 and $2.00 per title. Obviously if I’m only making 5 to 10 cents on a particular title, I thought a fee increase like this would essentially kill the profit for these products. It turned out, this was simply not the case. Why? Because every seller gets hit with these fees. This means there are countless other sellers in your same situation. No smart seller is simply going to take an extra $100, $500, $1000 or $5000 (etc) hit for the year because of a fee increase! Smart sellers will adjust their business accordingly! For those who choose to continue selling low margin products like media (as I did), this means slightly raising their prices to compensate! When the fees increase, you’ll see prices increase. Thankfully since we’re only talking about 5 to 10 cents per item (for most standard sized items), the price increases will not even be noticed in most cases by consumers! The result is this: very little effect on sales and very little effect on profit. Other sellers will change their product lines (which I’ll talk about more below) or modify and adapt their current product lines to stay competitive and profitable. Still other sellers will drop out of the game completely due to fear or frustration. This is all good news for you! In short, when fees change, everything changes. When we hear about fees increasing, many sellers get this idea in their heads that the fees are going to increase, but everybody will just continue what they are doing with the same products and prices and this will ultimately force them to be squeezed out. I can tell you from experience that this kind of thinking is just not true.
YOUR OPTIONS: FIGHT OR FLIGHT
I’ve covered why we shouldn’t be worried about these fee changes and how everything will change as a result which will ultimately be good for us, but this doesn’t mean you should sit back and do nothing! The fact is, these fees are likely to increase every year- this is just one small part of economics and inflation (remember candy bars don’t cost 5 cents anymore and the price of gas is in the U.S. has seen an almost 300% increase in a 10 year period!). It’s important not to react in fear, but to be prepared. Here are two great options to deal with these fee increases
FIGHT: HOW TO ALLOW THE CHANGES TO MOTIVATE YOU!
Try to see fee increases (and other policies that Amazon implements- like DVD restrictions for instance) as a challenge or a problem to be solved rather than a deathblow to your business! Realize that there are things you can’t control (like the fee changes) and things you can control (like how you respond to it). Here are a couple of simple ideas to keep you going:
1. Increase your prices slightly. Come February, you’re likely to see numerous small increases in price on items from third party sellers. Increase yours as well. Just stay competitive. As I’ve mentioned before, it is not essential to be the lowest price so long as you’re in a competitive range (if the lowest seller is $10 and the 5th seller down is $15.00, try $10.99 or $11.99)
2. Look into selling new products. If you’re in the arbitrage or media stage, now may be a good time to think about venturing into wholesale and eventually private label products. Particularly if you’re relying on a lot of low profit products, now is the time to diversify and find products that will bring in some serious cash! If you plan to stick with arbitrage, it may be a matter of simply saying “no” to more items (tighten your criteria for maximum profit and “reasonable” sales rank- this has been a big part of my strategy lately!)
The point is to see this as an opportunity to try out new things and expand and build your business rather than feeling buried by fees!
FLIGHT: HOW TO “GET OUT” WITHOUT “GIVING UP.”
Amazon fees aren’t going away and they are not likely going to suddenly decrease. This is a reality you’ll need to face if you’re going to sell on Amazon. You can either deal with it (see above) or you can seek out other options. If you’re just starting out and finding success with Amazon, I certainly wouldn’t recommend “throwing in the towel” but I would recommend diversifying your options. Do you also sell on Ebay? Now may be a good time to start! Did you know that countless other sites are now catching on to the trend of allowing 3rd party merchants to sell on their sites? Most are not as accessible as Amazon yet, but keep watch- there are numerous companies that are becoming eager to grab a lititle slice of the pie that Amazon has created! Other options already exist like Bonanza and Etsy and Rakuten and many more! Keep in mind, however, that all of these marketplaces have fees as well and can increase them at any time! The fact is, when you sell on a marketplace, you’re largely bound by their fees and their policies. It is a great place to start, to generate income, and to ultimately build a business, but when you’re exclusively on a marketplace, your business is ultimately controlled by that marketplace! This is a main reason that one of my goals beginning in 2015 will be to build up my own websites and my own off-Amazon business (though I will continue selling on Amazon as it has so many benefits!)
SELL ON YOUR OWN SITE TOO!
If you plan to build your own website, you can run a complete ecommerce store for next to nothing (there are several high quality carts that are completely free- you’ll only pay hosting, domain and credit card processing fees). The fees can come out to a lot less than what you’re spending with Amazon- the key, however, is to get traffic and sales- something that has become quite easy on Amazon and increasingly difficult on your own site. With that said, as I continue to work on this, I’ll update you all on what’s working and what’s not! I see value in continuing to sell on Amazon, but also build a website (or several) on the side!
I hope you can see that while disappointing, a fee increase is not the end of the world and will likely not destroy your business- as long as you take some action! I hope you found this helpful. Feel free to comment below and share your thoughts!
If you’ve not downloaded my ebook, you can do so below. This resource shares my step by step process of building a business! Best of luck with business going forward!