Maintaining Margins: How to Protect Your Profit Margins on Amazon as You Scale [Webinar Recap]

In order to look at your Amazon business holistically, you cannot define profitability by one freestanding variable, but by many variables together. In an ideal world, all parts of your business should be monitored regularly to maximize their value. Having targets in place that focus on variables that you are optimizing will be crucial to making sure that one facet of your business isn’t entirely ignored or undervalued. From there, you can uncover strategies to preserve and increase your profit margins on the Amazon marketplace. In our latest Ask the Amazon Experts webinar, Feedvisor’s team was joined by Zane Gamboa from ShipStation to explain the importance of logistics, automation, and optimizations to help you focus on profit-generating activities. Andrew McGonnigle from Feedvisor focused on actionable ways that you can effectively manage fees and returns and simultaneously optimize your pricing strategy to maintain your margins while you scale.

Understanding and Leveraging Fees

In this webinar, we focused on shipping, referral, and storage fees that you need to navigate as an Amazon seller. It is important to note that these fees vary quite drastically depending on several variables, such as your fulfillment method, product categories, and industry relationships.

1. Shipping Fees

With Amazon FBA, since they are sending out your order, you also pay picking and packing prep charges for things like labeling, bubble wrapping, and labor. With Fulfillment by Merchant or Seller Fulfilled Prime, be sure to research prep costs, as these can sometimes be more affordable if taken care of via your own warehouse. No matter how your items are fulfilled, proper prep and packing will only make adding them to inventory much faster. For low-value items or items with a selling price that is below $20, saving on prep charges can add up to two percent to your total profits. If you are looking to save on shipping you should strongly consider Amazon’s Partnered Carrier Program. It allows you to reduce the costs of shipping to Amazon by up to 45%. Sometimes, you may choose not to use it because you have a stronger shipping contract in place or want to expedite a shipment using your own partner carrier. This program allows you to make domestic shipments to Amazon at significantly lower rates. For logistics partner shipping, leverage your relationships with FedEx, UPS, and the USPS and constantly revisit them to ensure that you are capturing more value for yourself as you use their services more and your business continues to grow. Although annual negotiations require time and intensive research, they can be extremely impactful. For shipping and handling, you should use your supplier to ship products directly to Amazon or the customers if the cost makes sense. For supplier handling and prep, many suppliers charge a handling or dropship fee. However, this is negotiable and can sometimes be completely waived if you are willing to inquire about it. Prep for FBA can also be done by the supplier, but it is your responsibility as the seller to drive that conversation. In the long run, it can end up saving time and money to get everything completed at the supplier level.

2. Referral Fees

As you know, there is a 6-45% referral fee for each item that you sell on Amazon. However, many sellers are unaware that Amazon offers periodic promotions where you can receive referral fee discounts that are either price related, selection related, or Prime related. For price-related referral fee discounts, some products may be eligible for a referral fee discount when sold below a certain price threshold. You will receive the listed referral fee discount and continue to receive it on any and all items sold at or below the threshold price until the discount period concludes. Amazon also occasionally offers referral fee discounts on products that are in demand or new in a certain category. There is no price limitation on these products and, like above, eligibility applies until the discount period concludes. Lastly, there are occasional, limited-time referral fee discounts on items sold through FBA or Seller Fulfilled Prime and these also have no pricing limitations. In order to optimize your referral fees, you should make sure that your product categorization for every ASIN is correct or run the risk of overpaying these fees.

3. Storage Fees

Especially as your business enters the next level of scale, regular inventory management and optimization will be critical to monitoring your storage fees. To ensure that you don’t overpay, you should understand how these fees are calculated and pay attention to the cost of your capital. If, for example, you have inventory worth $350K in an Amazon FBA fulfillment center, that is working capital which can compromise your margins if it becomes stagnant. The more you invest, the more your business costs to run if it is not optimized properly. From a product assortment point of view, if you are changing your strategy then you will also need to review your storage fees and assess the impact of the change. Additionally, you should look at which products are absorbing most of the storage fees and think about if it makes sense to move on from them — they are cutting into your profit margins when they aren’t moving off the shelves.