Oops. I’m Undercharging For Shipping!
I feel kind of stupid writing this post. Why? Because I’ve been selling on Amazon for over two years and I just now discovered that Amazon charges a “shipping commission” on FBM sales (Fulfillment by Merchant).
Yep, that’s right. When you buy your shipping through Amazon’s shipping services, they nip you $.07 for a transaction fee AND you get nipped a second time. The same referral fee percentage that applies to your product category is also applied to the amount you charge the customer for shipping. That was news to me!
In my defense, my strategy was to have Amazon do all my fulfillment. That works best with my desire to build a freedom lifestyle. But some of the products I’ve listed don’t makes sense for FBA (Fulfillment by Amazon) so I fulfill those orders myself through Amazon’s shipping services.
Getting it right is tricky
Personally, I don’t like to pad shipping costs. I prefer to just pass the actual cost on to the customer; however, sometimes it’s difficult to know exactly what to charge until you’ve made the first sale.
And, Amazon’s shipping system has it’s limitations. You can’t set your shipping by product; rather, you have to set a standard “per shipment” fee and then you have the option to add a “per item” or a “per weight” fee on top of that.
The products I listed for Niche Site #1 vary in weight, but all are under 1lb. I checked with the Post Office to calculate the worst-case shipping cost then factored in the cost of packaging and Amazon’s $.07 transaction fee for using their shipping service.
I settled on $3.99 for shipping believing that amount would allow me to break even.
Where I went wrong…
After the fist sale went through, I started carefully looking at the transaction-level data for that order. This is what I discovered…
The shipping commission was the piece I hadn’t factored in to my calculation.
Calculating the fully-loaded costs of shipping FBM orders
Going forward, if I pass the cost of shipping through to the customer by way of a shipping fee, I’ll be sure to include all costs in my calculations:
- Actual postage based on what the USPS tells me for the weight of my package.
- The cost of the mailing envelope, tape and any protective padding.
- The shipping commission based on the applicable referral fee percentage.
- $.07 for the transaction fee.
But wait…there’s an alternative to all this
Another option would be to raise the price of your product to cover shipping and then offer FREE shipping on you FBM listings.
The benefit to this is that people tend to like a free shipping choice over one where they have to pay for shipping. However, if that forces your product price too high, you may lose them on price alone.
It’s a tough call and I may test out offering free shipping. Either way, Amazon gets their commission.
I’m not against Amazon taking a fair cut for the use of their platform and services. But, knowing where all the fees are buried and the best way to structure your offer can be difficult to figure out.
Call to Action
Have you discovered fees that surprised you? What have you done to refine your pricing to offset Amazon shipping fees while keeping your product priced competitively? As always I love to hear from you so please leave a comment below or shoot me an email at Ree@PrivateLabelPreneur.com.
Now back to work for me!
Want to follow along on my journey?
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