In operating a business, reducing costs is as important as generating sales. Since working as an Amazon seller accompanies various types of costs, it is essential to recognize this fact and make efforts to reduce costs. This article is aimed to introduce various types of costs generated in the process of operating Amazon business and share ways to prevent unnecessary spending.
1. Cost Reduction in FBA Process The FBA process generates expenses along various stages. The FBA order processing fee is generated in each order processing of product based on the weight and volume of the product. Since the cost is generated in proportion to the weight and volume of the product, it is necessary to downsize the product or make it lightweight in order to reduce cost. If there is any unnecessary space in product packaging, the standard size of the product should be changed to use such space more efficiently. In case of long products such as furniture, the products can be divided into parts and packaged in small boxes. Since the FBA order processing fee is charged as a fixed cost according to Amazon’s rate range based on the weight and volume of product, it is recommended to determine which range the product belongs to and move it to a cheaper range.
(Source : Clip Art Korea)
Sellers of small and lightweight products can consider applying for ‘FBA Small & Light’ program. The eligible product for the program must be smaller than 18 x 14 x 8 inches (45.72 x 35.56 x 20.32 cm) and lighter than 3 pounds (about 1.36kg), and the price must be less than $12. Any seller can apply for the program via the link below. The program is highly recommended for sellers who meet the requirement since the FBA order processing fee is substantially discounted as shown in the figure below.
- Application page of FBA Small & Light program :
[Comparison of normal FBA fee and Small & Light program fee] (Source : Seller Central Help page / FBA Small & Light Guide page)
One of the biggest advantages of FBA is that Amazon handles most of the customer support (CS) work. Although Amazon is in charge of complicated return processing, sellers have to pay for return processing fee in each case. The return fee may not be a big burden for early sellers whose sales volume is small, but it can be significant if sales are high and returns occur repeatedly. Also, Amazon classifies products among the returned products that can be resold and resell them to other customers, and in this process consumers who receive the products can regard them as used product and make negative reviews. Therefore, a systematic return management process is necessary to reduce return processing fee and prevent negative reviews. Sellers can systematically manage the number of returns for a specific period, return ASIN, reasons for return, etc. by accessing ‘Reports’ > ‘Fulfillment’ > ‘FBA Customer Returns’.
- Website link to ‘FBA Customer Returns’ :
[Example of return management based on FBA Customer Returns report] (Source : Kontactic internal resource)
2. Logistics Cost Reduction in FBA Inbound Process Although reduction of logistics cost generated in the FBA incoming process is important, sellers can hardly control logistics rate in reality. Therefore, the most effective logistics cost reduction strategy for sellers is to realize economies of scale.
[Rate table of logistics cost rate table by volume] (Source : PNPLINE)
According to the above table, when comparing the rates of 1CBM (Cubic Meter, m3) and 15CBM, the volume increased by 15 times whereas the cost increased by 10 times. Therefore, if a seller determines that the business has become stablizied, it can pursue a strategy to drastically reduce logistics cost per product by receiving large amount of cargo. An efficient loading strategy is also required since it is necessary to transport as much cargo as possible within 1CBM.
Furthermore, various government projects are being carried out to support logistics cost. Earlier this year, the Korea SMEs and Startups Agency introduced a government-led project to support logistics costs as a joint logistics project for online exports. In addition, KOTRA is carrying out various support projects such as overseas joint logistics center project. Sellers are recommended to check the notices of relevant agencies on a regular basis since they can get considerable support in terms of overseas expansion logistics cost if they participate in the government project.
[KOTRA’s logistics support project] (Source : KOTRA website)
3. Cost Reduction Through New Seller Promotion
From Amazon’s point of view, sellers are not only suppliers of goods to platform consumers, but are also customers who pay sales fees, monthly subscription fees, and advertising costs. For this reason, Amazon encourages new sellers to enter the logistics market and carries out many promotions for these new sellers. Through promotions, sellers can enjoy various financial support such as cashback, commission support for Vine program, and advertising fee support, as well as non-financial benefits including being assigned with seller-dedicated manager. Therefore, sellers need to check various promotions pushed by Amazon to see whether they meet the requirements.
In addition to seller promotions, there are cases where benefits are provided to sellers who register the store on the Amazon website through separate links provided after holding seminars on certain categories such as beauty and baby products. Sellers can also get considerable support through a program called Amazon Launchpad, including exemption of Amazon Vine fees and DEAL fees ($150 or $300, different by period), which a short-term promotion function. Details of the program can be found on the link below.
- ‘Amazon Launchpad’ program website :
4. Reduction of Monthly Subscription Fee by Entering Business Registration Number Currently, the subscription fee for Amazon Professional Sellers is $39.99 per month. However, this amount does not include VAT and if you actually register the store on the Amazon website for the first time, an additional 10% of VAT will be imposed, generating additional cost of $3.99. Sellers that do not proceed with separate procedure will be continously charged with 10% of VAT. Sellers can be exempted from VAT by entering simple information and can get permanent exemption by clicking ‘Seller Central’ > ‘Account info’ > ‘VAT Information’ and entering the domestic business registration number.
[Webpage to enter business registration number for VAT exemption] (Source : Seller Central Webpage)