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Change is in the air. Again. It seems like every month, Amazon is introducing new changes (a.k.a. new fees) to the marketplace. It reminds me of this quote:
Even more fees were announced yesterday, and it is causing quite a bit of upheaval on “the internets”:
Before we take a closer look at the fees, it’s important to point out that these increased fees were inevitable. As this recent article on GeekWire points out, Amazon lost $1.74 billion (yes, with a b!) on shipping costs in the THIRD QUARTER OF 2016 ALONE. Ouch. Shareholders will only tolerate those losses for so long before dumping Amazon’s high-priced stock. Bezos decided to start looking like less of a bozo in this sector of the business by increasing the Prime shipping revenues to help offset the losses. Unfortunately for third party sellers, that means the cost of fulfillment had to go up.
Now that we understand why the fees are increasing, let’s see just how bad they are. Here’s a summarized chart of your new net profit figures for a typical book and a typical textbook at a range of prices. (If you want to see detailed charts, scroll further down.)
(Note: the Fulfillment Fees will increase on February 22, and the Closing and Referral Fees will bump up on March 1, so I factored in all of the new fees as of March 1. The fees will be slightly lower from October through December, so these fees are the worst case scenario that will exist from January through September.)
On a typical one pound book, the FBA fees will go up about $1.53 across the board, regardless of the book’s sale price. For Merchant Fulfilled sellers, the fees will impact them about $1.05 per book. For heavier textbooks, FBA sellers can expect to pay an additional $2.29, while MF sellers will still experience the same $1.05 price hike.
Author’s note – many of you reached out to me and pointed out that the fees will be worse on a two pound book compared to a one pound book. You’re absolutely correct. Thanks for noting that! Here’s how the fees shake out for each “class” of book, as well as the mix of books in my current inventory of ~15k books:
Key Takeaways: Is this the end of selling books via FBA? Hardly. The market is going to shift dramatically over the next few months as sellers adapt to the new fees. We will likely see a brief race to the bottom as sellers try to clear out their cheaper/older inventory, but the market should reach a new equilibrium point after that. Those who don’t adapt their strategies will get burned. FBA offers in the $4-5 range will get bumped up to the $6-7 range to net the same profits as before. Ultimately the higher costs will get passed along to Amazon’s customers. However, sellers will bear the higher fees as well. For an FBA seller who sells 2,000 books a year, the added fees will deduct roughly $3,000 from their bottom line. This will hurt larger sellers even more. Here’s how you can adapt:
Bottom Line: Ultimately, these fees were inevitable. We’ve been fortunate to be able to sell books so cheaply on Amazon’s platform for the past few years. Amazon has acquired tremendous market share through their Prime program, and they are now in the perfect position to capitalize on that investment. In the past, booksellers could sell a small percentage of their overall inventory to reach a break even point. In the future, that percentage will have to rise to compensate for these additional fees. But at the end of the day, the margins on used books are still exceptional, even if they will be squeezed by the Amazon Machine.
What do you think? Take a moment to comment below. Are you going to get out of the business altogether? How do you plan to adapt to this new environment?
Assumptions: For the detail oriented people, check out my assumptions and spreadsheets below.
Howdy! My name is Caleb Roth and I have dabbled in selling books on Amazon for the past decade. In late 2014 I decided to approach my business more seriously, switched completely over to FBA (Fulfilled By Amazon), and haven’t regretted it for a second!