New year, new rules. At least according to Amazon. A new fiscal year means companies are making changes to policies that affect their bottom line. Wondering how this year’s fee changes will affect your bottom line? In this episode of Entrepreneur Adventure, Todd breaks down exactly how these changes impact your business while recommending ways to protect your pockets nonetheless. Stick around for insight into the different types of sellers and how to negotiate like a pro.
Still Worth It
Beginning February 18th, Amazon is rolling out new fees. While many of these fee changes are fee increases, Amazon’s invested billions of dollars into improving their service for our mutual customers and despite these changes, Amazon remains a fantastic platform to grow your business with benefits like free one-day shipping.
Fee Changes Debunked
So what’s changed? Some fees have actually decreased! Let’s begin with referral fees, or the fees you pay for access to Amazon’s platform and customers. Referral fees are decreasing on shoes, handbags, and sunglasses, outdoor furniture, and personal care appliances.
Keep Your ROI at 30%
Fulfillment fees, or the fees you pay for Amazon handling your order fulfillment, are, for the most part, going up. On average, fulfillment fees are going up 25 cents per unit. If you’re following Todd’s recommendations, your margins shouldn’t be so thin that this increase affects you. As a reminder, we recommend selling products with a 30% ROI and a minimum $3 to $4 profit.
For every month your product sits in Amazon’s warehouse unsold, you pay a storage fee. These are going up significantly (69 cents per cubic foot to 75 cents per cubic foot) so keep your inventory supply tight (15-30 days). However, if you’ve got money to work with, you may benefit from a 60-day supply so as not to run out.
Amazon is increasing disposal order fees, or fees incurred when Amazon disposes of your product, to match removal fees, or fees incurred when you remove a product. Because these prices are now equivalent, you may as well remove the product and either resell or donate the item to charity for a tax writeoff to ensure some financial gain.
Types of Sellers
It’s important to understand the different types of sellers you’ll be dealing with to mitigate risk and effectively navigate relationships.
Brands (also known as suppliers) develop their own products. Because brands are more emotionally invested, they’re pickier about who they let sell and you’ll likely only receive a 5% to 10% open rate. When it comes to brands, remember to stress maintaining their product quality over sell rate.
Distributors purchase products from brands and sell to sellers like us. Distributors typically offer better pricing rates than brands and offer open rates of up to 50%. Distributors also carry a variety of established brands that you can add to your Amazon portfolio. Check out this video for tips on finding a distributor!
Wholesalers are third-party distributors that don’t buy from or have relationships with brands. They’re likely purchasing products when stores close and need to lose items or when brands are liquidating. Because wholesalers’ end goal is to sell, they’ll sell to anyone with an open rate of 100%. But buying from a wholesaler can be tricky – you’re at a higher risk of buying fake or damaged products. If you’re just starting out on Amazon, don’t risk it.
Distributors expect you to negotiate! Always ask for discount levels, aim to maintain profit margins, and go below what you’re looking for in the negotiation to improve your chances of landing a sweet deal. Lowering prices by even 25 cents per unit can go a long way in maintaining profitable sales.
Relationships are an essential aspect of every business, but for those in sales, they’re imperative. Forget email and call your contacts directly. Make friendly small talk, send annual cards, and maintain transparency about order expectations and profitability. Once you establish trust, sellers are more inclined to offer additional discounts.
Hopefully this helps demystify Amazon’s fee changes, clarify the different sellers, and guide your next negotiation. For individualized attention, schedule a coaching call with Todd!
Resources From This Episode
- US FBA and referral fee changes coming February 18, 2020
- Amazon Wholesale Reverse Sourcing, How to Find Suppliers, Distributors, Manufacturers for FBA 2019
- Discover What You Need To Know About Finding And Selling Profitable Wholesale Products On Amazon
Outline Of This Episode
[0:00] Todd’s introduction to this episode
[1:00] Amazon’s justification
[2:30] Referral fees
[6:13] Fulfillment fees
[8:24] Storage fees
[12:48] Disposal & removal fees
[14:56] Types of sellers
[22:19] Negotiating 101
[26:29] The importance of relationships
[28:47] Todd’s closing thoughts
Todd: 00:00 What’s up everybody. Welcome to episode number five of the Entrepreneur Adventure Amazon wholesale podcast. I’m your host, Todd Welch, and in this episode we’re going to talk about some big news regarding fee changes from Amazon as well as what kind of sellers you can buy products from with wholesale and making sure you know and understand what is what as well as negotiating with distributors, brands and other companies out there that you can buy product from to make sure that you’re getting the best price. Let’s go ahead and get started. All right, so first the big news from Amazon. This comes around about this time of year every year. It’s not something typically that us sellers are looking forward to and it is the fee changes and typically it’s fee increases, meaning we’re going to have to pay more to sell products on Amazon. So let’s go ahead and dive into it.
Todd: 01:00 I’m just going to read the little bit of a news release here to give you Amazon’s perspective as to why they’re making these changes. So it says this year we invested more than 15 billion in infrastructure programs, people and 150 new tools and services to help our sellers grow their brands and businesses. We also invested billions of dollars to expand free one day delivery, air quotes, free one day delivery to more than 10 million prime eligible items. We are thrilled with the response of our mutual customers. Thank you for your continued innovation and providing unique selection and low prices for our customers. So there is Amazon’s justification for these changes. They spent $15 billion, which is cool. Free one day shipping. We’re getting to take advantage of all that, but in my opinion we’re already paying quite high fees. With that said, it definitely is a platform where we can get tons of sales.
Todd: 02:07 So in the end it’s worth it, but it’s never fun to see these fee increases. So let’s go ahead and dive into it. First off, we’re going to start with a little bit of the good news because there are some fee decreases, but not that many. But if you sell in one of these categories, then that could be a good thing. So the first ones here are referral fee changes. So referral fees are the fees that you and I pay basically for Amazon’s platform and to get all of those customers in there for us to sell to. That’s the referral fee. And so if you are, so in products in shoes, handbags or sunglasses, those fees are going to go down from 18% to 15% for products that are selling over $75. So a little bit of good news there, I don’t sell anything in that category.
Todd: 03:04 It’s a little bit of a harder category to sell in. But if you are selling in that category, a little bit of a discount there. So that is good to see. Another category, outdoor furniture, this is another one that probably not many of us are selling in because this are talking about big products. It’s going to be harder to ship and sell on Amazon, but that category is going down from 15% to 10% for anything over $200 and if you think of outdoor furniture, most of those products are going to be over $200 so, and it says the portion over 200 so below 200 you’re still going to be paying 15% but then at $200 in one you’re going to pay 10% on that $1 or anything else over the $200 the third category is personal care appliances. Now I’m not exactly sure what a personal care appliance would be, but if you’re selling those under $10 so way down there, probably most of us are not because I recommend selling products over that 15 to $20 threshold, but if you’re selling products in the personal care appliances category under $10 then we’re looking at a change of 15% fee all the way down to 8% fee.
Todd: 04:26 So that is really good. It could potentially make those lower prices products in that category a little more affordable to sell. Now two changes that they don’t give the original fee structure on, which means to me that the price probably went up because they’re not telling us what the previous one was. Active wear is being moved into the clothing category, which is going to have a 17% fee referral fee structure there. And then Ring accessories. When I first read this, I thought like, you know, wedding ring or rings that you wear, but that’s not the case. As I read it a little bit more, it’s actually the ring doorbell and the ring cameras that Amazon purchased previously that is moving to be under all the other regular Amazon products and that fee is going to be 45% so basically with that, Amazon is saying don’t sell our stuff basically, and as wholesaler we’re not going to be selling that stuff from Amazon.
Todd: 05:31 Maybe if you’re retail arbitrage, but with 45% referral fees, that’s going to be rather difficult. Now the other big change, this is a negative one as well, is Amazon business fee discounts are going to be discontinued over $1,000. So if the order is over a thousand dollars or the product I should say is over a thousand dollars you used to get a discount off the normal fee, but that is going to be going away. Everything is going to be the normal fee structure for Amazon business, so that is not a good thing as well. So that is the changes of the referral fees. The next up is the fulfillment fees, which are pretty much going up across the board now, fulfillment fees you can think of that is the fees that you’re paying for Amazon to grab your product off the shelf, put it in a box and ship it out and get it to the customer.
Todd: 06:31 Those are your fulfillment fees and in my opinion, those prices are still relatively low, a lot cheaper than what you and I would probably be able to do ourselves unless we’re doing huge volumes out of our own warehouse or something like that. But just to give you an idea, the smaller side of it, so like small standard and large standard, those fees are going up around 11 cents to like 20 cents or so, 25 cents per unit. So not a huge change. Their small oversize is staying the same. Large oversize is staying the same and special oversize is staying the same, but there’s a change with the medium oversize worth going from $9 and 79 cents to fulfill that product plus 39 cents for every pound over $2 or two pounds. That is going up to 11.37 so like a dollar 50 increase on that. So if you have medium oversized products that you’re selling, you’re going to want to keep that in mind that that fee is going up and regardless of whatever products you are selling, all of these fees are going up.
Todd: 07:46 So you’re going to have to reassess in the new year after February 18th which is when these are going into effect. Reassess on the next time you order your products, make sure you’re double checking that you are still profitable on those products. Most likely you will be with these changes because if your margins were razor thin, you’re probably not following what I recommend anyways, which is that minimum like three to $4 profit and minimum 30% ROI or higher. Preferably always exceptions to every rule of course, but that is the guides that I go by myself. Now the next fees that are going up are your storage fees. So storage fees are the fees that you’re going to pay for Amazon to keep their your products in their warehouses past the 30 day Mark. And you’re going to pay that every single month that they sit in that warehouse in Amazon’s warehouses, and they do not sell the fee from January to September.
Todd: 08:46 That is going to go up from 69 cents per cubic foot up to 75 cents per cubic foot. So a relatively big jump there. If you’re storing products longer than 30 days, you’re going to see an increase in your fees there. So you’re gonna want to keep an eye on that. Make sure you’re keeping tight control of your inventory and only ordering like that 30 to 60 day supply that you absolutely need in there. Sometimes you want that longer, 60 days because that way you’re not running out of stock where if you’re doing only 30 days, it’s a little more difficult, but you’re turning over that inventory faster, getting your money back out. So if you have more cash to play with, you’re gonna want to keep your product in there a little bit longer. If you don’t have much to play with, turning it over every 15 to 30 days is the best way to go.
Todd: 09:38 That way you’re not hitting that storage fees either. And for October to December, this is the timeframe that Amazon really jumps up. That fee from 69 cents currently 75 cents next year after March 1st it says here, and that goes from 75 cents to $2 and 40 cents is what it is currently, and thankfully that is not going up. That is going to stay at $2 and 40 cents per cubic foot, which is outrageous anyways. But during that timeframe, everybody’s shipping a lot of products in for the increase in sales. So Amazon wants to force you to have tight control of your inventory so that you’re not sending in too much. Now the double edged sword to that is that this year Amazon requested that we not send anything in after December 3rd it was a request this year, but I could definitely see that becoming a requirement next year as things get busier for them. So it’s going to become increasingly more important during that fourth quarter that you’re monitoring your inventory and getting in exactly what you’re going to need as close as possible before December hits.
Todd: 10:54 So you’re ready for that fourth quarter, but also not too much that you’re paying a whole ton of storage fees. So something to think about there. Now, the next fee is the removal order fees. So this is the fee that you pay. If you decide you want to pull product out of Amazon, you pay the removal order fee, or if you have damaged product that a customer returned and can’t be resold, that is the fee that you pay to pull that product out of Amazon. So it’s actually going down on the smaller side of products. So if you’re in the standard size tier under two pounds, it’s going down from 50 cents down to 35 cents, even 30 cents under one pound, 25 cents under a half a pound. So that’s going down more than two pounds in the standard size. It’s going from 50 cents down to 40 cents, but you’re going to pay an additional 20 cents a pound above the two pounds.
Todd: 11:52 Now I can definitely understand that it definitely costs Amazon more to pull that product out and ship it to you than what they’re charging us. So that is a good thing I can see there. Now with oversized, that one is going up mostly across the board, unless your oversized item is under one pound, which is probably unlikely. But at one pound you’re paying 60 cents. Now and next year. But beyond one pound, bellow two pounds, it’s going for 60 to 75 cents under four pounds, 60 to 90 cents under 10 pounds, 60 to a dollar, 45 and more than 10 pounds. A big jump here from 60 cents all the way up to a dollar 90 cents plus 20 cents per pound above the first 10 pounds. So if you’re selling oversized products, you’re going to want to really keep an eye on this because it’s going to be a pretty significant change if you’re pulling the products out.
Todd: 12:48 Now the next fee though is your disposal order fees. So what a lot of people have done in the past is dispose of items instead of pulling them out because it was cheaper to dispose of items. So in the past it was cheaper because standard size items were only 15 cents to dispose of by Amazon and oversize items were only 30 cents. So a lot of times you just dispose it, not worry about it, take the loss. But now that disposal fee for standard size items is going up to 25 cents under half a pound, 30 cents under one pound, 35 cents under two pounds, 40 cents on over two pounds, plus 20 cents a pound after that, two pounds. So you’re going to be paying more and it actually matches up to the exact same as the removal fees. So the only thing I can figure here is that Amazon wants us to remove the products more than they want them to dispose of that because then they don’t have to worry about getting rid of it.
Todd: 13:54 They just send it to us and we can deal with it. So you might want to think about pulling product out instead of disposing it, and maybe you don’t sell it again, but you could donate it to Goodwill or some other place. And then use that as a potential. Write off a tax write off at the end of the year. The same for the oversize. They’re going from 30 cents across the board, up to 60 cents, 70 cents, 90 cents, a dollar, 45 up to a dollar, 90 over 10 pounds plus 20 cents a pound. So the exact same as the removal fees as well. So same thing there. So something to keep in mind for next year. You might want to remove those items rather than dispose of them. You’re paying the same anyways. Maybe you can resell them and at a minimum you can donate it, potentially get a tax discount or write off for that as well.
Todd: 14:48 All right, so that is the fee changes. Big news for the fee changes that are going to be going into effect next year. So you’re going to want to keep those in mind. So let’s switch gears now over to types of sellers that you can buy products through. Because this is something that people get confused about in my coaching calls and just in general that I’ve seen online. And knowing and understanding what type of seller you’re dealing with can help you to mitigate some risk and also deal with them appropriately. So the first type of seller is the brand, so buying directly from the brand. If you’re into fishing like I am, you probably know Berkeley. Berkeley is a relatively big fishing manufacturer fishing brand and they are making a lot of their own products, so that is what a brand is. Sometimes I even refer to them as suppliers, you’re buying directly from the supplier.
Todd: 15:46 They’re the ones who have created these products and are selling the products and if you’re buying direct from the brand or the supplier like that, then you’re going to want to keep in mind when you’re talking with them that a lot of times you’re dealing with people who are more emotionally involved in that brand, more connected to that brand and want to see that brand doing well. They are more worried about the quality of the brand and the perception of the brand necessarily than just selling more products. So when you’re talking to them on the phone, you’re going to want to keep that in mind and adjust the way that you’re communicating with them and working with the brand directly is definitely going to be different than working with this next type of seller, which is the distributors. Now distributors are really important because they are in general easier for us to open up accounts with where if you’re dealing direct with the brands, you might get a 5% open rate, maybe up to 10% if you’re doing really well with distributors, you’re more likely to get 20, 30, 40 maybe even 50% open rates.
Todd: 17:05 Where you’re opening these accounts with distributors and distributors are companies who are working with the brands to buy products from the brands, buy them, bring them into their warehouses and then sell them to us. So they are technically a middleman, but sometimes you can actually get better pricing from a distributor because if you think about it, they are potentially buying thousands, tens of thousands of units from these brands directly and can get a lot better pricing than what we could potentially. And not all the time, but sometimes. So it’s something you definitely want to dig into is finding distributors. And if you haven’t my how to find distributors video on YouTube, I highly recommend after this podcast episode to jump over there and give that a watch where I go quickly through how to find distributors for certain brands. Because in addition to that one brand you may be looking for, they’re going to carry probably tens or hundreds, even thousands of other brands, but you’re not even thinking about, but could have a lot of potentially good products for you to sell.
Todd: 18:19 So if you’re not looking at distributors, you’re going to want to look at distributors as well as brands. All right? So that is distributors. The key with them is they have a relationship with the brand. Now this next type of seller is one that a lot of new Amazon wholesale sellers get confused with distributors. And these are wholesalers not to be confused with us as Amazon wholesalers, we are selling to the end user. So in actuality we are more like retailers. We call ourselves wholesalers or working in Amazon wholesale. But the wholesalers that I’m talking about, our business to business or B2B wholesalers and they are unlike distributors, they’re not going to have a direct relationship with the brands. They’re not buying directly from brands. Typically what they’re doing is they are buying products that are maybe close out products and a brand is just liquidating or maybe a distributor is liquidating or perhaps a store is closing and they buy up everything that’s left over from a store.
Todd: 19:28 Perhaps they are getting customer returns from stores and selling those in a big pallet and so that that is the big difference is they don’t have direct relationships with the brand. A lot of times you’re going to have to buy like the entire quantity of whatever they have, maybe a whole pallet at a time or whatever the case may be, but the big thing is to be more careful with wholesalers because you don’t know for sure what you’re getting into. The risk is higher when you’re dealing with them. That doesn’t mean you can’t find good products and profitable products from them. You can, but the risk is higher because for example, let’s say you get some toys and you send them in the Amazon and then you get a claim that you have fake products and Amazon shuts down your listing. You’re going to have to provide invoices to Amazon that you bought legitimate products and most likely Amazon is not going to accept an invoice from a wholesaler because they are not an authorized distributor or seller of those products.
Todd: 20:39 They are a third third party. They’re getting them from the party who may be originally bought from a distributor or a brand. So there’s no real paper trail to connect them back to the brand that the products are legitimate. So you’re going to have a little bit of extra risk there. You could potentially get products that have been damaged in some way and are not completely brand new, so you’re not going to be able to sell them and brand new quality. So just be careful with that. I would not recommend buying from wholesalers when you’re first starting out. Maybe down the line if you want to get into buying pallet lots and things like that from wholesalers, you can do that, but that risk is higher. So you gotta be careful now and your open rate with a wholesaler is going to be very close to 100% because their entire goal is just to sell the products.
Todd: 21:32 Distributors have that relationship back with a brand, so it’s going to be a little bit harder to open those accounts. Sometimes they’re going to want to have retail stores or whatever the brands request them to have because they have to keep that relationship with the brand, keep the brands healthy to keep getting more products with the brands directly, it’s going to be even lower because now they have that emotional connection and involvement with their brand and they want to be even more careful to who they’re selling to make sure that they’re going to represent their brand really well. All right, so those are the three different types of sellers that we can buy products from. And like I said, that’s a big question that I get asked or confusion that I see in my coaching calls and things like that. The last thing that I want to touch on here is negotiating.
Todd: 22:24 When you’re opening up all these counts, you’re going to start getting spreadsheets and lists the products maybe in PDF format, whatever the case may be, and if you just run or look at that pricing and see if they’re profitable on Amazon, I can almost guarantee you that probably zero of them will be profitable or very, very minimal, less than 1% and that is because negotiating is standard in the wholesale industry. Every brand, every distributor, and a lot of times wholesalers are going to expect you to negotiate the pricing. Now, if you’re dealing with a big brand and a big distributor, they’re going to probably have standardized tiers, either number of units or number of dollars per order where you can get discounts, but you have to ask for them. They’re not just going to unnecessarily give them to you upfront. Some do but most will not.
Todd: 23:22 So always ask what their discount levels, their discount tiers are with products because then they will let you know, yeah, you can get 10% off. If you spend more than a thousand or 20% off, you buy more than 50 units, whatever the case may be. A lot of times it’s a lot lower than what you might think as well. Those tiers, it’s so expected that discounts are going to happen, that they’re just kind of built in and they’re ready to go. So always be asking about those discounts. Another thing to keep in mind, so let’s say you’re looking at a product, it’s selling for 10 or I’m sorry, it’s selling for $20 maybe you can buy it for 10 and after Amazon fees, the profit is $2 and 75 cents, but we’re looking for at least $3 perhaps on this product. What I would do in that case is look at how many units I can sell per month, at least my guesstimate of that, and I would get back to the distributor or the brand and say, Hey, I would really like to add this product.
Todd: 24:24 It fits well into my catalog, but it’s a little bit below our target range that we’re looking for. If I was able to buy a hundred of these per month, do you think you could get it down another 50 cents or a dollar? I would go below what you’re looking for. So if the product, they’re selling it to you at 10 I would ask for nine and then let them come back to you and they might say, well, we can’t do nine but we can do $9 and 75 cents or $9 and 50 cents or something like that. A lot of times we’ll do a little extra wiggle room in there that they can do to discount you and get you to buy those products because if you’re buying a hundred a month, if they discount, you buy that 25 cents they’re not losing a whole lot of money, but potentially gaining a lot.
Todd: 25:13 All right, so keep that in mind. But on top of that, I want to stress this because this is why a lot of companies say no to Amazon sellers because Amazon sellers, they come in and they negotiate. All of these big discounts are asking for big discounts as if they’re going to be buying five 10 $20,000 a month, and then they give them these big discounts and now they’re throwing at them like $500 orders. Okay, so be up front with them. Let them know that, Hey, this is my goal. My goal is looking at all your products. If we can get the discount down to this, I think I can do $5,000 a month, $10,000 a month, but I’m not going to start that way. My first orders are going to be smaller orders, maybe 500 a thousand $2,000 because I need to get the products into Amazon, test them and see the numbers that I’m getting.
Todd: 26:14 All my numbers right now are guesstimates. I want to get real world numbers and once I get those real world numbers, then my goal is to get this up to that five thousand ten thousand twenty thousand dollars per month so that they are aware of what’s going on and they’re not just thinking that you’re going to make a $10,000 order and then you make a $500 order, so make sure you let them know those expectations up front and how you’re going to work. You need to be professional. A lot of Amazon sellers are professional and you also need to get on the phone and talk with these people. Relationships are number one in wholesale business. Unlike private label and retail arbitrage, where relate relationships matter less. In wholesale, it’s all about building the relationship with the brand, with the distributor, whatever the case may be, becoming friends with the people that you’re dealing with.
Todd: 27:11 In fact, I just spent $800 on sending gifts to my distributors and cards and things like that to be on their good side. Be friendly with these people, build those relationships. When I get on the phone, it’s not just all business. I’m starting off, you know, how’s the weather down there in Florida or Georgia or wherever they may be. Maybe in the past I found out that they like baseball, so I’m asking how’s your the Boston red Sox doing or whatever the case may be. How’s the family doing? How’s the wife doing? How’s the kids doing? These are things that are very important. You probably see this kind of stuff in movies and things like that and think it’s just in the movies, but it’s not. This is how business works. People like to talk about the lighter things in life. They like to talk about themselves and if you can get them to open up and talk to you about themselves and about what’s going on in their life, they’re going to be more likely to want to give back to you and that will a lot of times be in the case of getting additional discounts, maybe letting you know about industry discounts.
Todd: 28:20 Maybe there’s a trade association that if you join it for a few hundred dollars a month, you’re going to get an additional discount, or maybe they’ll let you know, Hey, we don’t advertise this, but if you buy 50,000 or more in a year, we’ll give you an extra 5% off, or whatever the case may be, and those little discounts can make all the difference between profitability and not profitability and being able to sell the product versus not being able to sell it. So extremely important. That pretty much wraps up this episode. If you want to get the show notes and the transcript of this episode, I’ll put links to all the fee changes and things like that. Therefore you, it’s going to entrepreneuradventure.com/5 since this is episode number five and I talked about coaching calls, if you’re interested in that at all, go to entrepreneuradventure.com/coach and that will take you right to the page to be able to potentially set up a coaching call with myself if that interests you at all.
Todd: 29:24 If not, not a problem, not a big deal. But I really hope you got a lot of information and good information out of this. Wherever you’re listening, whether Stitcher, iTunes, Spotify, whatever the case may be, please leave me a review. Let me know your thoughts on this podcast so I can improve for the future. And I’ll also read some of those on future episodes as well, and it’ll help the show grow. So in addition to that, make sure you’re sharing this out there to any friends that may be interested in. Well, I would really appreciate it. So with that, this is Todd Welch with Entrepreneur Adventure, signing off, happy selling everybody.