Amazon’s share of vendor income is now 50%

Primarily based on P&Ls supplied by a pattern of sellers, the charges incurred by a typical Amazon vendor embody a 15% transaction payment, known as a referral payment by Amazon, and 20-35% in Achievement by Amazon charges, which embody storage and different charges. Moreover, promoting and promotional bills on Amazon can quantity to as much as 15% of the whole charges, with the general prices various in response to class, product worth, measurement, weight, and the vendor’s enterprise mannequin.

Whereas the 15% transaction payment has remained fixed for greater than a decade, it could possibly range by class and be as little as 8%. In the meantime, Achievement by Amazon (FBA) charges have elevated regularly over time, with Amazon introducing yearly will increase in achievement charges and storage charges. Provided that promoting on Amazon is tied to utilizing FBA, most sellers depend on it to succeed on the platform.

Not information for a lot of sellers. I reached out to some Amazon sellers and companies and was requested to maintain their data personal. However I used to be informed:

“For a number of years Amazon has been prioritizing Promoting income and rising charges which has put strain on sellers, particularly smaller manufacturers. Regardless of that manufacturers can be leaving cash on the desk not being on Amazon. Sensible manufacturers diversify to different channels(DTC/Retail) and proceed to optimize their enterprise to adapt to the altering panorama.”

I’m not an Amazon vendor, and my digital expertise is extra restricted to steer technology, so I assumed this was eye opening. However for these extra accustomed to the ecommerce panorama in 2023, it’s not a shock.

“On the identical time it’s not essentially cheaper to promote elsewhere – charges have gone up all over the place.” 

Forcing sellers to promote. Whereas Amazon doesn’t dictate how a lot to spend on promoting, competitors amongst sellers who select to promote drives up that value. Not like different marketplaces, promoting on Amazon just isn’t a selection, as probably the most outstanding display area is usually reserved for advertisements.

Consequently, sellers should promote to extend their possibilities of being found by prospects. Some sellers nonetheless spend comparatively little on promoting, and a few resellers spend lower than 5% of their gross sales on advertisements. Nonetheless, personal label sellers typically spend over 10% of their income on promoting to develop their model.

The share of charges paid by Amazon sellers as a proportion of their gross sales will increase yearly, not as a result of they’re utilizing extra providers, however as a result of the price of sure providers has risen (e.g., FBA) or as a result of sure charges are actually unavoidable (e.g., promoting).

Different choices for ecommerce sellers. In comparison with Amazon, Walmart is a extra economical selection, notably for brand new sellers that may benefit from transaction payment reductions. Nonetheless, Walmart’s market measurement is considerably smaller than Amazon’s, that means that sellers can not fully substitute Amazon with Walmart. Moreover, direct-to-consumer e-commerce platforms like Shopify function on a basically completely different enterprise mannequin, and charges are usually not the only real consideration.

To deal with the rising charges, sellers are both rising their costs, searching for options to FBA, or branching out from Amazon fully. Nonetheless, some sellers solely understand how little web revenue they’ve left on the finish of the tax 12 months, with just a few even reporting paying as much as 60% or 70% of their income to Amazon in charges. They have to nonetheless account for different bills, similar to stock, freight, and staff.

Dig deeper. You may learn the complete research on Market Pulse.

Why we care. Rising charges on Amazon have a direct impression on promoting prices, as promoting is a essential expense for many sellers on the platform. As extra sellers select to promote, the competitors for advert area will increase, driving up promoting prices. Consequently, advertisers may have to regulate their promoting methods and budgets to account for these prices.

As charges proceed to extend, advertisers could face issue producing a return on funding, which might impression their backside line. Subsequently, advertisers must preserve a detailed eye on the prices of promoting on Amazon and make sure that they’re making knowledgeable choices when allocating their promoting budgets.