If you’re looking to start selling on Amazon, you're going to need to figure out how you want to fulfill those orders. And if you’re selling through Seller Central, you have two options. You can either fulfill those orders yourself, or you can take advantage of Amazon's FBA program. Amazon's FBA Program, which stands for Fulfillment By Amazon, lets Amazon handle all of the shipping, the customer service, and is how you’ll earn that Prime Badge too.
So today, we’re going to dive in and take a look at Amazon's FBA calculator, so you can understand what costs are associated with the platform and decide whether it’s the best option for you.
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FBM, Fulfillment By Merchant vs. FBA, Fulfillment By Amazon
There are two ways to fulfill orders when selling on Amazon. Fulfillment by Merchant (FBM) is when you manage all the logistics yourself by storing and shipping your own products or using another logistics fulfillment company. The other option (FBA) involves shipping your products directly to Amazon’s warehouse. Amazon then handles the packing and delivery of individual items. When you sell through Seller Central, those are the two options that you can choose from.
It’s important to note that Amazon offers a 24 - 48 hour free shipping service for premium Prime customers. While FBM merchants are not eligible for Amazon’s Prime badge, FBA merchants are. Not having the Prime Badge may not entice as many customers to buy your products. So, be sure to weigh out this consideration along with FBA fees.
Let’s now look at how to use the Amazon FBA calculator to increase your profitability.
What is the Amazon FBA Calculator?
The Amazon Seller Central FBA Calculator is essentially a profitability calculator created by Amazon to help Amazon sellers estimate their profit margins when using the Fulfillment by Amazon (FBA) service. This easy-to-use online tool lets you quickly calculate your potential profits, as well as the associated fees and expenses. If you're a new seller on Amazon and considering using the FBA service, this calculator can be a great way to help you get started.
Which FBA fees are included in the FBA Estimator?
The Amazon FBA Calculator includes all of the fees associated with using the Fulfillment by Amazon service. We're talking about things like the fulfillment fee, which is based on the size and weight of your items. It also includes any applicable transportation fees, storage fees, long-term storage fees, order handling fees, and more. This calculator will give you a complete breakdown of all costs associated with using FBA for your business as well as an estimated total profit after subtracting those expenses from your gross sales revenue.
Other FBA fees include:
- Fulfillment fee: This is based on the size and weight of your items.
- Transportation fees: These are for shipping costs to get your items from you to Amazon fulfillment centers.
- Storage fees: This fee is charged when storing your inventory in an Amazon warehouse.
- Long-term storage fees: If you have any inventory that has been stored in an Amazon warehouse for more than 6 months, you will be charged an additional fee per cubic foot.
- Order handling fees: This fee concerns Amazon’s work in handling your orders.
- Weight handling fees: Depending on the size and weight of your items, you may be charged a fee per unit shipped.
- Pick & pack fees: If you have multiple items in an order, Amazon will charge you a pick & pack fee to package and ship them together.
- Returns processing fee: If customers return their purchases, you will be charged a fee for Amazon’s assistance in processing the return.
- Removal and disposal fees: If you need to have items removed from one of the warehouses or if you need to dispose of them in any way, this fee will apply.
- Refund administration fees: If a customer requests a refund, Amazon may charge an administration fee.
Using the Amazon FBA Calculator
You can click this Amazon FBA calculator link to access the tool. Don’t forget to log into your Seller Central account to use the page.
Step 1: Finding the ASIN on Amazon
The first step in using the Amazon FBA calculator is to enter the ASIN of your product in the ‘Search Amazon catalog’ tab. While you can also click ‘Define product’ and ‘Estimate in bulk’, working with an ASIN is a lot easier. This number can be found on the product page, or if you are selling a new item that hasn’t been listed yet, you can find it by searching for similar items and copying their ASIN. The ASIN can be located at the end of the product URL or in the ‘Additional Information’ section on the page.
Once you’ve got the number, simply enter it into the ‘Find your product on Amazon.com’ field and click ‘Search’.
Step 2: Analyzing the FBA Calculator Information Display
Now that the corresponding product has appeared, you’ll be able to see values for the sales price, Amazon fees, fulfillment cost, and storage cost.
You can then start entering numbers for other fields in the Amazon Fulfillment column such as the average inventory units you plan to store and the estimated monthly units sold.
Similarly, you’ll want to then focus your attention on the ‘Your fulfillment’ section. This will help you see how much it would cost you to fulfill the order yourself. While Amazon fees will likely stay the same, there are cost factors such as labor, packing material, shipping to customers, customer service, and storage costs.
You’ll also notice that there’s a third column in case you want to add another option for your own fulfillment or try out FBA Small and Light - an option for reduced fulfillment costs on qualified items.
Step 3: The Results
Finally, you’ll want to compare the results. Based on the values, consider whether Amazon Fulfillment or fulfilling the order yourself is of the best value. Factoring in the storage cost, and fulfillment costs, and checking out the net profit and net margin are good ways to do so.
It’s not just the margins that are the only thing you need to consider when debating between the two fulfillment methods. Don’t forget to consider the benefits that come with the FBA program - you won’t have to deal with receiving, packing, shipping, customer services, or returns, and your products will even be eligible for Amazon Prime.
As well, make sure to do some forecasting. For example, say you expect Prime eligibility with Amazon FBA will get you about a 20% increase in sales. Even though Amazon has lower margins for FBA, the increase in sales more than makes up for those differences.
Using the FBA Revenue Calculator for analyzing margin impact
The Amazon FBA Calculator doesn't just give you a quick summary of your estimated costs. It also allows you to play around with various scenarios and see how changing certain variables affects your profit margins. For example, if you think that increasing the price of an item may lead to more sales but would also increase the associated fulfillment fees, this calculator will show you exactly what effect that could have on your overall profits.
Amazon Buy Box
Another important factor to consider is the Amazon Buy Box. The Buy Box is a feature on Amazon that displays products from different sellers side-by-side and allows customers to pick which one they want to purchase. Amazon sellers who are enrolled in FBA are more likely to appear in the Buy Box, and therefore have higher chances of selling their products. This can be especially beneficial for lower-priced items where margins may be slim.
In fact, if you are just starting out selling on Amazon and are using the Fulfillment by Merchant option, you may notice that you are not earning a spot in the Buy Box because Amazon doesn't have any proof of your ability to actually fulfill orders.
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Using the Amazon FBA Calculator is an important step when deciding how to fulfill orders on Amazon. With its easy-to-use interface and detailed results, you can quickly come up with a well-informed decision that will benefit your business in the long run.
By playing around with this tool to research profitable products to sell on Amazon, you’ll be able to make the most out of your Amazon business.
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