Logistics & Forecasting

Calculating Margin To Develop Profitable Strategies

Our proprietary calculators and expert staff simplify complex marketplace fee structures, helping to identify opportunities for cost savings and investment.
Screenshot of a profitability analysis in excel

Navigating Intricate Marketplace Fees to Maximize Profitability

Referral Fees

Marketplaces charge a referral fee as a percentage of each sale. The percentage varies by category. The cost is justified by the wide audience the major marketplaces provide.

Fulfillment Fees

Fulfillment fees are charged by marketplaces for using their robust fulfillment networks. Product type and dimensions determine these fee rate.

Storage Fees

Storage costs at Amazon, Walmart, and other marketplace warehouses are based on volume. We predict storage costs using dimension and inventory turn rate assumptions.

Returns

Customer return rates can be high on marketplaces. We predict return rates based on experience selling like product. Return rates can vary from 2-30% dependent on the product type.

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Understanding Complex Amazon Cost Calculations & Fees

Example of a 1P vs 3P profitability analysis to determine which platform results in higher profit for a brand

Projecting profitability is essential for long-term success and making strategic investments to grow business on marketplace. To calculate profitability, a wide range of fees associated with the marketplace needs to be considered. Here is a breakdown of the primary fees considered in our profitability calculator to advise clients on profitability:

Inbound Shipping

  • Carrier Shipment Fee: The cost of shipping units into Amazon’s fulfillment centers.
  • Inbound Placement: This optional cost involves paying Amazon to distribute units across their network. Alternatively, sellers can choose to have their inbound shipments increased to avoid this fee. Amazon ultimately pushes sellers to bear the cost of getting units closer to the predicted customer locations.

Referral Fees

  • Percentage-Based Sales Commission Fee: Amazon charges a referral fee for each item sold, varying by category. The fee ranges from 6-45% but most categories are charged around 15%.

Fulfillment Fees

  • Fulfillment by Amazon (FBA) Fees: Covers the cost of picking, packing, shipping, customer service, and returns. The fees vary based on the product’s dimensions and weight.

Monthly Storage Fees

  • Storage Costs: Based on the volume of your products in Amazon’s fulfillment centers. The fee is calculated per cubic foot and varies by season. The higher rates are from October-December due to an increase in Q4 demand.

Long-Term Storage Fees

  • Additional Charges: If your products remain in Amazon’s warehouses for more than 365 days, additional long-term storage fees will apply.

Returns Processing Fees

  • Handling Returns: For certain categories, Amazon may charge a returns processing fee which is a percentage of the item’s price.

Advertising Fees

  • Marketing Campaign Costs: If you use Amazon’s advertising services, such as Sponsored Products or Sponsored Brands, those costs should be factored.

Optional Services

  • Labeling Fees: If you require Amazon to label your products, there is a fee per unit.
  • Prep Service Fees: Amazon offers preparation services for products that need special handling or packaging before they are shipped to customers.

Our team is familiar with each of these costs and will help you navigate them in a way that adds to your bottom line.

Product and Process Changes for Profitability

Comparison chart between Seller and Vendor Central

There are many ways to increase profits on marketplaces. Here are some common areas where we guide clients:

Consider alternative selling models

There are multiple ways to sell on Amazon. Each selling model has a different set of costs.

  1. Sell to Amazon 1P retail
  2. Direct via Fulfilled by Amazon (FBA)
  3. Direct via Fulfilled by Merchant (FBM)
  4. Sell to a retailer for reselling onto Amazon

Choose the correct product assortment

Not all products are a good fit for Amazon. Bulky items or low price point items may need to demonstrate high sales velocity to justify being on the Amazon platform. Using our calculator can help you make informed decisions at the SKU level.

Shrink Dimensions

Many marketplace fees are dimension-based. Shrinking a product’s dimensions can significantly impact margins. Our calculator allows you to experiment with hypothetical dimensions to understand their impact.

Multi-Packs

Bundling units into multi-packs is a common way to increase the top line disproportionately to the fees. Consider bundling low price point products to achieve a higher sales price. Most items under $15 should be considered for bundling.

Increase inventory turn rates

Selling through your inventory more often will lower storage costs.

Prep and label products at your own warehouse

Handling your own prep and product labeling can cut marketplace fees.

Price point

Amazon customers are price-sensitive, but manufacturers should consider what price points are profitable on Amazon in their planning. Prices may need to be increased as part of a sustainable strategy.

Our account directors are available to run your profitability analysis and make recommendations to maximize your margins. Reach out for a consultation.

Frequently Asked Questions

Why is conducting an Amazon profitability analysis important?

Conducting an Amazon profitability analysis helps identify which products are most profitable. It also allows you make decisions that optimize pricing strategies, reduce costs, and enhance overall business performance on the platform.

What factors are considered during an Amazon profitability analysis?

An Amazon profitability analysis considers factors such as sales revenue, fees (e.g.: FBA, referral fees, etc.), cost of goods sold (COGS), shipping costs, advertising expenses, and return rates.

What are some common challenges with conducting an accurate Amazon profitability analysis?

Some common challenges with conducting an accurate Amazon profitability analysis include tracking ALL costs, dealing with fluctuating fees, and analyzing large volumes of data effectively.

Is it possible to automate Amazon profitability analyses?

Is it possible to automate Amazon an profitability analysis by using a calculator, such as the one Brandwoven has developed. Using a calculator greatly expedites the analysis process.

Leading Marketplace Success for Amazing Brands

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A premium watersports brand's Amazon market share began was declining. Brandwoven helped them grows sales 109% year-over-year.

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