Modified Transcript
Hey, everyone. If you are looking to get started selling on Amazon, you are going to need to figure out how you want to fulfill those orders, and if you are 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, is where they are going to handle all of the shipping aspects, and the customer service as well, and it is how you are going to get that Prime Badge too.
So today, we are going to dive in. We are going to take a look at Amazon's FBA calculator, so you can understand what costs are associated with that platform, and see if it is the best decision for you.
FBM, Fulfillment By Merchant vs. FBA, Fulfillment By Amazon
Okay, so we are looking at selling on Amazon, and what we want to do, is compare the costs between fulfilling the products ourselves, which is FBM, Fulfillment By Merchant, or having Amazon handles the fulfillment, also known as FBA, or Fulfillment By Amazon. When we are selling through Seller Central, those are the two options, that we can choose from.
As we dive in here, one thing that we want to note is that, unless you are eligible for Seller Fulfilled Prime, you are not going to have any Prime eligibility on your products unless you go with Amazon FBA. Not having the Prime Badge is going to deter a lot of people from buying your products. So, you need to factor in expected increases in sales when going with FBA, verses FBM, as well as these fees.
Amazon's FBA Calculator
Now to find this calculator, you can go through Seller Central, and try to click through a lot of links, or you can just do what I do, which is type in “Amazon FBA calculator”, hit search on Google, and you are going to be able to find it right here. It is just a click away.
Finding the ASIN on Amazon
Now, what we are going to need to do, is actually put in some of this product and cost information, so that we can compare our numbers. The first step is to find your product on Amazon, that you would want to put in that FBA Calculator. To get those numbers, you need to go find the ASIN, which is located generally at the bottom of that product detail page, in the product information. There it is here:
I am going to copy that, and paste it directly into this, Find your product on amazon.com search.
Now, here I am going to select a product, and it is going to instantly put in that same information. We always want to start with the price here. So on the right-hand side, we are going to have the Amazon fulfillment numbers, versus our own fulfillment here on the left side. So for the price, we are going to put in what it was on the Amazon buy box, and also what we are going to sell that price if we weren't going to use the Amazon fulfillment method.
Buy Box
Now, one thing to factor in is that, when you are looking at Amazon and specifically the buy box, among other factors, price and fulfillment method are the primary considerations for which product is going to win the buy box. This means if you are facing an uphill battle winning the buy box, if you are going to go with the FDM method, as opposed to FBA. In fact, if you are just starting out selling on Amazon in going through fulfillment by merchant, you may notice that you are not getting the buy box because Amazon doesn't have any proof of your ability to actually fulfill the orders.
Shipping
What we are going to need to do now that we have the price, is actually add in the shipping as well. Now, it is important to know here, that shipping is going to be factored in as a revenue; this isn't a cost of shipping. This is what we expect to make, off of shipping those products ourselves. So, we don't want to include any fees, whether that is UPS, USPS, fees for packaging, handling, anything like that. We only want to put in what the revenue is that we would get if we expect to ship it ourselves. So, we will just put a dollar in there for now.
Now we are going to need you to come through here, and understand what is the cost of the fulfillment, if we were to do it ourselves. As you can see, we have monthly storage, labor, packaging material, ship to customer, and customer service.
All of those are fees that should be considered, and you should know these numbers when you are calculating the fulfillment side yourself. Now if you don't know these numbers, that is fine. You can just say, I don't know, and we are going to put in an approximate cost. So, we will just say, approximately all those things added up is going to cost us $4.00, if we were to fulfill that product order ourself.
We don't have any shipping for the Amazon FBA side. We also don't have any costs for this seller fulfillment of course, because Amazon's going to handle the fulfillment, but what we will have, are costs that are actually going to be us getting the products to the Amazon Fulfillment Centers. This is going to vary, based on how heavy everything is. We will just put 50 cents here because that is usually a good number. There is going to be some products of course, that will cost more, and quite a few that will cost less, but that will at least give us some numbers, that we can work with.
Cost of Product
Now, what we are going to need to do here, is actually go through, and take a look at the cost of the product. This is where we are going to factor in basically, what did that product cost to get landed here? What is our cost of that? We are just going to factor in, say that it was about $11.00 for us to have this product manufactured, sent over to us, everything that it cost to get that product landed before we are actually selling it to the Amazon FC.
Amazon Calculations (5:52)
So, now we have all of our numbers in here, and what we will do is click “calculate.” Amazon is going to run their numbers, and we can see how everything looks, if we were to compare Amazon FBA, versus the actual fulfillment ourselves — as you can see here, we do have some Amazon seller fees, that have been added on, and that is for both.
Click to Expand
We take a look and click; we are going to have the referral fee, which is generally between 8% to 20%, depending on what the category is. Also, if you are in the media on some other categories, there is going to be a variable closing fee, but for this product, we don't have to worry about that.
We are also going to take a look here, and now we have some Amazon fulfillment fees, so we can take a look and see what our monthly storage is for this product. It is only four cents per product, and what that fulfillment fee is. This is what Amazon is going to charge you to handle all the customer service, pick, pack, ship, actually get that product out there.
All of those numbers together are what we are taking a look at it, and we are seeing that we do have a little bit better margins when we fulfill it ourselves. We are looking at 43.32%, versus 42.33%.
Just the margins aren't the only things that we need to consider when we are debating between the two fulfillment methods, and Amazon makes it easier to go ahead, and look and see, and do some forecasting as well. If we say we sell 100 units sold by seller fulfillment, and we expect though, that if we were to have the Prime eligibility doing Amazon FBA, we expect we can get about 20% increase in sales. Now, even though Amazon has lower margins when we do FBA, the increase in sales, is more than making up for those differences.
So, that is how you use the Amazon FBA calculator, and you can play with this tool, to find profitable products to sell on Amazon. Of course, make sure that you are fulfilling those sales, with the most cost-effective way. You can also go and try a different product if you want to take a look and see how some other ones might line up. It is a pretty intuitive tool, and you can have a lot of fun with it. If you have any questions, be sure to leave them in the comments, and I will be sure to respond. Thanks.