Many e-commerce companies rely on Amazon for the bulk of their business, but it is a costly proposition with Amazon taking half of their revenue.
According to research by Marketplace Pulse, Amazon has increased its fulfillment fees and mandatory advertising, increasing the percentage it takes from sellers. This has resulted in an increase in Amazon’s cut from 40% five years ago to 50% today.
Interestingly, the base transaction fee has remained a steady 15%. Fulfillment fees, however, have grown to 20-35% and advertising can rack up another 15%. What’s more, the advertising is not optional, meaning sellers are going to pay for it whether they want it or not.
As the research firm highlights, this is leaving many companies making far less than they planned:
Sellers are combating fee increases by either raising prices, diversifying from FBA, or diversifying from Amazon altogether. However, sometimes it’s only at the end of the tax year that they realize how little net profit they have left. A few sellers showed paying 60% and even 70% of their revenue to Amazon in fees. They still had to pay for inventory, freight, employees, and other expenses.
To make matters worse, there are not many good options for companies that want to avoid Amazon’s fees. Walmart is cheaper for new sellers, but doesn’t have nearly the reach that Amazon does. Shopify and eBay, while significantly cheaper, also require the seller to handle more of their own logistics.
With an economic downturn, only time will tell if Amazon is squeezing its sellers too much.