Plenty of online retailers view Amazon as the holy grail of ecommerce, the most lucrative and profitable market in history. And they’re right, to an extent, but there’s another issue that often goes undiscussed: how much of those potential profits can you actually take home after the costs of selling on Amazon? How much does it cost to sell on Amazon, really?
There’s a lot to consider when planning your Amazon budget or calculating whether it’s worth it to open a shop there. You have your selling plan fees, which are separate from your referral fees, which don’t factor in fulfillment costs, which land on top of standard retail company fees like procurement, storage, marketing, labor, and overhead.
Before diving into the deep end, we recommend planning your budget to predict how much you’ll actually make if you sell on Amazon. Below, we list the figures and estimates you need to determine how profitable your new venture will be.
The Short Answer
According to research from JungleScout, the average cost new Amazon sellers spend to start their business is $3,836. Remember that’s just the average; their report breaks down the initial costs into different categories with the percentages of sellers who fit into each one.
Of course, in practice the costs sellers face vary wildly from a few hundred dollars to tens of thousands. This guide uses estimates based on the standard Amazon experience: we assume you’re operating in the U.S. and that your products are small and require no special assistance.
Standard Amazon Fees
For starters, Amazon charges regular fees in exchange for using its marketplace. Sellers have two different options for payment, which Amazon calls Selling Plans.
- Individual: $0.99 per item sold
- Professional: $39.99 per month
The Individual plan is geared more towards inexperienced sellers or merchants testing the waters, while the Professional plan comes with extra perks like API integration, creating bulk listings, and extra options for promotions/advertising. Amazon themselves recommends the Individual plan only if you sell less than 40 items per month or want to collect product sales data.
But the Selling Plan is just the cost of running a store in Amazon’s marketplace. Additionally, you also must pay a Referral Fee, a euphemism for Amazon’s commission. The referral fee is a percentage of the sales cost, although they charge a minimum referral fee for smaller sales.
Referral fees depend on product categories; for example, Toys & Games have a 15% referral fee, whereas Personal Computers have a 6% fee. Most hover around 15%, but we recommend checking the fees for your best-selling categories on this chart so you can plan ahead.
Looking for top-selling Amazon product categories, check out our blog post.
While the two fees above apply to all Amazon sellers, under certain circumstances there may be other charges. Two of the common ones are for barcodes and registered trademarks.
All products sold through Amazon need a barcode. If your manufacturer or supplier already includes an acceptable barcode, you’re all set. But if you manufacture your own products or the manufacturer doesn’t provide a barcode, you have to pay to get one yourself.
Amazon requires barcodes from an organization called GS1, the official global provider. For up to 10 barcodes, GS1 charges an initial registration fee of $250 plus a $50 annual renewal fee.
Private label products — products bought from a manufacturer that are “rebranded” under the seller’s own label — are quite common on Amazon. Nonetheless, Amazon requires that private label owners have a registered trademark in order to be listed in their Brand Registry.
Using a local IP attorney, it typically costs around $350 to register a trademark. An equally important issue, though, is time: it can take months to get your brand registered, so it’s best to plan ahead if you want to break into the private label business.
If you can’t wait, Amazon offers an IP Accelerator to help you get your trademark sooner, although that costs more, usually between $750 and $1,000.
On top of the Amazon-specific fees, you still have to worry about all the standard costs of online retail. Most of these costs will depend on your business model and product sourcing — for example, dropshippers don’t have to worry about storage or shipment, but they typically pay more for marketing. While we can’t give accurate estimates for all the different ecommerce models, what we can do is list the common fees all online retailers have to deal with.
Promotion & Advertising
Depending on your approach, your promotion and advertising budget could range from hundreds of dollars to nothing. However, we recommend always spending at least something in digital marketing — the way online shopping works, digital ads are more-or-less a necessity.
There are plenty of different ad types, as well as an equally varied amount of places to broadcast them. In both the style of the ad and where you publish it, consider your intended audience.
To give you an initial estimate, a good minimum ad budget for new sellers is $300 per month, or $10 a day for 30 days. Amazon has a built-in advertising network with different types of ads to choose from, as well as seller tools like Amazon DSP, which helps you buy online ad space.
Managing all your products, sales channels, and shipments can be a lot for small and young ecommerce brands. Enterprises have the luxury of a large labor workforce, but companies with only two or three employees (or even just one) often have to tackle these tasks alone.
If you can’t hire more workers, the alternative is ecommerce software like Ecomdash. By automating inventory management and shipping logistics, Ecomdash frees up your time so you can spend it managing your company. Rather than digging up old analytics or manually tracking a package, your software can handle those tasks for you.
Ecomdash is full of features to help save you time, including a bulk listings editor, dropship automation, and data analytics. There’s also discounted postage through Endicia, Pitney Bowes, and Stamps.com, which could help you offer free shipping and attract more customers. We offer software perfect for ecommerce businesses of all sizes. To see for yourself, try our 15-day free trial now — no credit card needed.
Budgeting for Success
Amazon is no get-rich-quick scheme. It’s a highly competitive market and your success depends on your battle plan. Different business strategies will have different costs and demands, but using the information above, you can create a realistic forecast for any model and reveal hidden pitfalls. The more you narrow down your business plan, the fewer surprises will crop up later.