Amazon FBA Sellers Beware! The Model is Collapsing…Here’s Why

if you are thinking about selling on Amazon or if you're already selling on Amazon and debating whether to continue selling on Amazon you need to watch this video now as you may or may not know Amazon recently introduced a slew of new fees and they also made several policy changes that just went active this video will enumerate all the costs so you know what you're getting into Amazon isn't the same place that it was to sell 5 years ago and don't listen to all the Amazon gurus out there it is now harder than you think now let's start by looking at the data if you look at Amazon's income reports for 2023 Amazon's Q4 earnings for thirdparty seller Revenue was 43.4 billion which was up 20% year-over-year now in case you aren't familiar with the terminology thirdparty sellers are people like you and me who sell their own products on the Amazon platform now 20% growth sounds like a very healthy number until you take a deeper look into the numbers while Amazon's Q4 earnings for third party seller Revenue was up 20% their online store Revenue was only up 9% so where's the discrepancy most of Amazon's gains in Revenue were due to increased Amazon FBA fees so basically they made more than double their gains on the backs of third party Sellers and charging them more money meanwhile Amazon's ad Revenue also increased by 27% year-over-year as well and guess who pays those advertising costs third party sellers now if you look at the Amazon search results it is now plastered with ads and sponsored products even if your product ranks number one organically you are still pushed far down the page now this is similar to what Google has resorted to over the years to beat earnings estimates now I'm a member of many Amazon and e-commerce Mastermind groups and costs are up for everyone across the board over 25% year-over-year now while we're on the topic of fees let's talk about the brand new fees that Amazon introduced in 2024 now as of March 1st Amazon is now forcing three piece sellers to pay what they call an inbound placement fee on a per unit basis basically you are now charged a fee of between 21 cents to $6 per unit for Amazon to accept standard and large bulky products into their warehouse now this fee is supposed to reflect the cost of Distributing inventory to multiple fulfillment centers now the following table enumerates the exact Amazon seller fees for inventory placement if you want to take a look but bottom line you now have to pay 15% for Amazon whenever you make a sale a fulfillment fee that eats another 10 to 15% in addition to a placement fee when your goods arrive at their warehouse sounds pretty bad right unfortunately it gets worse as of April 1st Amazon has also introduced a low inventory search charge now this fee applies if you consistently carry low inventory levels of your products relative to your unit sales now it's one thing to get charged if you have too much inventory in Amazon's warehouse but now you're going to get charged if you have too little inventory in Amazon as well and here's how the fee works let's say you typically sell 1,000 units per month and you let your inventory level slip to 500 units in stock this means that you're going to get charged a fee for those 500 units because Amazon wants you to have 1,000 units in stock NOW Amazon has tried to justify this fee because they need to place your inventory closer to customers across their network but Amazon sellers are legitimately Furious due to massive backlash among sellers Amazon is now giving a one-month free grace period for these fees but this fee is is not going away so now not only do you have to worry about sending too much inventory in but now you also have to worry about sending too little as well and with these two Amazon fees I wouldn't be surprised if Amazon Beats earnings again based on the backs of third party sellers that is unless these sellers go bankrupt by the way if you're enjoying this video so far make sure you sign up for my free 6 day e-commerce mini course below that will tell you how to navigate all these Waters then there's the issue of Chinese sellers dominating the platform now according to Marketplace pulse China based sellers represent nearly 50% of the top sellers on Amazon in the United States a cohort that likely drives almost half of the thirdparty gross market value now the presence of Chinese sellers on Amazon has been growing steadily since the start of tracking in 2016 check out this graph courtesy of marketplace pulse but here's the kicker have you ever looked on Amazon before and wondered how some of these Amazon sellers can possibly be making any profit well let's take take this item here since I personally sell handkerchiefs online this product is only $7.99 and the fees are estimated to be $36 let's say the product cost them about four bucks for six pieces which is approximately what our cost would be that is a profit of only 83 I also went and checked their account and they are currently paying for Amazon advertising and at an 83 C profit per sale their conversion rate pretty much has to be 100% for them to just break even so how can these Chinese sell possibly make any profit the secret is that the Chinese government may be offering tax rebates and exemptions on certain products destined for export so basically these government subsidies and Export credits effectively lower their costs by an additional 5 to 10% not only that but they're the factory so they're going to get lower pricing than you in the first place you add the lower costs and these subsidies together and basically Chinese sellers can squeak by with the tiniest of profits while squeezing you out of the transaction entirely because branding is pretty much non-existent on Amazon Amazon Shoppers tend to shop mostly based on price now technically these subsidies are anti-competitive behavior and perhaps a WTO May Crack down in this practice someday but right now it's happening all over Amazon here's another big expense that all Amazon sellers incur that isn't really discussed online have you ever seen Amazon sellers on YouTube or Facebook flash their revenue numbers or screenshots of their Seller Central accounts well all those screen shots do not reflect their true earnings or their true Revenue numbers because of returns Amazon became popular among buyers because of their unconditional a toz money back guarantee basically Amazon makes it ridiculously easy for someone to make a return so the average return rate is 12% for electronics it's 15 to 20% and for high and apparel it's as high as 35% now here's the reason why all the income reports you see online are bogus when you make a sale your Revenue number goes up in Seller Central but when you get a refund Seller Central does not decrease your Revenue Amazon clearly does this on purpose to make you think you're making all this money when in fact up to 35% of your sales can be refunded even worse Amazon charges you an additional fee to process these returns now return costs are dangerous for most sellers because it's not always clear how to account for returns accurately here's how it works when a customer places an order you have to pay a 15% referral fee which is Amazon's commission for the sale you also have to pay an FBA fee which is a flat shipping fee per unit based on the size and weight of your product and then finally you have your cost of goods which is the amount you pay for your product now when a customer applies for a refund Amazon immediately refunds the total price of the product to the customer before they even return it you do not get your FBA fulfillment fee back and you also get charg an Amazon refund fee on top of it once again the actual cost of a refund to your bottom line is nearly impossible to calculate calculate correctly unless you're using third party software also the products that are returned are often unsellable because customers abuse Amazon's liberal return policy so bottom line never believe any of the Amazon income reports you see online the final reason why selling on Amazon is much less attractive today is because of Chinese sellers selling on other platforms like Teemu I've already showed you a product that is priced ridiculously low on Amazon for handkerchiefs which is something that I sell in my own online store but those prices are nothing in comparison to identical products being offered on teu right now Teemu is an online Marketplace that offers extremely affordable prices on thousands of products shipped directly from China because these products are being shipped directly from a Chinese Factory they effectively bypass all the middlemen so you're paying the lowest prices possible remember all those handkerchiefs I showed you earlier on Amazon well guess how much they cost on Teemu $4.50 heck there's no way in hell that I could possibly import men's hankys at this price in bulk and still make a profit so how can Teemu possibly sell products at prices as low well they have two main advantages that us sellers do not one teimo does not have to pay any Customs taxes whatsoever there's a rule in the United States called the DI Minimus rule where you don't have to pay any taxes whatsoever if the value of the shipment is below $800 whereas sellers like myself have to import large containers of product in order to make the economics work Chinese sellers on timu are shipping products from China one by one and and avoiding all these taxes second these products are coming straight from the factory so they automatically have better pricing than you do as an importer when teu first came out I was skeptical because the packaging and quality control for these products are terrible plus it takes 7 to 15 business days for a product to reach the US from China but guess what US citizens are so much in debt right now and hurting so badly that quality and shipping times don't seem to really matter take a look at this air fryer which sells for $75 on Amazon amaz this exact same product is available on timu For $52 so which one are you going to buy are you willing to wait a week to save 33% well the success of teu says yes here's a more egregious example this memory phone mat sells for $46 on Amazon but on timu it's only a17 anyway the million-dollar question here is whether e-commerce in general is doomed is it game over for small businesses and here's my honest opinion with all the new Amazon fees and pressure from Chinese sellers and platforms like timu selling on Amazon FBA is a lot harder today than ever before but if you Source high quality products and sell Omni Channel with your own online store you can definitely succeed remember all those handkerchiefs at rock bottom prices that I showed you earlier well I actually bought them and the quality is horrific the ones that we carry are much softer and higher quality not only that but we offer custom embroidery and printing which allows us to achieve 90 plus per margins pric is and everything emotions are everything let's look at Dr Squatch this company sells soap for men which is a commodity product and on teu you can buy soap for pennies on the dollar but Dr Squatch charges $8 for a single bar of soap and how is this possible well it's because Dr Squatch has mastered the art of emotional marketing take a look at this short clip of one of their commercials Dr Squatch doesn't sell soap they're really selling sexual companionship the key to succeeding in e-commerce is marketing and branding and guess what these are by far the worst attributes of selling on Amazon you can't build a brand on Amazon you can't really Market effectively on Amazon so your options on Amazon are limited the only real way to succeed in e-commerce today is to own your own web presence and create content to build a brand ultimately your goal should be to sell in as many different marketplaces as possible to diversify your sales now that you understand what's going on with Amazon make sure you watch this video here to learn exactly what I would do today if I were to start all over again in e-commerce

Channel: MyWifeQuitHerJob Ecommerce Channel

Views: 22,953

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Id: cUNDxY57JzM

Length: 11min 34sec (694 seconds)

Published: Tue Apr 30 2024