This is an article that I wrote for Skip McGrath. You can view it here and view Skip’s site here.
‘Penny books’ (books that sell for $0.01 + shipping) have been around on Amazon for a long time. They are the result of a competitive marketplace and a downward spiral of ruthless competition trying to complete on price alone. Sellers dropping price again and again as they look to be the ‘best price’ and get that next sale. It a common practice in all markets, but you may start to wonder, “At these prices, is anyone making any money?” It’s a great question! Let’s look at the numbers.
First off, remember that when a penny book sells on Amazon from a merchant fulfilled seller (a seller that ships their own orders), the buyer is actually paying $4.00 ($0.01 + $3.99 shipping). The $3.99 shipping is fixed for all books. A seller who uses Amazon’s Fulfillment By Amazon (FBA) program would price that same book at $4.00 in order to ‘match’ the merchant fulfilled seller’s price. So when comparing fees structures on penny book sales from merchant fulfilled sellers and FBA sellers, we are using slightly different prices to find our net profit.
With the advent of FBA, penny books turned into essentially sub-penny books, because now sellers could price their books lower than the $4.00 total price. The merchant fulfilled seller has an absolute price floor of $4.00 because of the $3.99 shipping credit on all book orders; they simply cannot price any lower than the $0.01. The FBA seller can go below $4.00; they can go all the way down to $0.01 as an FBA price if the want to (want to lose money that is). So FBA sellers are able to push the prices on penny books down even further. They will often push the prices down so low that they are literally working for pennies per book and sometimes even set prices where they lose money on every sale. Hopefully, by understanding the Amazon fee structures for both merchant fulfilled and FBA, you can avoid ever losing money on a sale.
All fees can be checked on the Amazon website and by using the Amazon fee calculator.
https://www.amazon.com/gp/seller-account/mm-product-page.html?topic=200274770
http://www.amazonservices.com/content/fulfillment-by-amazon.htm#!pricing
https://sellercentral.amazon.com/gp/fbacalc/fba-calculator.html
Take this book for example: The Long Tail
This is a small, lightweight book. If it was sold for $0.01, the buyer would pay $4.00 total with shipping. Amazon would take 15% of $0.01 (which is zero), as well as a $1.35 Variable Closing Fee (VCF). So the seller would end up with $2.65 in their Amazon account. They would then have to ship the book to the customer. The most inexpensive shipping rate is USPS Media Mail.
T rate for up to one pound is $2.47. This leaves the seller with $0.18 left to pay for packaging/envelopes, labels, tape, and their time and effort to pack the order and make sure it gets to the Post Office. Not exactly how I would suggest sellers spend their time, especially new sellers! So are all of these sellers making just a few cents each on their sales? Some are, but there are ways to get even better USPS Media Mail rates and that is to do some heavy volume. We’re talking about 300 orders per day and on top of the volume requirement, you also have to presort your shipments. Can money be made this way? Sure; but it is a lot of work and it is not exactly a scalable option for most new sellers.
So, is FBA the answer to being profitable selling penny books? Well, it was, but not as much anymore. A few years ago, not as many sellers had figured out how lucrative FBA was (and still is) so there was not as much competition from FBA book sellers. This meant that FBA prices were still at levels where sellers were making a nice profit per sale.
Here is how FBA penny books used to work. An FBA seller would list their books that normally sold for $0.01, but they would list for $4.00. They would get the sale easily because the net price to the buyer was the same and the buyer actually received much faster shipping from the FBA seller than from a merchant fulfilled seller who used Media Mail.
Take this same book: The Long Tail
If it was sold for $4.00 from an FBA seller, the OLD fee structure would look like this:
15% commission: $0.60
Pick and Pack fee: $0.60
Variable Closing Fee: $1.35
Weight Based Fee: $0.22 (.55 lb x $0.40/lb)
So after all fees, the FBA seller gets $1.23 using the OLD fee structure. This was a dream come true compared to packing up hundreds of penny books a day for less than a quarter profit each! So as more and more sellers realized this, more and more sellers adopted the FBA model. As a natural progression, prices began to be pushed downward again.
With more and more sellers using FBA, sellers naturally looked for ways to compete further. This led to sellers pricing their items BELOW $4.00 which was actually lower than any merchant fulfilled book seller could even go. With each seller dropping price by $0.01 to try to attract the next sale, another seller would then drop price below them. The same downward spiral that led to books being sold for a penny was now looking for a new price floor with FBA. So how low could they go? Well, they ended up going as low (and sometimes lower) then the absolute break even point of profit. Sellers would sell books for prices where, after fees, they made $0.00. While this may seen silly to most sellers, you may have also forgotten that this wasn’t just giving a book away for free; that seller actually paid inbound shipping charges to get that book to an Amazon FBA warehouse as well as put in the time and effort to sort, list, label, and pack up that book in an FBA shipment.
The prices were being pushed down to their theoretical break even points. This book could be sold through FBA for $2.77 and the seller would net out zero. The sellers had a new price floor for each item instead of $0.01.
This month (2/2012), Amazon introduced a new fee structure for FBA sellers that affected low priced, light-weight media items. Media items under $25: Pick & Pack Fee going UP from $.60 per unit to $1.00 per unit. Weight Based Handling Fee (per pound) going DOWN from $.40 to $.37 but ROUNDING UP to the nearest pound.
So look at the same book sold through FBA today:
15% commission: $0.60
Pick and Pack fee: $1.00
Variable Closing Fee: $1.35
Weight Based Fee: $0.37 (.55 lb rounded up to 1 lb x $0.37/lb)
So after all fees, the FBA seller gets $0.68 using the NEW fee structure. This is a big change from the $1.23 that the sellers were getting before. What this does is increase the theoretical price floor that sellers should not be pricing under (unless the choose to lose money on purpose). This book should now have a minimum base price of $3.32.
Time will tell how sellers will adapt to the ever-changing marketplace. In theory, all low priced, light-weight media items sold through FBA should go up in price to reflect the $0.40 increase in the Pick & Pack fee as well the weight based fee being rounded up. Time will tell if sellers paid attention to these changes properly or not.
You’ll see items on Amazon that you know are being sold at a loss. While your curiosity may pique as to what’s going on, don’t let your curiosity lead you to believe that this is some magic business model that you need to be a part of. You have limited time in each day, so spend it wisely selling profitable items and not chasing pennies around. When a seller realizes that they have inventory at Amazon that will likely never sell, they have three options; sell it at a low price (possibly at a loss), pay to have it returned to them, or pay to have it destroyed (thrown out). Removing the item from Amazon would cost the seller $0.50, destroying the item would cost them $0.15, or they could try to sell the item for less than a $0.15 loss and try to come out a few cents ahead compared to destroying the item. This entire scenario can be avoided by not sending in items that won’t sell. If you do find yourself in this situation, take steps to remedy it efficiently. I would not spend too much time trying to reprice items to try to lose only $0.10 instead of losing $0.15 because time is money. Spend it wisely on profitable items. Sometimes you just gotta get rid of the junk. So when you see prices this low, this could be what is happening.
It’s no secret; Amazon 
Amazon has openly said that they will not enforce how sellers price their items. The Amazon marketplace fees are set and known ahead of time so if a seller chooses to sell at a price that does not make them any money, that is their choice. However they price their items, when they sell, Amazon knows they will making money on that order.
http://www.amazon.com/gp/help/customer/display.html/?nodeId=200684570
On February 15 and August 15 of every year FBA conducts an inventory cleanup, at which time inventory Units that have been in our fulfillment centers for 365 days or longer will be assessed an upfront, semi-annual Long-Term Storage Fee of $22.50 per cubic foot.
To provide additional flexibility to maintain your unique selection, one Unit of each applicable product ASIN will be exempted from the semi-annual Long-Term Storage Fee if none of your Units of that ASIN have been in our fulfillment centers for less than 365 days. Please note, FBA accounts for inventory on a first-in-first-out (FIFO) basis.
| Inventory cleanup dates | Affected inventory | Long-Term Storage Fee (per cubic foot) |
| August 15 February 15 |
Units in fulfillment centers 365 days or longer |
$22.50 |
Units in our fulfillment centers for 365 days or longer are charged the Long-Term Storage Fee semi-annually on August 15 and February 15.
One Unit of each applicable product ASIN will be exempted from the annual Long-Term Storage Fee if none of your Units of that ASIN have been in our fulfillment centers for less than 365 days.
In advance of each Inventory Cleanup, we will notify you of any Units in your FBA inventory that will have been in our fulfillment centers for 365 days or longer as of that date.
Use the Recommended Removal report and the Inventory Health report to identify your inventory that is likely to be included in the Long-Term Storage program during the next inventory cleanup event. Products will appear in the Recommended Removals Report six weeks prior to the cleanup date.
Below is the blog post that I did about the August 15th cleanup date. I hope it helps you evaluate your inventory and make the necessary adjustments.
REPOST from August 10, 2011:
Have you received an email like this?
Dear Seller,
The FBA Long-Term Storage Fee will take effect on August 15, 2011, less than one week away. Be sure to submit your removal request before midnight PDT on this date to avoid incurring Long-Term Storage Fees.
I received it TWICE; once on my books & media account, and again for my ‘everything else’ account where I sell toys, tools, and, well, everything else.
What is the Long Term Storage Fee?
The Long Term Storage Fee is $45/cubic foot that is charged on items stored in FBA warehouses for more than one year. This does not mean that every item that you send to FBA has to sell within 12 months. There is an exemption for single units of an ASIN. This means that Amazon still wants your Long Tail items (items that sell, they simply don’t sell very often), they just don’t want three copies of a book that sells once every three years. This would be nine years supply of inventory and it is not how Amazon envisioned the FBA program.
| Item | Dimensions | 1 unit | 2nd unit | 10 units |
| Book | 8″ X 6″ X 1″ | $0.00 | $1.10 | $9.90 |
| Toy | 11″ X 8″ X 2″ | $0.00 | $4.58 | $41.22 |
Believe me, Amazon does NOT want to charge you the Long Term Storage Fee. This is not a profit center for them. They want FBA warehouses humming with inventory coming in and orders going out. This is what they are good at. They do not want to be in the storage business.
Want to know my numbers? I’ll show you:
Books & Media:
As of August 8, 2011, you have 2,060 Units of inventory that will have been in our fulfillment centers for 365 days or more on August 15th for which you will be charged $2,384,unless you submit a request to remove them (or they sell) before that date.
Everything Else:
As of August 8, 2011, you have 181 Units of inventory that will have been in our fulfillment centers for 365 days or more on August 15th for which you will be charged $4,071,unless you submit a request to remove them (or they sell) before that date.
I’m pretty sure that most sellers are not looking at such high numbers. When I started with books, I’ll admit I was a dummy. I thought I was a genius and happily bought ex-library books on tape sets that were listed for $70+ on Amazon. Too bad I didn’t know the difference between ‘listed for’ and ‘selling for’ (I’m better now, thanks). Learned a few things about Sales Rank is the past three years as well
From Amazon:
Return and Disposal of FBA Inventory – Fees
Through August 15, 2011 the per-unit fee to have inventory over 270 days old returned to you is $0.20 per-Unit including shipping ($0.40 including shipping for Oversize Units), or you can have Amazon dispose of the inventory Units for no charge.
After August 15, 2011, the per-unit fee to have inventory returned to you is $0.50 per-Unit including shipping ($0.60 including shipping for Oversize Units), or you can have Amazon dispose of the inventory for $0.15 per-Unit ($0.30 for Oversize Units).
I have some oversize items on my Everything Else account that is pushing the Long Term Storage Fees way up. I sent Amazon all of my oversize items because the monthly fees were so low. Amazon admits that they did not expect this behavior when they implemented the FBA program and defined the fee structure. This behavior (myself included) is in part what prompted the Long Term Storage Fees. This post has two parts; first, how to analyze and remove/dispose of your older inventory to avoid the Long Term Storage Fees, and second, what these rules are for and how to optimally send inventory to Amazon’s FBA warehouses.
Analyzing Your Aging Inventory
Log into your Amazon Seller Account: https://sellercentral.amazon.com/gp/homepage.html (seller account required)
Look under Reports, then click on Fulfillment.
Under Inventory, you’ll see two reports. One called Inventory Health, and the other called Recommended Removal.
Request both of these reports to be downloaded. Save, and open in Excel. Familiarize yourself with these reports; they are very helpful. Right now you want to look at the columns that relate to Inventory Age (270-365 days & 365+ days) as this will show you the items on which Amazon will charge you the Long Term Storage Fee.
Creating a Removal Order
FBA Manual 6.4 Create Removal Orders
Amazon has actually made this process fairly easy. Here’s how I did it on my accounts:
Go to your Seller Account, Reports, Fulfillment, choose Recommended Removal, View Online, click on Generate Report.
You’ll now see the first 150 items from your Recommended Removal Report. These are all items that will be charged the Long Term Removal Fee or that have single quantities of inventory that have been in stock for 365+ days. Click on Begin Removal Process.
Most of these items you will want to remove or destroy. The ones to double check are the ones that have a Fulfillable Quantity of one and Available Quantity of one (even if at FBA for 365+ days). These may be Long Tail items that you want to keep in inventory. Remember, single inventory units per ASIN are exempt from the Long Term Storage Fee. I copied and pasted the ASIN into Amazon to check the prices and Sales Rank for these items to decide if I wanted to keep them at FBA or remove/destroy. If you want to keep them, check the box in the Delete column to remove the item from the removal order. Once you have reviewed the items, click the Continue button at the bottom of the screen and complete the process. If you have more than 150 items to review, repeat the process for the additional items.
You have to have your removal order PLACED by AUGUST 15, 2011 to avoid the Long Term Storage Fees. Don’t wait until the last minute.
Note: you may be able to get a tax deduction by shipping a Removal Order to a thrift store or non-profit for an amount great than $0.20/unit. Correction: Business inventory cannot be donated for a tax write off like this. You can go through the steps to convert business inventory to personal use and then make a donation, but I doubt that it is worth the trouble in this case. (Thanks Karin!)
Creating a Disposal Order
Follow the same steps as above for creating a Removal Order, but instead of clicking Ship To Address and entering an address, you’ll click on Destroy. Trust me, when Amazon says they will destroy the items, they will be destroyed.
What’s Really Going On?
As mentioned above, Amazon does NOT want to charge you the Long Term Storage Fee. If they did, they would not make so many reports available to you and make it easy to identify and dispose of this type of inventory. They even reduced the removal and disposal fees to help sellers adjust to this new rule. It’s only $0.20 to get Amazon to pick, pack, and SHIP an item back to you. I don’t know about you, but i can’t even buy a box for twenty cents, let alone pack and and ship it somewhere. And if your inventory is scrap or junk, Amazon will toss it for you FOR FREE.
This fee is designed to encourage FBA sellers to manage their FBA inventory better and to not simply use FBA warehouses as a cheap storage unit for all of their inventory. The FBA storage fees were so low that many sellers (myself included) simply sent Amazon everything because it was so cheap to store it at FBA that it made sense.
Who remembers fourth quarter last year (2010) when Amazon halted inbound FBA shipments because FBA warehouses were full? I sure do. This fee will prevent this from happening again. Amazon wanted nothing but to receive inbound shipments and get stuff listed and sold, but too many sellers filled up the warehouses with slow moving inventory. The new Long Term Storage Fee will discourage this practice and keep FBA warehouses able to receive products without any delays.
Summary:
Think of it this way: only send Amazon a maximum of ONE YEAR SUPPLY of any product and you will never be charged the Long Term Storage Fee. Single quantity items are excluded to you can still send in Long Tail items without worry. Periodically check the Inventory Health Report and the Recommended Removal Report. Most FBA sellers who sell books and media items with quantity of one will be largely unaffected by this new fee. If you need any help having your inventory returned to you or disposed of, please contact Amazon’s Seller Support team using the Contact Us link in your Seller Account.
What started on September 16, 2011, has grown into an amazing destination for live FBA discussion from some of the best minds in the FBA business!
You can catch FBARadio LIVE every Monday & Friday at 3 PM EST on TalkShoe. Replays are available on iTunes.
FBARadio is hosted by four amazing individuals who each bring a unique perpective to the discussion. This diversity and commitment to excellence is the reason why FBARadio has become such a great source of FBA information. Each person enjoys sharing, teaching, and has a mindset of abundance!
In addition to the live radio show and interactive chatroom, there is also a very active Facebook Group discussing all things FBA.
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Chris Green is the Director of FBAPower, the FBA-centric suite of tools designed specifically for FBA sellers. These tools include FBAPower to list, price, and label FBA inventory, FBAScout for mobile product sourcing on iPhone and Android, FBARepricer to keep FBA items priced competitively, and FBAEvaluator for efficiently evaluating lists of items for FBA suitability.
Chris is also the author of the best-selling book Retail Arbitrage: The BLUEPRINT for Buying Retail Products to Sell Online for BIG PROFITS. It’s available on Amazon.com in both paperback and Kindle. |
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Lisa Suttora is a noted Ecommerce Expert, Product Trendologist, author, speaker and the Founder/CEO of WhatDoISell.com. One of 34 eBay Certified Providers worldwide, Lisa specializes in helping independent entrepreneurs start, run and expand their eCommerce business.
With more than 15 years in online & offline retail merchandising, Lisa brings a unique approach and a wealth of experience to the question of “What to sell and how to sell it?” |
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Bob Willey has been selling on Amazon using FBA since June of 2008, and on Amazon since 2005. He is mostly FBA and uses FBA to sell practically anything! When it comes to selling on Amazon using FBA, Bob doesn’t discriminate; the only requirement is that the items are profitable! Bob has also been selling on eBay since 1998 with over 11,000 feedbacks (100% Positive).
He has been an eBay Trading Assistant for over 5 years.You can find Bob online at http://FBAForum.FBARocks.com |
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Kat Simpson is the producer of FBARadio and Director of ThatKat: http://thatkat.com/ Kat is also a social media fiend. She has not one but two Twitter accounts, one for her online store and another for her social media blog, ThatKatSimpson.
Her blog posts deal with everything involving online businesses, including selling on eBay and Amazon plus recent news and rumors in the eCommerce world. |
You can catch all past episodes as podcasts in iTunes!
Join FBARadio every Monday & Friday at 3 PM EST and join us in our LIVE chatroom!
You can also read the FBARadio blog on your Kindle!
