Half a decade ago, Amazon FBA was the fastest way to break into the E-Commerce industry. In 2016, you could launch a product for less than $500 and make thousands of dollars of passive income.
Unfortunately, it has only gotten tougher and tougher since then. Now, not only is the start-up capital requirement much higher than $500, but the market is also saturated with new sellers vying for the same products as you.
That doesn’t mean you should write it off and not even try to attempt Amazon FBA in 2021. Why? All you need is a glance at this chart created by Statista.
According to the New York Times, it took 8 years for e-commerce in the US to grow from 5% to 12% share in retail sales. In contrast, it only took 12 weeks between March 2020 and June 2020 for it to shoot from 12% to 16%. E-commerce has grown exponentially due to the Covid pandemic, and as governments still impose safety measures and work culture continues to shift to remote opportunities, it means this is possibly the best time to try out Amazon FBA.
Even JungleScout’s Seller Report for 2021 confirmed that 44% of Amazon Sellers performed better in the Covid 19 pandemic and over half were profitable going into 2021.
Beware, despite the statistics – it doesn’t mean it won’t be incredibly difficult! Everyone is clamoring to break into e-commerce, and making a successful FBA business in 2021 will take some real time, effort, and creativity if you want to beat the competition.
Amazon FBA in 2021
Total Start-Up Cost
For 2021, the cost of getting started in Amazon FBA is between $3000 – $5000 on average. The majority of FBA sellers claimed to have spent less than $5000 to start their FBA business, with the figure including the cost of their products, FBA storage fees, Amazon fulfillment fees, and Amazon PPC advertising fees, which in 2021 is no longer optional.
A few sellers claimed to have spent less than $1000, but we personally feel this is unlikely with how popular Amazon FBA will be in the coming year. However, it is safe to assume that the maximum start-up cost will not be higher than $5000 unless you have an expensive product or a large-size product which will cost you more in storage and fulfillment fees.
These statistics are from JungleScout’s “State of the Amazon Seller 2021” report, which can be found here.
Below is a breakdown of all the mandatory costs that will add up to this total amount.
Mandatory Costs
When getting started with Amazon FBA, there are a few mandatory costs that are unavoidable. Here’s a breakdown of them, updated for 2021:
1. Monthly Subscription Fee
Professional Selling Plan: $39.99 per month Individual Selling Plan: No fee
2. Per-Item Fees
Professional sellers: No per-item fee Individual sellers: $0.99 fee per item sold
We recommend that sellers take the Individual Selling Plan at the very beginning, to try out a small volume of products. The free plan has a product limit. Once you are ready to move on and expand your business, the Professional Selling Plan will become mandatory, and a cost you will have to bear.
3. Per-Item Referral Fee
Amazon deducts a per-item minimum referral fee which is a percentage of the sale. The referral fee varies according to the category your product belongs in. For example, Baby Products have an 8-15% referral fee depending on the sales price. On the other hand, Amazon Device Accessories have an extremely high referral fee percentage of 45%. Most product categories have a referral fee percentage of about 15%.
When a shopper requests a refund on your product, Amazon charges a $5 fee or 20% of the refunded charge as a fee. These are immediately deducted from your account balance, so be aware of these fees.
5. FBA Fulfillment fees
Fulfillment by Amazon means Amazon is bearing the cost of picking, handling, packaging, and shipping your goods. All FBA sellers are charged an FBA fee to cover these costs borne by Amazon, and these fees depend on the size of your product.
Monthly storage fees are paid at the end of each month for inventory stored in Amazon’s warehouses.
Currently, the monthly storage fees are $0.69 per cubic foot for standard-size products. Fees are higher in October-December at $2.40 per cubic foot for the same. For oversize products, the price is $0.48 per cubic foot during January-September, and $1.20 per cubic foot during October-December.
7. Long-Term Storage Fees
Long-term storage fees are fees incurred when items are stored in Amazon’s warehouses for long periods of time.
180 days or longer will incur a $6.90 per cubic foot fee. 365 days or longer will incur a $0.15 charge per unit.
8. Product Manufacturing Cost
Unfortunately, this is a cost that we cannot predict for you. Your total manufacturing cost will depend on your sourcing agent, your supplier, your product, and your MOQ (minimum order quantity).
Most FBA sellers research the manufacturing cost of their prospective products on aliexpress.com.
9. Product Associated Costs
All Amazon products need a UPC barcode, the cost of acquiring a UPC code from GS1 can be found on the GS1 website.
10. Review Acquisition Cost
While this would be an optional cost in the past, it is incredibly important to make sure you have reviews on your products. Products without reviews do not receive sales, this is simply how Amazon shopping works. Amazon shoppers will not trust a product with low reviews, and will always flock to a brand with a higher amount of ratings and reviews.
While it is against Amazon’s rules to directly request customers for reviews, there are workarounds. You may choose to do a campaign where you offer 100 free units to gather some reviews from your customer base. The cost of acquiring reviews will thus be the cost of those 100 units plus shipping.
You can also sign up for software like RebateKey, to offer customers rebates and later approach them for reviews on said products. The RebateKey platform has a free sign-up, but they will charge $2.95 for every customer rebate claim. As estimated by InfiniteFBA, this means if you give out 20 rebates in one campaign, you will pay around $60 in commission.
Optional Costs
For those looking to start Amazon FBA in 2021, there may be some other additional fees associated. Namely, the cost of using external software to optimize and boost your business. Due to the market being very saturated for most if not all product categories, FBA sellers have to find new and creative ways to beat their competitors, and these, of course, do not come free.
1. Product Inspection Cost
Product quality is one key aspect that will set you apart from competitors. In order to ensure your product is of higher quality, you need to get samples from your supplier, and you need to do a full warehouse inspection.
The estimated cost of samples can be anywhere between $50 to $100 including shipping.
The estimated cost of a factory inspection through an external site such as QIMA will cost around $300 for a 60-page report on the factory. You can also choose to inspect your supplier’s factory yourself. In this case, the cost will vary depending on flight, accommodation, and other miscellaneous costs.
2. Product Listing Optimization Cost
On Amazon, ad ranking depends heavily on the relevancy of your product and the quality of your listing. For this reason, an optional cost would be to have professional photographs for your products.
Professional product photographs can cost anywhere between $500 to $700 dollars. This is extremely expensive, so you can find alternatives locally or using photo-editing software, or simply hire a graphic designer to do this job for you.
3. Keyword Ranking Software Cost
Tracking keyword ranking and knowing the right keywords to rank for is absolutely essential in 2021. There are numerous Amazon Courses that teach you how to do this, or you can self-learn via free Youtube videos. In this case, the cost of software will be optional for you.
However, it is getting increasingly complicated to rank for keywords, and for an Amazon beginner, we recommend using Keyword Ranking Software to find and track your keyword rankings.
We recommend Helium10, which is the premier software when it comes to keyword research, rank and optimization for Amazon. The cost of Helium10 will vary based on the subscription plan you use, there is also a free plan but we do not recommend it since it has very limited access. The cheapest and most popular paid subscription plan for Helium10 is the Platinum Plan, which costs $97 per month.
4. Amazon Advertising Software Cost
Lastly, the most important part of selling on Amazon in 2021, is PPC optimization. Amazon Advertising is no longer optional but mandatory, but the use of an external Amazon PPC software is optional.
Despite this, we highly recommend using an Amazon PPC Management Software, because as a new seller, it will be difficult to understand how bidding works on Amazon, and it will be a headache for you to constantly manually update your keyword bids on a daily basis just to make sure your product is showing up on the first page.
There is an abundance of Amazon PPC Tools out there, and most of them are expensive, ranging from taking 1% of your PPC spend to $100-$500 monthly. You will see a lot of articles titled “Best Amazon PPC Software” but the truth is it is very experimental, and not all software will work best for you, or your product. Amazon Advertising Software is absolutely key in 2021, and we recommend you to carefully consider which software you choose to use.
We at SellerMetrics can do the heavy lifting for you and offer you a scheduled account audit to find you the best strategies for PPC optimization that will meet your Amazon goals and objectives. More than that, we offer clear and transparent pricing and will not price based on budget. Sign up as a Beta User if you’re interested!
Conclusion
The numbers may be daunting, and the Amazon FBA market may indeed be oversaturated but it is important to remember that so is every other platform you may be considering – eBay, Walmart, Shopify, Target – are all e-commerce platforms that are steadily becoming saturated with sellers as ecommerce businesses boom in the Covid pandemic era.
What is difficult, however, is not impossible. When asked if Amazon FBA is worth it in 2021, we would say that it is indeed worth it. With creativity, knowledge, and the right expertise, you can still succeed on Amazon, and Amazon FBA is still a way to become a successful entrepreneur, especially in 2021 when e-commerce is arguably one of the best entrepreneurial opportunities out there.
