Amazon Raises Seller Fees Amid Slackening Sales, Rising Costs

An Amazon logo on a delivery van in Boston on Oct. 1, 2020. (Steven Senne/AP Photo)

Amazon dealt with slowing sales growth and rising costs by increasing seller fees for the nearly 2 million small businesses that distribute their products on its website.

Sellers on Amazon have been paying more every year on fees as a percentage of their sales, but not because sellers were using more services.

The online retailer has for the first time, pocketed more than 50 percent of sellers’ revenue in 2022, up from 40 percent five years ago, reported Marketplace Pulse, which has been monitoring these transactions since 2016.

A few sellers have paid as much as 60 percent and even 70 percent of their revenue to Amazon in fees, not including payments for inventory, shipping, staff, and other expenses.

“For these small businesses, it’s getting harder and harder to be profitable because they are spending more and more money on Amazon fees,” Juozas Kaziukenas, Marketplace Pulse’s founder and CEO, told Bloomberg.

“Amazon might be tempted to keep increasing fees because it’s in a tough spot, but you have to reach some kind of equilibrium.”

Deducting Seller Revenue

Although Amazon has made fees for its logistics services, known as Fulfillment by Amazon (FBA) optional, most merchants consider it, along with buying ads, a necessary part of doing business with the online retailer.

“A typical Amazon seller pays a 15% transaction fee (Amazon calls it a referral fee), 20-35% in fulfillment fees by Amazon (including storage and other fees), and up to 15% for advertising and promotions on Amazon. The total fees vary depending on the category, product price, size, weight, and the seller’s business model,” said the report.

The 15 percent transaction fee has remained relatively static for over a decade, but it varies by item category and can be as low as 8 percent.

Boxes ready to be delivered during Cyber Monday at the Amazon fulfilment center in Robbinsville Township, N.J., on Nov. 28, 2022. (Eduardo Munoz/Reuters)

Amazon has been increasing fulfillment fees for sellers each year, making higher spending on advertising and storage costs almost unavoidable, said the research firm.

Marketplace Pulse said that since sales on Amazon are tied to using its FBA system, it is very hard for sellers to be successful without using it.

Advertising Expenditures

The online retail giant does not set fixed costs for advertising, but sellers are increasingly willing to pay for ads, making screen space more expensive on the platform.

Some sellers pay very little for advertising, which is mandatory in order to use Amazon’s services.

Although most resellers spend under 5 percent of sales on ads, private labels often spend more than 10 percent on growing their brands on Amazon.

The online retailer also has been suppressing advertisement screen space for organic search results, while boosting the visibility of its paid advertisers since 2018-2019, according to Marketplace Pulse.

The other major online advertisers, like Google and Facebook, have also raised their fees, while fulfillment services by third-party logistics partners are not exactly cheaper than Amazon’s FBA system.

Sellers were able to handle the increase in fees to Amazon over the past few years, but after the pandemic lockdowns eased and people started going out again, online sales have dropped.

Workers select and pack items during Cyber Monday at the Amazon fulfilment center in Robbinsville Township, N.J., on Nov. 28, 2022. (Eduardo Munoz/Reuters)

Slowdown in Growth

Amazon witnessed the slowest sales growth in its history last year, with advertising revenue in the fourth quarter rising by 18.9 percent, well below the 32.2 percent increase the year before.

Due to inflation, Amazon increased its annual U.S. membership fee for a Prime subscription by $20 in 2022.

Amazon CEO Andy Jassy is trying to cut costs by terminating 18,000 corporate jobs and narrowing the company’s focus to key growth areas rather than investing it in a scattered portfolio of new devices and services.

The company also announced plans in January to add a fee to online grocery orders of less than $150, which may upset some shoppers dealing with already high prices.

Since most merchants depend on Amazon for 80 to 90 percent of their sales, they are considered less likely to complain about the fee hikes than the customers.

However, some are already paying for the increases by either raising prices, diversifying from FBA, or even moving away from the online retailer altogether.

While other platforms like Walmart, eBay, or Shopify are cheaper and offer lower transaction fees, their operations could only partially replace Amazon due to their smaller operational footprint and logistics trains.