Part One in a four-part series on how new FBA fees have changed the Amazon and bookselling landscape.
In this article:
- Amazon apocalypse prophecies: Which happened & which didn’t.
- Creative ways for FBA sellers to respond.
- What’s next: Coming up in Part II, III & IV.
- Live webinar Friday: “Outsourcing Amazon” (register here)
- Closed bookstore for sale in Portland.
It’s one month after bold new Fulfillment by Amazon (FBA) fees took effect. Many sellers had many doomsday prophecies. And as the dust starts to settle, I’ve surveyed the wreckage to take stock of what has changed for sellers on Amazon.
Back up: A synopsis of new FBA fees
You can read my last article for the full story, but the super short version: Amazon equalized fees for books and media to match those for other categories.
Cheaper books & media took a huge hit, while items at higher price-points ($20+) were less impacted.
My theories on how new FBA fees would change everything: The good and the bad
In my last article, I floated a couple of theories as to how Amazon FBA sellers would respond. There was the potential for this to totally eliminate lowball FBA offers, cause a mass extinction of Amazon megasellers, and more (all good things for us).
There was a lot of hope from myself and others that things could get very interesting – in the good way. Or not.
Recapping my previous theories as to how FBA fees might change everything
- Lowball FBA sellers would raise their prices dramatically.
- Penny merchant fulfilled books would vanish.
- $4 FBA books would vanish.
- Megasellers may do nothing, and continue selling $4 FBA books.
- A mass exodus of FBA booksellers move to the merchant fulfilled model.
- A mass exodus of Amazon booksellers get out of the business altogether.
So, which of these actually happened?
Let’s go through each possibility.
But a quick sidebar: After my last article, several people were confused as to how I could suggest biggest FBA fees could ever be a good thing.
It’s very simple. Higher FBA fees can be good if one of two things happens:
- Skittish sellers flee the business, reducing competition.
- They force FBA prices higher, so more books become more profitable.
I was among the sellers with a lot of hope that once the dust settled, the new FBA fees would be a net positive for sellers who refused to be scared.
With that out of the way, let’s examine the six possible effects of new FBA fees, and which of them did or did not happen (in no particular order).
#1: A mass exodus of FBA booksellers move to the merchant fulfilled model.
Did it happen? A: Uncertain.
Fact is, there’s no way to monitor exactly how many FBA sellers switched to merchant fulfilled after the new fees. Any examples are anecdotal, and hardly scientific. So the verdict is inconclusive.
#2: Lowball FBA sellers would raise their prices dramatically.
Did it happen? A: Yes and maybe.
Across the board, this is nearly impossible to verify conclusively.
What is conclusive is that books on the extreme low end of the spectrum have vanished (see below). Whereas $4 FBA book offers were epidemic before, it is now extremely rare to see FBA offers below $5.75.
So prices on the cheap end of the spectrum have gone up. But just enough to get (most) books from selling at a net loss. I.e., the extreme lowball offers have gone from $4 to $5.75.
#3: Penny merchant fulfilled books would vanish.
Did it happen? A: Yes.
Remember, there were new books & media fees for merchant fulfilled sellers as well.
You still see penny books here and there (rarely), but by and large you now see few books below 50 cents.
(Note: This means we need a clever new term to replace “penny books.”)
#4: $4 FBA books would vanish.
Did it happen? A: Yes.
Again, you’ll still see these now and then, but they’ve almost totally disappeared.
With new FBA fees, profits from selling a $4 FBA book went from mere pennies (at most), to a significant loss. Literally no books can now be sold profitably at $4. Consequently, they have almost entirely vanished.
#5: Megasellers would do nothing, and continue selling $4 FBA books.
Did it happen? A: No.
#6: A mass exodus of Amazon booksellers would get out of the business altogether.
Did it happen? A: Yes. And I can prove it.
In Part III of this series (posted next week), I’m going to prove with hard data that the number of Amazon booksellers has dropped dramatically. And I’m going to reveal numbers as to what percentage of Amazon booksellers have left the business.
How did I get this information? Stay tuned next week for an FBA Mastery exclusive…
So how much do Amazon sellers need to raise our minimum prices now?
My rule has always been that I won’t sell a book that won’t bring me at least a $3 Amazon payout. Below that, it starts to feel like I’m just playing a bottom-feeder’s game.
I have no doubt I have walked away from six-figures in net profit over the years by passing on 50 cents books that would give a $2 Amazon payout. But I (mostly) held firm to my $3 payout rule.
So how have I had to adjust?
Before new Fulfillment by Amazon fees, getting a $3 payout for the average book meant a selling price of $7.50.
Today, a $3 Amazon payout requires a selling price of around $9.25. Huge difference.
On one hand, its true that FBA prices have been forced upward. But I’m not seeing the same number of books that can be sold at $9.25 today that I could sell for $7.50 before the fees.
So the game of “selling a high volume of cheap books” has been significantly comprised.
However, high-priced books are minimally impacted by new Fulfillment by Amazon (FBA) fees
If you’re not doing much business in books or media below, say, the $15 to $20 range, you’re not going to feel the new fees much at all.
At a selling price of $35, your profits are only impacted by about 10%. Not an existentially threatening amount.
That means Amazon sellers who are sourcing online (i.e. “online book arbitrage“), or generally dealing in higher priced books or media, are minimally affected.
(Yes I run an online book arbitrage tool. And yes this point is extremely self-serving. But the numbers back it up.)
The nature of online books & media sourcing is such that you’re paying more per unit than you would offline, but your average Amazon selling price is much higher. So the FBA fee impact is much less.
Bottom line is if you’re doing most of your business in the $20 and up strata, you should barely notice.
What about the rest of us?
Sellers of cheap books: How to cope
Nothing genius about this part. If you’re doing significant business in sub-$10 books on Amazon and want to maintain your current revenue, you have to sell as many $9.25 books as you were selling $7.50 books.
Problem is, there are dramatically fewer $9.25 books than $7.50 books. Any trip to a well-stocked book source will reveal as much.
So your options for adapting to this new reality are really simple:
- Increase your average selling price (do more business in $10-and-up books).
- Increase your sales volume (i.e. more / better book sources, or decreasing payout threshold to $2).
#1 is difficult to engineer without expanding your sourcing range.
#2 is simpler, and my personal choice.
Within #2, getting more creative about sourcing is impossible to argue with, while decreasing payout threshold is more controversial.
To get a $2 Amazon payout today, your selling price must roughly be $7.50. Given this, I’ll start looking very closely at how common $2 books are now, and consider (read: consider) lowering my payout threshold if it will mean a lot more opportunity.
While I don’t like the implications of accepting extremely low payouts, consider that decreasing your minimum payout by 33% could mean you can increase your volume by 100% (or more).
Note I said “could.” It remains to be seen how many $7.50 offers exist with all the FBA offer price-shuffling taking place. But with lowball FBA prices now forced upward, we may see the bazillions of $5 FBA offers from just six weeks ago now becoming $7.50 FBA offers.
And if you’re willing to become a $2 bookseller, this could mean lots of new opportunity. Time will reveal all.
- FBA prices for lowball books have gone up, but far just enough to get lowball sellers back to 30 cent profits (shift form $4 to $6)
- This is significant for books in the sub-$10 range.
- This means very little for sellers in a higher price range / online sourcing.
- Penny books have mostly vanished.
- Getting a $3 payout now requires roughly a $9.25 selling price.
- Options to cope are to increase your average selling price or increase your sales volume.
- Lowering payout threshold to $2 could mean a lot of opportunity (jury still out).
Have your own take on the new fees? Share it in the comments below.
Coming soon: Part II, III & IV in this series
Things are about to get interesting.
In Part II (posted in a few days), I’m highlighting how the entire business model of megasellers is now obsolete. Megasellers may in fact be in crisis.
In Part III, I’m going to break a story on the number of Amazon sellers who have left the business as a result of these new fees. How could I possibly know this? Let’s just say I’m in possession of some hard data on the drop of Amazon sellers from Jan to today. All will be revealed when I post the article next week.
In Part IV, new FBA fees make the FBA column of your scanning app almost totally worthless. I haven’t heard anyone talking about this, and I’m going to go into exactly what I mean (among many other things).
Endnote I: Free webinar, Monday.
I’m doing my (almost) legendary webinar, “Outsourcing Your Amazon Business,” one more time.
- When: Friday, 12pm PST / 3pm EST
- What: A complete system for outsourcing or automating the three hardest parts of your Amazon business.
- How: Register here.
Endnote II: Closed magazine and bookstore for sale in Portland.
Tipped off by a family friend: Over 250,000 magazines (and 2,500 books) for sale in Oregon for less than 4 cents each. (Yes you can sell magazines on Amazon). This could be the deal of a lifetime.