The whole story about new Fulfillment by Amazon (FBA) fees for books & media
In the Fulfillment by Amazon (FBA) world, I always say that about once or twice a year, everyone screams the sky is falling.
And people are screaming that now. But this time (unlike this time), the new FBA fees are serious. And in this article I break down exactly what they will mean for Amazon sellers – the truths and the myths.
So what’s happening?
Today (Februrary 22nd, 2017), Amazon institutes the most significant new fees I’ve seen since I started selling books on Amazon in 2007 (and with FBA in 2011).
Before we get into the numbers, the basic nature of these new FBA fees can be summed up as this:
Media sellers are no longer getting a break from Amazon, and new fees merely align books & media commissions with every other category on Amazon.
As with all significant changes, the conversation tends to be dominated by doomsday theorists with an unbalanced take on the facts. Yet there is a real cause for concern here, so let’s break it all down…
First, what are the theories as to what havoc these fees will unleash?
Here’s a few…
- The end of penny books.
- The end of selling cheap books on Amazon.
- The end of selling books on Amazon.
New FBA fees: broad strokes
The new FBA fees are summed up in one line from Amazon:
“Effective February 22, 2017, fulfillment fees for media items will be increased to be the same as the fulfillment fees for non-media items, and media and non-media items will be consolidated into a single standard-size tier.”
There are some other changes (such as new fees for the holidays & upcoming split shipment increases), but this basically covers it.
New FBA fees: running the numbers
The only effective way to communicate what these new FBA fees will mean is to show the before & after with various size books (weight factors heavily into FBA fees – nothing new).
The idea here was to pick one book from the most common book sizes, then assume what I consider a “common” price for each, then show the old payout versus payout with new fees (payout being the amount Amazon puts in your bank account after a sale).
So let’s look at these different book sizes:
- mass market paperbacks
- trade paperbacks
- regular hardcovers
- large hardcovers
Book strata #1: mass market paperback
Book example #1: Rich Dad Poor Dad (mass market paperback edition)
Sales price: $7
Payout before new fees: $3.03
Payout after new fees: $2.18
Net margin drop: 12%
Payout percentage change: 28%
Analysis: These changes are significant. At a $7 sale, your Amazon payout drops by almost 1/3. Realistically, you shouldn’t be doing much business in mass market paperbacks, but that’s actually a bad thing, because these fees only take on greater impact as a book gets larger.
So is this the end of selling $7 books FBA? More on that later…
Book strata #2: Standard paperback
Book example: Tipping Point (paperback)
Sales price: $8
Payout before: $3.53
Payout after: $2.45
Payout percentage change: 30.1%
Analysis: I chose an $8 sale price here because that’s a common price to sell a standard paperback for as an FBA seller.
Even though the price is $1 higher, our payout is affected even more than the last example because of the increased weight of the book.
I personally don’t sell a book if I won’t get at least a $3 payout, so for me this means the end of selling standard paperbacks for $8. It used to be that a $7.50 selling price would get me above the $3 threshold, but no more.
Book strata #3: Standard hardcover
Book example: Flash Boys (hardcover, 288 pgs)
Sales price: $10
Payout before: $4.83
Payout after: $2.95
Payout percentage change: 39%
Analysis: This is a standard size hardcover, and even at $10 I still won’t meet my $3 payout threshold. This is where the new FBA fees start to feel most serious to me. I could have received a $3 FBA payout selling this at $8 before. Now, I need to sell it for over $10. Meaning I need to increase my sales price over 20% to get the same payout. This is where we start to see how much weight influences the new fees.
Book strata #4: Heavy hardcover
Book example: Money, Master the Game (hardcover, 700 pgs)
Sales price: $10
Payout before: $4.41
Payout after: $2.55
Payout percentage change: 42%
Analysis: This book is about twice as long (and presumably, twice as heavy) as the last one, and the payout drop is brutal. Over 40% difference over the old fee structure.
Book strata #5: Average textbook
Book example: Introduction to Hospitality (textbook, ISBN 013281465X)
Pages / weight: 600 pgs/3 lbs
Sales price: $20
Payout before: $12.50
Payout after: $10.66
Payout percentage change: 15%
Analysis: Notice I set the sales price here at $20. And notice the payout percentage is only 15%. This is where we start to see things take a turn for the better. When you increase the sales price, the impact on your payout becomes dramatically less significant.
What’s the lesson? Best way to buffer against new fees is to raise your prices.
BIG lesson here.
How have new FBA fees affected the Amazon world so far?
It’s been pretty interesting.
Across the books & media world in Amazon, it seems like the last month sellers have been having a fire sale, trying to purge their low-end inventory and get a sale before the new fees hit.
(And btw, our Zen Arbitrage users – who capitalize on finding cheap books on Amazon and reselling FBA – have been loving this.)
But it’s not how the small sellers respond – it’s how the big ones do
From an FBA seller’s perspective, the fewer the sellers the better. The fewer FBA sellers on any given product, the higher we can price. Simple as that.
And while a lot of smaller sellers have declared they’re jumping ship, its worth noting that small sellers don’t present a significant level of competition to FBA sellers. Exact numbers are hard to come by, but I would theorize that if even 50% of all sellers with a feedback score of under 5,000 disappeared tomorrow, it wouldn’t be terribly noticeable.
What really matters is how the big sellers respond to new fees (i.e. “megasellers”).
What’s different about huge megasellers?
One, they’re less averse to losing money on a sale. We’ve seen this with penny books for years. Often their business model is built around making money in aggregate, and whether or not they lose money on any one (or 10,000) books is irrelevant. So in that sense, megasellers are more buffered from the impacts of new FBA fees than the rest of us.
On the flipside, there is ZERO chance any of them are simply going to throw there hands up and say “we’re going to start selling garden supplies instead.” Unlike many smaller sellers who can more easily pivot, large sellers will find away to adjust and live to sell books another day. The big hope for small FBA sellers is that many of big ones revert to a merchant fulfilled model, leaving FBA to sellers who are more nimble.
Is this the end of penny books (i.e. books selling for $4 FBA)?
Basic fact: The majority of books on Amazon are selling for a penny + postage. That means these new fees affect the majority of books on Amazon the most.
And the vast majority of Amazon megasellers are doing their business in penny books. Everyone wants to know the penny book business model and who is making money with penny books, so here’s the three reasons people sell books via FBA for $4 (or less):
- They hope to make 10 cents per book after FBA fees and make up for it in volume.
- The price drops after shipping in, and they end up losing a little on a sale, but its still cheaper than paying Amazon to dispose.
- They literally don’t know their numbers, and don’t care.
Mostly its #1 or #2.
Many are saying these new FBA fees are “the end of penny books,” but its not that simple.
Here’s a quick look at the books we looked at earlier, before and after the new fees.
Rich Dad Poor Dad
$4 selling price before new fees: 48 cents
$4 selling price after new fees: -37 cents (negative)
$4 selling price before new fees: 13 cents
$4 selling price after new fees: -95 cent (negative)
$4 selling price before new fees: -27 cents (negative)
$4 selling price after new fees: -$2.15 (negative)
Money, Master the Game
$4 selling price before new fees: -69 cents (negative)
$4 selling price after new fees: -$2.55 (negative)
Introduction to Hospitality
$4 selling price before new fees: -$1.10(negative)
$4 selling price after new fees: -$2.94 (negative)
So is this the end of penny ($4) FBA books?
Well here’s the thing: Look at the negative payouts for the first two books. Those are the kind of payouts sellers of $4 textbooks have endured for years. And they do it anyway. And there are tons of them (RentU, Flipping Pages, etc). And they never go away.
Then consider that (by my estimation) books the size of the first two examples (remember that size/weight factors heavily into FBA fees) comprise the majority of books on Amazon.
So penny books aren’t going away. Megasellers have already endured these kinds of losses for years.
But then look at last couple of examples (heavier books). The losses from selling those for $4 FBA approaches $3. That’s brutal. And losing $2.50 per book is much less sustainable than losing 70 cents per book (over 3x less sustainable, by my math).
My theory: $4 textbooks will largely vanish. Many if not most of the $4 smaller books will remain.
How will this shake up the bookselling world as a whole? Four possible scenarios…
It will be very interesting to see what happens over the coming weeks and months. Are we in the midst of a Great FBA Purge, where all the lowball sellers exit the business, or switch over to a merchant fulfilled model?
We may see a massive noticeable difference starting literally today (February 22nd, date the new fees are implemented).
Whatever happens, its going to fall into one of these categories:
- Penny book sellers do nothing, continue selling $4 FBA books.
- Mass exodus of FBA sellers starting today, as they switch to a merchant fulfilled model in droves.
- Sellers raise prices to buffer against costs (and find turnover plummets, then probably concede to #1 or #2)
- Megasellers coast along, losing money on low end books (sub-$5) until they are sold out and stop shipping them in, but remain FBA for all higher-priced books.
Sidenote: There are new fees for non-FBA sellers as well
This site is called “FBA Mastery” and we’re not here to talk about non-FBA fees. But when we’re trying to predict if FBA megasellers will migrate over to merchant fulfilled, its worth mentioning that MF fees for books & media are increasing too.
I won’t bore you with the details, but it roughly averages out to about $1 more per book. Still much less than the new FBA fees.
What do I think this will mean for FBA sellers?
Expect that this will further widen the (previously shrinking) chasm between merchant fulfilled and Fulfillment by Amazon prices.
If you’re paying attention, this would be great, great news. If it happens.
And this begs the question: Are the increased Fulfillment by Amazon fees offset by the potential for reduced competition?
Time will tell.
How should you respond?
When selling on Amazon, there are two things the cure all ills:
- Better sourcing.
- Better pricing.
This is a good time to emphasize the latter:
Everyone should revisit their prices across their entire inventory starting today.
It’s stating the obvious to say that your profits per book will diminish with these new fees. But if you have a minimum payout you need to keep, and you’re militant about maintaining it, you’ll need to go through and raise your prices.
The less obvious thing to consider is that prices among your competition could shift radically with these new fees. No one knows. Between sellers exiting FBA to other sellers raising their prices, we may see an amazing opportunity for FBA sellers to raise their prices on tons of their inventory – offsetting new fees.
Take a look at your current inventory, and see what opportunities have opened up to actually increase your prices – and expose these new fees as a blessing in disguise.
Remember: Higher prices make the new fees negligible.
At a $7 sales price, the new fees are brutal.
At $20, you’ll barely notice.
How am I responding?
Raising my minimum selling price to between $8 to $11 (depending on the weight). I’m still committed to hitting a $3 minimum payout, and will raise my minimum selling price accordingly.
- New FBA fees impact FBA sellers significantly at the low end of the price spectrum.
- New FBA fees impact FBA sellers minimally in the $15+ price spectrum.
- Thoughts? Leave a comment below.
- The trade in tool teased in the last article is still in the works. Get on the FBA Mastery list to get news of that when it drops.
- And not new, but if you haven’t picked up my FREE book (just pay printing and shipping) Online Book Arbitrage, you can’t go wrong.