522: Is Selling On Amazon FBA Worth It In 2024? Here’s The UGLY Truth

00:00
You’re listening to the My Wife Quarter Job podcast, the place where I bring on successful bootstrap business owners and delve deeply into what strategies are working and what strategies are not with their businesses. Today, I’m going to do a solo episode to give you my take on whether selling on Amazon is worth it in 2024. But before we begin, I want to let you know that tickets for the 2024 Seller Summit are now on sale over at sellersummit.com. The Seller Summit is the conference that I hold every year that specifically targets e-commerce entrepreneurs selling physical products online.

00:28
And unlike other events that focus on inspirational stories and high-level BS, is a curriculum-based event where you will leave with practical and actionable strategies specifically for an e-commerce business. Every speaker I invite is deep in the trenches of their business, entrepreneurs who are importing large quantities of physical goods, and not some high-level guys who are overseeing their companies at 50,000 feet. Now, I personally hate large events, so the Seller Summit is always small and intimate. Every year, we cut off ticket sales at around 200 people,

00:56
So tickets sell out fast and we’ve sold out every single year for the past eight years. Now, if you’re an e-commerce entrepreneur making over 250K or $1 million per year, we also offer an exclusive mastermind experience with other top sellers. The Seller Summit is going to be held in Fort Lauderdale, Florida from May 14th to May 16th and ticket prices are going up every two weeks from here on out. Also, if you haven’t picked up my Wall Street Journal bestselling book, The Family First Entrepreneur yet, it’s available on Amazon at 50 % off right now.

01:25
My book will teach you how to achieve financial freedom by starting a business that does not require you to work yourself to death. Plus, you can still grab my free bonus workshop on how to sell print on demand and how to make passive income with blogging, YouTube and podcasting when you grab the book over at mywifequitterjob.com slash book. So go over to mywifequitterjob.com slash book, fill out the form and I’ll send you the bonuses right away. Now onto the show.

01:55
Welcome to the MyWebCoderJob podcast. And the question I’m going to answer today is, is selling on Amazon worth it this year? I’ll outline all the major changes that Amazon has made recently and provide you with my assessment on whether selling on Amazon FBA is worth your time. Now, if I were recurring this episode just a couple of years ago, you’d probably get a completely different answer from me. And the truth is that Amazon has changed pretty dramatically in just the past year. First off, Amazon just rolled out their biggest and most complex fee increase ever.

02:25
and I’ll just spend a couple of minutes summarizing it for you. Now the biggest change is that Amazon is now gonna charge you a placement or a receiving fee on a per item basis. This is a completely brand new fee that has been added in addition to the fees that you’ve paid in the past. Now for standard size items, this fee is gonna range from 21 cents to 68 cents per item, and for oversized goods, it will range from $2.16 to six bucks. And again,

02:50
This fee is charged on a per item basis in addition to your standard Amazon FBA fees and Amazon’s referral fee of 15%. Now to compensate for this new fee increase, Amazon is lowering the FBA fee on most items, but not by much. On average, they’ve reduced fees by about 19 cents for standard size items and all told, you’re going to be paying more money in fees. But perhaps the most egregious new fee that Amazon just introduced is a low inventory surcharge.

03:20
Now this fee applies if you consistently carry low inventory levels of your products relative to your unit sales. Now it’s one thing to get charged if you have too much inventory in Amazon’s warehouse, but now you’re going to get jacked if you have too little inventory at Amazon as well. And here’s how the fee works. Let’s say you typically sell 1,000 units per month and you let your inventory levels slip to just 500 units in stock. Well, this means that you’re going to get charged a fee for those 500 units

03:48
because Amazon wants you to have at least a thousand units in stock. Now their explanation for the fee is that it allows Amazon to place your inventory closer to customers across their network, but I think it’s a BS fee. I don’t know a better way to say this, but this new fee is ridiculous. Not only do you have to worry about sending too much inventory in, but now you have to worry about sending in too little as well. And I’ve been running my own warehouse for over 16 years and maintaining accurate inventory levels across all products

04:17
is extremely challenging and now you’re going to be penalized for it. Now, normally Amazon’s fee increases are pretty standard across the board, but for Amazon, these new fees are especially egregious because they are impossible to calculate. Amazon can literally charge you anything, anytime it wants, because calculating your historical demand is pretty difficult or next to impossible. Now, Amazon has already been known in the past to make mistakes with excess fees, but this new low inventory fee will be difficult to dispute

04:47
because the data is not readily available on how it’s calculated. In addition to these new fees, Amazon advertising costs have continued to increase. Now, technically, Amazon advertising is run by an auction and is driven by supply and demand, but if you’ve ever run a sponsored product ad before, you know that it’s essentially a black box, and Amazon has been accused in the past of doing things to artificially inflate the cost per click. For example, every time I add a new keyword to bid on my ads, I find that Amazon suggested bid

05:17
is really high or inflated. And according to AdBadger, there have been consistent PPC fee increases since 2021. Back in 2020, the average cost per click was just 71 cents, but today it’s as high as 97 cents. And this year, it’s predicted to increase even more. So in terms of the cost to sell on Amazon, advertising fees are going up and Amazon FBA fees are going up dramatically as well. In order to sell profitably on Amazon this year, you really have to know what you’re doing.

05:45
and all these fees will weed out the casual Amazon seller. Now that’s not to say that you can’t make money on Amazon, but you really have to keep track of your profit and loss. Now if you’re currently selling on Amazon and you’re listening to this, you must use Amazon accounting software like Sellerboard. Amazon’s great at hiding and disguising your fees, and you can really only understand your true profit with paid software, which incidentally is another thing I find ridiculous about Amazon. Amazon should provide you with the tools to do the proper accounting

06:14
and make it easier for you without having to pay for a third party tool. Now the other reason it’s getting harder to sell on Amazon this year is because sites like Tmoo and Shien are hurting Amazon sales. Now for those of you who are unfamiliar with Tmoo, you can watch a video on my YouTube channel. But basically, Tmoo is a marketplace that sells products online that are shipped direct from Chinese factories. Now even though the customer service is poor and the products aren’t the best quality, they can be 10x cheaper than the prices on Amazon.

06:44
Plus you get free shipping from China and the product will arrive at your doorstep within seven to 15 business days. Now I actually took the time to look on Amazon and I found a number of products sold on Amazon that had the exact same offering on Tmoo. And just to give you an idea of what the prices are like, there’s this bath floor mat that I saw for $46 on Amazon and the exact same mat was on Tmoo for just a buck seven. It’s the exact same product being sold for 40X cheaper and sure,

07:13
You can get two day prime shipping from Amazon, but I would probably wait two weeks to save 40 bucks. Stuff like this is happening all over Amazon right now. The same exact unbranded products are being sold on Amazon and Tmoo and people are catching on. My colleagues and I attend many e-commerce conferences every year and I’ve been told that Amazon sales, especially in the apparel market, are down 30 % year over year on Amazon. Now my key takeaway here is that you can’t really just source something from China.

07:41
and throw it up on Amazon anymore to make money. You have to create a brand around your product and have a unique value proposition in order to succeed. You also need to have your own branded website and collect your customers’ information so that you can sell more to your existing customers. And this is something I’ve been preaching for the past five years. Now here are some other things that you have to consider before you start selling on Amazon as well. And perhaps the biggest hidden cost on Amazon is refunds. Amazon makes it ridiculously easy for someone to make a return

08:11
So the average return rate is 12%. For electronics, it’s 15 to 20%. And for high fashion apparel, it’s as high as 35%. Now, if you’ve ever seen a guru on YouTube or Instagram post their revenue numbers online, well, the truth is, is that those numbers are always inflated big time. And here’s why. Whenever you make a sale on Amazon, your revenue number goes up in Seller Central. But when you get a refund or a return, Seller Central does not decrease your revenue.

08:40
Amazon does this on purpose to make you think you’re making all this money when in fact up to 35 % can be refunded. And return costs are dangerous for most sellers as well because it’s not always clear how to account for returns accurately in your spreadsheets. And here’s the ugly truth about refunds and how they work. When a customer places an order, these are your costs. You pay a referral fee, which is Amazon’s commission for the sale, an FBA fee, which is a flat shipping fee per unit based on the size and the weight of the product,

09:09
and the cost of goods, is the amount you pay for a product. But here’s what happens when a customer applies for a refund. First off, Amazon immediately reimburses the total price of the product to the customer before they even return it. But not only that, they also charge you a fee for return costs. To make matters worse, you do not get your FBA fulfillment fee back. That’s gone forever. Now, once again, the actual cost of a refund to your bottom line is nearly impossible to calculate correctly unless you’re using third-party software to track it.

09:39
So those gurus with their seven figure Amazon income reports just slash it by 20 and 30 % right off the bat. Because Amazon makes it so easy for a customer to make a return, you will experience a much higher return rate selling on Amazon as opposed to your own online store. Also, you have to keep in mind that more often than not, your product will come back as unsellable. One year, an Amazon customer purchased many dozen napkins from us, used them for a party, it was obvious, and then returned the soiled napkins for a full refund.

10:09
Well, guess what? We had to eat the Amazon closing fee, the Amazon FBA fee, and the cost of goods since they could not be resold. As a result, if you sell a highly returned product like clothing on Amazon, you must take into account the return rate into your calculations. As your products are returned, you must track each SKU’s return rate and also the write-offs related to inventory and closing fees. So, so far, we’ve established that Amazon’s fees have gone up and they are facing lots of competition with China. But just because they’re charging you more,

10:38
doesn’t mean that they’re doing a better job handling your inventory. And the biggest downside to selling on Amazon is that they screw up very often, and unless you are paying attention, you will lose money. And what sucks about selling on Amazon FBA is that every now and then, Amazon mysteriously loses your shipment. Sometimes parts of your shipment gets damaged on the way to the fulfillment center. Sometimes Amazon just loses your products. And even though Amazon will reimburse you for lost product, you have to be the one to point out a lost shipment because Amazon won’t tell you by default.

11:08
One time, Amazon lost several boxes of our goods and we were reimbursed for the inventory. However, three months later, they miraculously found our goods and then promptly deducted the reimbursement from our account. Meanwhile, we lost three months worth of sales and had nothing to show for it. So overall, you have to watch Amazon like a hawk and you always have to check and double check that the quantity received at Amazon matches the quantity that was sent. Now, fortunately, there’s software to help you with this called Getida.

11:35
Getita tracks your inventory for you and automatically files claims. And you can use a link in the show notes to get $400 in free reimbursements. But the fact that you need to use a service like this, in my eyes, is ridiculous. And then finally, the level of malicious activity hasn’t gone down much either. Despite Amazon’s best efforts, people are still getting hijacked and knocked off on Amazon. And I don’t really see that going down that much more this year. So given all these developments, is selling on Amazon FBA worth it? Well, if you asked me that last year,

12:05
or the year before, I would have said 100%, but today, I’m still gonna say 100%, but with some important caveats. With these new fees and competition from China, you can’t really just dip your toes into Amazon’s waters anymore. You pretty much have to go all in and learn the ropes in order to be profitable. You have to maintain your inventory at precise levels to not get penalized by Amazon. You have to be on the lookout for mistakes that Amazon makes with your inventory. And you have to be on the lookout for malicious sellers attacking your listings

12:34
and you have to account for refunds in your profit calculations. Now this sounds like a lot, but Amazon FBA is still 100 % worth it because of the Prime badge. You can’t beat free two-day shipping, and it’s a huge value add for customers. Plus, Amazon still owns over 50 % of e-commerce, so it’s a necessary evil. But please, work on your own website, and stop selling me-too products. As the e-commerce landscape shifts even further, it will become even more important to build a brand

13:03
and own your own customer contact list. Hope you enjoyed that episode. Now, if you’re thinking about selling on Amazon this year, make sure you familiarize yourself with all the new fees and go all in. More information about this episode, go to mywebcoderjob.com slash episode 522. And once again, tickets to the Seller Summit 2024 are now on sale over at sellersummit.com. If you want to hang out in person in a small intimate setting, develop real relationships with like-minded entrepreneurs and learn a ton, then come to my event.

13:32
go over to sellersummit.com. And if you are interested in starting your own eCommerce store, head on over to mywifecoderjob.com and sign up for my free six day mini course. Just type in your email and I’ll send you the course right away. Thanks for listening.