Small and mid-size businesses (SMBs) that sell products on Amazon are paying more for the privilege — and possibly getting a lot less in return. According to a new study by Marketplace Pulse, the average cut Amazon takes from a sale on its platform exceeded 50% in 2022. That’s up 40% from five years ago, and it marks the sixth year in a row that sellers have paid Amazon more per transaction.
Roughly two million SMBs sell products on Amazon each year, and some pay as much as 60% to 70% of their revenue to Amazon in fees. When Marketplace Pulse tallied the commission paid on each sale, including fees for warehouse storage, packing, delivery, and money spent to advertise, the research group found the typical seller pays a 15% transaction fee or referral fee plus 20% to 35% in Fulfillment by Amazon fees, and 15% for advertising or promotion.
Fees can vary wildly depending on product category, price, size, or the seller’s business model, however, Marketplace Pulse found that the fees required to sell via Fulfillment by Amazon have only increased over time. Given how Amazon’s algorithms work, SMBs almost always have to be using Fulfillment by Amazon to succeed in selling on the platform.
Advertising with Amazon has also become a non-negotiable for many SMBs. The more a seller advertises, the higher the seller’s products appear in search results. With millions of products available on Amazon today, sellers are expected to advertise if they want their products to be discoverable.
The amount that an SMB spends on Amazon advertising can vary, but Marketplace Pulse found that private label sellers often spent more than 10% of sales on advertising to grow their brands.
Stalled Growth
At the same time fees are increasing, growth on Amazon has stalled. Last year marked the slowest sales growth in Amazon’s history, as pandemic restrictions went away and consumers started dining out and traveling again.
Big picture: this doesn’t look great for Amazon or SMBs that sell on the Amazon platform. Increasing fees and tight margins means many businesses that sell on Amazon are struggling to turn a profit in 2023.
Although some merchants have started handling shipping themselves as a way to cut costs, Amazon’s spokesperson says the company’s logistics services cost around 30% less than alternatives. Amazon also maintains that its fees reflect the company’s own costs and investments.
SMBs Search for Alternatives
Amazon’s massive size means it can be hard for SMBs to turn away from the platform if they want to sell online.
Marketplaces like Walmart and eBay are one option. According to Marketplace Pulse, Walmart in particular is generally a less expensive way for new sellers to gain traction online. However, Walmart’s size is also much smaller than Amazon, and most businesses can’t replace their Amazon sales through Walmart’s marketplace alone.
Direct-to-consumer platforms like Shopify offer another alternative, but they present an entirely different business model for SMBs. Most merchants aren’t interested in launching and maintaining their own ecommerce websites. And even if they did launch a standalone ecommerce website, it would be impossible to generate as much traffic as they’re receiving through established online marketplaces.
We’ll keep watching this space to see how it unfolds. Will Amazon’s fees keep rising? Will SMBs defect away from Amazon en masse, and if so, where will they go? It’s worth keeping an eye on this issue and watching how Amazon reacts in the months ahead.
