Mastering Amazon Margins: Fees, Strategies, and Insights

ExpertCPG Commerce Podcast
ExpertCPG Commerce Podcast
Mastering Amazon Margins: Fees, Strategies, and Insights

SpotifyApple PodcastsIheart RadioCastboxPodChaserYoutubeRSS


ExpertCPG Commerce Podcast: Episode 8

Dive into the complexities of Amazon’s fee structure and learn how to optimize your margins effectively. In this episode, we break down various fees, share practical examples, and offer strategic tips to help your brand thrive on Amazon. Don’t miss out on these invaluable insights!

Take your Amazon sales to the next level with a free audit from ExpertCPG Commerce. For a Free ExpertCPG Amazon Audit, to get valuable insights, strategy tips, actionable ways to boost your Amazon sales, and ways to increase your brand’s visibility and growth, visit to sign up and begin your journey to success.


Podcast Video


About our Guest



ExpertCPG Commerce – CEO & Founder



Ryan Flynn is the founder and CEO of ExpertCPG Commerce, which was recently rebranded from the company’s previous name, Charmac. ExpertCPG Commerce is a specialized Amazon marketing agency that strategically helps food, beverage, and CPG brands reach more customers on Amazon by optimizing their presence and helping grow their sales. Ryan is also a mentor for SKU, the consumer product accelerator based out of Austin, TX, and is a member of Entrepreneurs’ Organization (EO). When he’s not working or spending time with his wife and three children, he enjoys giving back to his community by serving as a volunteer firefighter.


Contact Information:


Podcast Video Transcript

Ryan Flynn: [00:00:00] All right. On today’s episode, we’re going to jump into the margins you make on Amazon, right? I think this is one of the most confusing things, not only new brands, we’re starting to sell on Amazon, but also it gets really muddied when you’ve been selling on Amazon for awhile, because honestly, Amazon also keeps changing the game.

And,you know, kind of a shell game. They’re hiding different fees, different places, and the fees are always changing. And we’re going to run through, examples here and talk a little about today, the different fees you have when selling on Amazon.

Okay. What I’m first going to do is I’m going to first walk through each type of fee, describe what it is, describe how it’s charged, how it’s calculated, maybe how you can optimize it, and then we’re going to do an exercise where we kind of walk backwards on a certain product. and go through each type of fee and see how, that impacts the certain margins on AmaZon.

all right. So the first thing we’re going to talk about is the Amazon referral fee. And the best way to describe that is just the amount that Amazon takes right off the top. To, pay for all their costs of, the hosting their site, all the tweaks and speed [00:01:00] that goes into making that site great.

The credit card processing, obviously they’re making a ton of margin on that as well, but that’s the best way to think of it. It’s just like all the costs Amazon has of providing the Amazon platform, outside of logistics goes into the referral fee. So on most Amazon categories, the referral fee is 15%.

And you’re typically going to see that across the board, but there are certain caveats to that. And we’re going to kind of walk through a few of those now. if you’re listening to this, you’re not gonna be able to see this, but you can catch the YouTube video. I’m walking through some different screens here, right in Amazon’s help section.

They actually detail all this out. You type in referral fees into the help. You’d be able to see the same table, but essentially it outlines on a per category basis, what each category is. So again, you find 15 percent the most. But you’re going to see you know, auto motor and power sports is 12%, right?

then you go into certain categories. Like I like to use the examples of, I’m going to scroll down to, the grocery gourmet category, right? this is one of my favorites. I’m going to look at beauty, but let’s talk about grocery gourmet. [00:02:00] So Amazon wants to be really competitive with the likes of Walmart.

And really just your neighborhood grocery store in terms of you buy more things from Amazon. So when they charge 15 percent off the top on a lower priced item, that means that the brands can’t be as competitive on the list price because Amazon’s taking so much margin. So a number of years ago, Amazon decided for certain categories, they’re going to charge less of a percentage when it’s under a certain dollar amount.

So for grocery and gourmet, at the product price, Is 15 or less. The referral fee is going to be 8%. Now, if it’s over 15, greater than 50, it’s gonna be 15%. So we’ve actually recently had a conversation with the client that,you know,one of their complaints was, Hey, we’re selling 20, 30, 000 a month at Amazon.

We’re actually not making any money. And one of the things we first looked at, I showed him right on the call. We had him and it was, you’re selling this item for 17, 18. And you actually can sell it for less and actually make just the same or just as much money. Because the referral fee would drop [00:03:00] so much.

So again, Amazon wants to be competitive in these categories. They’re passing along those savings. It drives me nuts though. When I see these brands are selling in these categories at 16, 17, 18 on a price. And they realize that they can be more competitive, offer better value to the customer and make either similar or maybe even better margins depending on the sales price it was by just adjusting the price below 15.

Again, if I go up to the beauty category, you’re going to see something very similar, beauty, health, personal care. So again, that one is 10$. So it’s 8% for 10$ or less. And then 15% for 10$ or more. So you just want to make sure you know that you know what category your products are selling in.

Also, Amazon is notorious for them. It’s changing categories, not telling you or, your category changes might be charged. So double check your categories, um, your products are in and make sure. The referral fee you’re being charged is correct. 

All right. The next thing we’re going to jump into is the FBA fulfillment fee. Now this one’s kind of a monster because there’s all different types of variables that play [00:04:00] into this feed. I’m going to try to break it down as best as possible here. So again, in the Amazon help section, they detail a lot of this out.

It’s in links and tables, but honestly, you start getting buried within different pages and pages. Again, I’m gonna try to distill this to be as simple as possible for everybody. So you can know your margins with Amazon, whether a new brand, your existing brand, and you can maximize those margins to compete on the platform and reach more customers.

So here’s the big thing. Here are the values used to calculate your fulfillment fee, right? There’s kind of four attributes or four main areas. Number one is the product size tier. The second thing is the shipping weight. The third thing is the dimensional weight. So the greater of those two things, the shipping weight and the dimensional weight.

And the fourth is a fee category. Certain categories have kind of add ons or a little different fee or a tacked on fee in addition to the standard fulfillment fee. So let’s break through these one by one.

So product size tier, that one, let me find that.

 kind of size tiers, right?

So [00:05:00] they switched things up in 2024 here. They used to have like an oversized category. Now they have these different bulky categories. I just think bulky is a funny word. but they have large, bulky, extra large, bulky,and such. And they have tiers, or bands within those extra large tiers as well.

So most people are going to run. All into like either small standard size, large standard size, or maybe large bulky, right? Those are the kind of the three most common that we typically see and large standard sizes by far and away again We mostly deal a lot of grocery CPG type products that’s typically what we deal with but they’re at their advantages to You know maximizing your size tier, right?

So let’s talk about that For example, the small standard size, it has to be, up to a shipping weight of 16 ounces, right? and shipping weight could be the greater of the, dimensional weight, or the actual product size. Wait, we’ll talk about that next. The longest side can’t be longer than 15 inches.

The median side can’t be longer than 12 inches. And the shortest side is three quarters of an inch. So all of a sudden we just got really size, [00:06:00] small there. Three quarters of an inch is about the size thickness of a deck of cards. So you have to be Really small and thin to fit into that. However, if you’re a product where you’re multi packing item, and, or your,maybe you can change the packaging a bit and you can fit within that three quarters of an inch, that can be very advantageous.

We’ll look at that. When we talked about the different side, was getting the actual fulfillment fees. So again, maximizing how your product is packed and if it’s a multi pack or the packaging you use. Can be crucial. Let’s use another example. The next size up is a large standard size. So for instance, if you just go over, a slight variance of that small standard side, let’s say your longest side, it can be up to 15 inches on the small standard side.

Let’s say it goes into 16 inches. You’re automatically be bumped up to large standard size. And even if everything else fits within that. So large standard size, approximately 20 pounds, 18 inches on the longest side, 14 inches on the median side and eight inches on the shortest side. And let’s just say that, you can change your products to being, let’s say you have selling a four [00:07:00] pack of your, maybe your, standard product, right?

A multi pack and how your co pack or how your 3PL is packaging it is they’re packaging it to one behind another, right? And all of a sudden that leads the product being over eight inches. could they just repack it a different way where maybe they’re standing up and there’s maybe instead of four back to back, there’s two and two, right?

All of a sudden that can go from instead of falling into that large bulky category, you’re now optimized it to fall into that large standard size category. So again, product size tiers, crucial to know, that’s the first you want to look at when it comes to fulfillment fees.

All right. Next, we’re going to talk about the weight of your products, right? And there’s two different types of weights. There’s actually shipping weight and there’s dimensional weight.

And we’re going to talk about both of them here. So again, and the product help section, you’ll be able to see the actual kind of what Amazon uses and how this falls into this. So they see how to determine the shipping weight. Number one, determine the product time and dimensions of the item, then determine the size tier, the term of the unit weight, and then determine the dimensional weight, right?

We talked about, volume of dimensions. That’s easy. You can measure that yourself. Amazon uses something [00:08:00] called a cuba scan machine. When it goes to the fulfillment center, they kind of laser measure it. Very precise scales, which can be off button sometimes of the way. So watch, make sure that Amazon is measuring your item correctly.

You can get the size dimension. We just talked about the product size tier, and then you’re going to look at the unit weight or dimensional weight. And so they have some examples too, on the help site of what’s that looks like with unit weight, dimensional weight, right? They have this example, disposable plates, the unit weight is three pounds.

They don’t think of a ton of actual physical space. So the dimensional is 1. 3 pounds, right? So you’re actually going to use the unit weight then when calculating that kind of shipping weight, right? And so it’s going to fall within a large standard size. And in this category from 2.

75 to three pounds, right? So let’s talk about now dimensional weight, right? Dimensional weight, you can think about products that are, small, light, particularly, but maybe they’re kind of more bulky, right? So let’s think about,styrofoam boxes, or maybe a styrofoam cooler, right?

Those disposable kind of coolers you see, maybe you’ll think about a gas station. I’m sure they sell those on Amazon. They’re [00:09:00] light, they’re super light, but they’re bulky, right? So Amazon gives an example of their help pages of glass jars. The unit weight is 6. 6 pounds, but the dimensional weight is 12.

2 pounds, right? So because that dimensional weight is bigger, because those glass jars are taking up A larger physical space, you’re going to use the dimensional weight for the shipping. So instead of, being charged, the full fee, it’s going to be 6. 6 pounds. It can be charged as eventually at 12 pounds, which again, can drastically increase your fulfillment fees.

So again, when it comes to packaging your items, the packaging you use for a single unit or multi, packing or bundling items, really very strategic on how you do that and minimize your dimensional weight as well, that’s going to have an effect on your fees. All right. So we talked about the difference between shipping weight, dimensional weight, and got to use the greater of the two to actually figure out where your fulfillment fee is going to be. And how do you calculate dimensional weight? Well, Amazon has the breakdown here. Again, in the help pages, buried deep within that, right?

But you’re simply going to take the length, the width, and the height of your item. Multiply those two together. Length times [00:10:00] width times height. Divide that by 139, right? And then that’s going to be your dimensional weight, So if your dimensional weight ends up being 10 pounds, your actual unit weight is 7 pounds, you’re going to use that 10 pound thing.

Amazon does say, for oversized, large, bulky, actually large, bulky items, Assume a minimum width and height of two inches. So for some reason, if it’s really,like a TV and it’s, it’s a really, or monitor a really thin packed box, although you wouldn’t want to name a box,you’re going to assume at least a minimum, width and height of at least two inches.

So that’s how you calculate dimensional weight.

So now we’ve got pretty much the main things, you need to know, to determine your FBA fulfillment fee, right? The product size tier and whether you’re going to use a shipping weight or the dimensional weight. Also again, other certain categories have additional fees to it. We’re not going to cover that here.

But, one to note also is if, Amazon considers as a hazardous or dangerous good, those have different increase fulfillment fees as well. So taking your product size tier and taking the greater of your shipping weight or dimensional weight of your item. And again, remember it’s all [00:11:00] the items together that you’re selling.

So as one unit. So again, multi packs bundles using all the dimensions of fees for each, you’re going to find these tables in Amazon’s help center, right? And these tables are going to essentially say, based on your size tier, And based on the weight of your item, it’s going to be this fulfillment fee, right?

And the one I’m looking at now, it’s got different fees because Amazon just changed as they do every year, these fulfillment fees in early 2024. So it’s got before and after certain dates here, but they’ve actually keep expanding the bands. if I looked at, maybe, last year, They had smaller bands, like the smallest inner size of breaking up every four ounces, right? So four ounces, 48 ounces, eight to 16, anything under a pound. It was broken up into four ounce sections, And charged in different fees accordingly. now in 20, later in 2024, they’ve gone to these two ounce bands, And doing the same thing, essentially for items that are also. greater than a pound as well. I’ve added in more bands, added more granularity here as well. you’re going to find your product [00:12:00] size to your first, the chart. So I’m looking at a large standard size item here.

And let’s say my unit weight is,the greater of the dimensional weight of the two. And so I’m going to 1. 2 pounds. So I’m going to fall into this band here, one to 1. 25 pounds. And again, it’s telling me my, essentially now starting in April, when we’re recording this end of April here, it’s going to be my, it’s going to be 499.

And before that, it actually shows that it was 519. So it looks like Amblin actually dropped the fulfillment fees, but they have it because of inventory placement fees. We’re going to talk a little bit about that. That’s a whole other video, a whole other topic. We could delve into as well, but they essentially moved part of the fulfillment fees over to getting your products into Amazon and charge that now as a separate fee.

So again, Amazon looks like they’re being nice and maybe actually lowering the fulfillment fees this year, but they haven’t again, it’s like a shell game of just moving it over to a different part of the ecosystem here. Again, your FBA fee is one of those things. They can also take up a big chunk of your product, especially if you’re selling lower [00:13:00] priced products.

So you want to make sure you maximize that as much as possible. And again, when thinking about pack sizes, so I was just talking to another brand about this recently, that’s relaunching some SKUs and creating new listings and new bundle and new pack sizes, and they need to make sure that they actually optimize for those pack sizes, right?

So if they sell a four pack versus a six pack, what’s the impact going to be on our margins, right? I’m obviously going to sell the six pack for a higher price point because I’m offering more products, a better value to the customer. Realistically, my fulfillment fee is only going to go up slightly, right?

Cause these only start going up. if I go from the one to 1. 25 pounds of 4. 99 and I add another one onto there or two, let’s say that it goes up to 5. 77, 5. 77. That’s only a 77 cent increase, but maybe added two more units to that entire pack of to that entire unit. So a better value.

are probably going to make better margins, but at all, it’s a case by case scenario. Each product is different. So just keep that in mind [00:14:00] too. If you’re creating new bundles, or create new multi packs that you’re kind of optimizing for that pack size as well. 

All Right. So the next main fee I’m going to talk about is the monthly inventory storage fees, right? And you can think of this of how much Amazon’s going to charge you to put your product on the shelf, the fulfillment center, and leave it there. So it’s going to be based on mostly just the. The size of the product, right?

Essentially, how much space is taking up on the shelf? Because that’s all anyone is doing is storing your items. But there’s more to it than that. There’s more to it than just that. again, in the help sections, they detail exactly what they’re charging you, how they’re basing it, and how they’re charging you.

number one is your product size tier, right? based on the unit weight, product dimensions, or dimensional weight of a packaged item. The second thing is the month we’re in, right? So Amazon historically has always charged much more in the months of October, November, December for storage, simply because that’s fourth quarter.

And for a lot of product categories, that is their busiest time of year. And so Amazon doesn’t want the fulfillment centers clogged up [00:15:00] with inventory and clogged up with a bunch of stuff. So they want to almost it’s like they want to avoid. So they, really jack up the, storage prices.

During those months of the year. So the other thing to think about is your product volume. So again, how much volume that’s actually taking it up on the shelf. All right. Now this is a newer one, the average daily units, right? So how many you actually have on average in the fulfillment center.

they don’t charge it like,they say the 20th of the month that it’s essentially going to be like, we’re going to charge you for however many units you have in the 20th of the month. No. Okay. They’re going to take every day and every day they’re going to, take in how many units they’re going to make a month of that and charge your average daily units.

So the newer one is the storage utilization ratio. as Amazon says here in the help, it’s the ratio of your average daily inventory volume stored divided by the average daily volume shipped during the past 13 weeks. All right. So take a look, think of that again, how much you’re storing versus how much you’re shipping, right?

So [00:16:00] it’s almost sell through rate, right? So Amazon wants to make sure products are moving, right? And they want to make sure that,if you’re moving products, they’re not going to penalize you for that, right? But if you have a slow moving product, you’ve got a lot of excess inventory. that’s going to play into it as well, that they want to essentially charge you more for that, for keeping it in there.

Almost something you want to avoid, right? And then the last kind of attribute that plays into this, and again, is dangerous goods. So hazmat type items, we’re not going to go into that too much, but that does add on to these rates. So if I go down to the rate table here and the help section, you’re going to see where Amazon has these different, fees, right?

So you’re gonna have your base monthly storage fee. And this is essentially, I’m looking at it for January to September, by the way, I’m not in fourth quarter. So they’re going to charge you a base monthly storage fee, which is the same, no matter how many, what your storage utilization ratio is, But then they’re going to start charging you more and more the longer that’s in the fulfillment center.

So again, your items stored, the ratio of items stored versus items shipped, [00:17:00] like your sell through can see in these fees, if it’s below 22 weeks, you’re not going to have a storage utilization surcharge, right? And 22 weeks, that’s almost, getting close to half a year there, six months.

That’s what, five months. you’ve got a decent amount, five, six months of inventory there. You really should be selling through that. But the more you keep that in there, more they’re going to charge you. And, if you’re a newer seller, they do give you a little bit of a break on that.

But yeah, if you’re keeping that inventory in there for longer than a year, you’re paying a lot more per item. and they’re charging you that. And then if you jump down and you look at the storage fees, for October to December, they go up drastically.

You’re looking at 78 cents, in this example, for,January to September, Per cubic foot. And then you go up to 2 and 40 cents essentially, for October, December. So three times the charge, for those three months. So again, keep that in mind when you’re calculating your margins, And as you can see here, dangerous goods also have an additional charge for them as well. Amazon shows examples of this. they give you good examples of all this [00:18:00] for each of these type of fees. You can look at those and just start understanding them. And it helps you frame the whole reference, how this all plays into your margins on Amazon.

Okay. So let’s put all this together in a real life example scenario. And I’m going to show you the Amazon FBA revenue calculator. So again, This is something a lot of brands we talk to don’t know about. Some brands do, which is great. There are also third party tools. You can do this to do Helium 10 or Jungle Scout, but it’s right.

You build it to Amazon here as well. this is the great place to start, right? So you can either look up your own product on Amazon, another product on Amazon. You can also, type in dimensions and weights of a product, or you can actually estimate these things in bulk, upload a file, and then download that file as well.

they’ve definitely revolutionized this tool over the past several years and making it a lot easier to understand these things. So when you search for additional items, so I searched for these health warrior chia bars, right? 15 count package. You can see that the unit weight is just under a pound, 0.

95 pounds. The package dimensions, Amblin pulls all this in. If the [00:19:00] listing 2. 4 inches by 4. 4 inches by 6. 6 inches, It pulls in the price and everything as well. It’s currently selling for 16 and 33 cents. So we’re going to, you can see here, you can actually walk through the whole calculation.

So you can actually change the price of the top. This is beautiful. Change the price of the top. And it’s going to change accordingly. Your whole calculation down here at the bottom, right? So I’m going to show you right now, this is actually selling for 16 and 33 cents. If I do 14 and 99 cents. My referral fee actually just dropped from 2.

45 to 1. 20, 1. 20. So I just halved my referral fee by offering the customer a lower price, right? And let’s see, what did that do? So that made my margins, everything else being equal, fulfillment fees and storage costs and all that. I made my margins 8. 88. At the old price, my margins were 8. 97. So I’m getting actually a better percentage margin, but I’m actually getting a little less [00:20:00] profit in dollars, but it’s 8 cents.

And if you can, how many more units are you gonna be able to sell, if lower your price to under 15 compared to 60 and 33 cents. Yes, you’re going to make 8 cents less to the unit, but you’re going to be probably doing a lot more in sales because it’s a much more attractive price to the end customer, right?

So in this fulfillment fee calculator, you can see the referral fee, Amazon, fulfillment costs. You can actually click on this, bring it down and you can actually add ons. So for instance, if your product has to be prepped by Amazon, you’re going to have them label it or needs to be bubble wrapped.

You can select those things in here and it’s going to properly charge the cost. You can do the storage fees. You can calculate either from the non peak, January, September, or the peak, October, December. And we didn’t talk about this fee yet, but this is the inbound cost, for, again, I mentioned Amazon, the kind of the shell game of moving some fees over.

I would include that in your margins. It may not be as much as that. I’ve done other videos, a whole bit of it on LinkedIn when this for you was first announced here in early March about making sure you’re [00:21:00] checking your shipping options and your freight costs, and it can really be, you gotta do this calculation every single time you make a shipment on what’s the most cost effective, but again, what Amazon saying is we’re going to charge you if you don’t get it, let’s say you’re on California and you’re not going to choose a West coast of Thumb and center.

or having Amazon split it up to number of fulfillment centers, you’re going to pay a fee for that. if you just want to set it to one fulfillment center, maybe two fulfillment centers and not to like nine fulfillment centers, Amazon is going to charge you a fee because they have to then split it up internally.

So again, kind of a shell game. They move some of these fees, but I would include this fee of 41 cents as an example here in your calculations, right? You can also actually input your cost of goods sold. So let’s say, Hey, it cost me eight bucks or outside now it’s five bucks to for this item. And you can ask and put miscellaneous costs too.

So if you want to add any kind of prep cost or fulfillment center, Things like that. But on this example here, I’m selling the item for 16 and 33 cents. And, move that actually the 1499 that we talked about, right? Getting a little better [00:22:00] referral fee there. So let’s do that 1499.and I’m going to actually change on the storage fees.

I’m going to actually change. I’m going to say the, average monthly unit store. I had to do three just to calculate that for like three months of inventory and 90 days of inventory. and so this actually says my margins are 24. 15%. It’s 25%, 3. 62. So that’s okay. Not great. Not horrible, but the kind of thing you remember this does not include is your advertising costs, which that can kill a product like this, right?

There’s not a lot of, wiggle room, especially for a non mature product for advertising costs. we talked to customers and our clients and we’re talking to them about their margins. We like to use kind of the contribution margin is essentially everything that’s going to take to sell that product.

So we include advertising costs in that because we want to see a function Of whether or not the products can actually make money or not. the revenue calculator is a great thing to see for that. And then on this, you’re probably noticing what this whole year fulfillment thing is on the other side of this comparatively, you [00:23:00] can actually compare Amazon’s fulfillment to your fulfillment costs.

So Amazon’s charging, the fulfillment fee on this item is 4 and 47 cents. Let’s say you have a 3PL or your own warehouse, and it’s going to cost you. And now we’re just 7 to get the same product to a customer, right? Via UPS, FedEx, USPS, whatever it is. My margins dropped to, 11%. this is not any storage fees, right?

Maybe I’m doing this from my own warehouse. I haven’t done any storage fees here. brands are shocked sometimes. they always say they have always great rates. We don’t want to do FBA. We have great rates. We can get it somewhere. No, 4 and 47 cents for a product.

Yeah. A flat rate anywhere in the country from Amazon’s fulfillment centers, even the inbound costs of getting it into Amazon’s fulfillment centers, which I, is not included here, but you can include that in there too, if you want to, include the inbound costs to get it into Amazon’s fulfillment centers, the actual shipping costs to get it in there, which is about, 15, 20 cents a pound.

depending on if it’s LTL, UPS, it depends, you’re not going to be the Amazon’s race. Amazon is just as much as [00:24:00] a fulfillment company as they are an e commerce company now. but you can do the comparison here and actually see what it is, right? And then you can do a comparison graph here. Amazon is going to show you, what the difference is here over on the right.

That is how you use the Amazon revenue calculator.

All right. So as a recap, again, Amazon margins are critically important for your success on the platform. And knowing these, knowing how to optimize these, knowing how Amazon charges for these is going to make or break. Sometimes your ability to succeed in the platform. Frankly, we’ve seen a lot of clients.

or potential clients that don’t work with us that come in, they don’t know their margins and they keep, or they keep their price, the same price the whole time and Amazon gradually year for year increases their costs, right? The margins can be condensed and condensed. So you have to stay up with this.

You have to know what these fees are. You have to know how to optimize them. So again, to recap, you’ve got referral fees, get your FBA fees. You’ve got your inbound placement fee, the newer one, you’ve got the storage costs, right? Those are the biggest ones. You can get as granular as you want though in these, in this [00:25:00] revenue calculator.

On Amazon site, but you have to know your margins. And again, you can do this in bulk and there’s different tools. You can use to monitor this as well. Third party tools, but knowing your margins is critically important and that’s how you succeed on the Amazon platform.