How to overcome Amazon FBA fee increases
Amazon recently announced an increase in fulfillment fees for sellers who use the European Fulfillment Network (EFN), which will come into effect on April 26, 2018.
Part 1 of this post offers advice on how sellers can deal with this fee increase.
In part 2, we offer guidance on how to position your business in the long term to deal with fee increases like this.
Part 1 - How to deal with the FBA fee increase in Europe
It's important to note that this section will only apply to you if you are:
- Selling in Amazon EU and fulfilling orders using Amazon's EFN; or
- Planning to sell on Amazon EU soon
The benefits of EFN
- It allows a seller to store their inventory in one country (e.g. the UK), but still sell to customers across Europe (including Germany, France, Italy & Spain) via cross-border fulfillment.
- Shipping your inventory to just one European country is easier and cheaper.
- It also makes dealing with VAT easier too. If you store inventory in a country in Europe, you need to register for VAT there - by keeping all your inventory in the UK, you only have to register for and file VAT in 1 country (the UK).
Should you move away from EFN?
We looked at the fee increase in detail and still recommend EFN for new EU sellers.
It seems Amazon is trying to incentivize sellers to store their inventory throughout Europe, which allows for faster delivery to customers.
However, storing inventory in a new EU country triggers a need to register for and file VAT. So, while storing your inventory throughout Europe will bring your products closer to your customers and reduce your fulfillment fees, it will result in additional costs as you’ll need to register for and file VAT in new countries.
As a general rule, it’s only worth registering for VAT in a country once you have built up your sales there and have the funds to pay for the costs associated with VAT.
EFN Fee Increase [Detailed Analysis]
For those of you who want to look at the numbers, you can find the details here.
Part 2 - Positioning Your Business To Deal With Future FBA Fee Increases
Competing on price is not a sustainable strategy for Amazon Sellers.
Amazon will continue to increase their referral and fulfillment fees, and selling products at low margins is a risky proposition. You could be just one fee increase away from a low margin product no longer being viable to sell on Amazon.
Focus on differentiating your brand and products, in order to justify a higher sales price to customers and generate a better profit margin. This will position your business to better cope with fee increases in the future.
build your business off Amazon
If all of your sales are on Amazon, increases in their fees can have a significant impact on your bottom line.
To mitigate this, focus on building your business outside of Amazon. There are a variety of ways you can do this, including:
- Building your own website;
- Developing a following and selling products on social media;
- Selling your products to retailers; or
- Listing on other marketplaces (like eBay and etsy).
By doing so, you’ll build a more diversified, secure and valuable business.