True Cost of an Amazon Business
We manufacture our own products, make them in house. We now only have 1 employee (myself), but in our busiest years we've had 2 employees as well as my wife. Now that I'm by myself, I work probably 60+ hours a week, constantly going.....constantly constantly trying and working. As for a recent example, lets do the math for last month.......
10k Sales
6K Amazon Fees
2.5k Supplies
400 warehouse costs (we fortunately own our warehouse but pay an HOA fee)
Final Profit: $1,100
Now lets do a previous month from a previous year when Amazon took less and hadn't changed it's search algorithm which has tanked sales......just my wife and I working here.
26k Sales
15.4k Amazon Fees
5k Supplies
400 warehouse costs
Final Profit: $5200
Amazon TAKES too much. We're on foodstamps now. And I work 60+ hours a week because that is what is needed to make, ship, converse with customers, and deal with Amazon.
Unsustainable.
True Cost of an Amazon Business
We manufacture our own products, make them in house. We now only have 1 employee (myself), but in our busiest years we've had 2 employees as well as my wife. Now that I'm by myself, I work probably 60+ hours a week, constantly going.....constantly constantly trying and working. As for a recent example, lets do the math for last month.......
10k Sales
6K Amazon Fees
2.5k Supplies
400 warehouse costs (we fortunately own our warehouse but pay an HOA fee)
Final Profit: $1,100
Now lets do a previous month from a previous year when Amazon took less and hadn't changed it's search algorithm which has tanked sales......just my wife and I working here.
26k Sales
15.4k Amazon Fees
5k Supplies
400 warehouse costs
Final Profit: $5200
Amazon TAKES too much. We're on foodstamps now. And I work 60+ hours a week because that is what is needed to make, ship, converse with customers, and deal with Amazon.
Unsustainable.
102 replies
Seller_CA70ZtA5VBcto
Why are you fees so high? 60% is ridiculous. Let me guess you buy ads.
Seller_rF5ZdzS4Mz4dO
60% to amazon fees? I would have quit after one month.
Seller_fBZFdwrGdO0Cb
You are right , we are selling more and making less !To many charges !!
Seller_aUbEyzlSSnsDJ
We grow on every other platform we sell on; amazon is almost unimportant to our business. If you only sell here, you need to expand if you can. Amazon is unforgiving and could care less about any seller big or small. You have some hard decisions to make. Remember this, you have a talent and you're a hard worker. Get paid for your efforts raise your price now, you have nothing to lose. Good luck to you.
Seller_bS0v5cVpDFfEF
I can help you get more PROFIT!You are probably selling at too low price.
You Solutions are:
1. Create new products with higher profit margin
2. Optimize your product listing to increase SEO ranking
3. Create Cost effective Advertising with max Acos 25%
[Moderator edit: removed solicitation]
Seller_URZZo8jnoBR3w
I think you are de-emphasizing the search algorithm change.
We fell over 60% in sales from when the new algorithm took over. Never in our 8 years of selling on Amazon have we ranked so low organically. We've optimized our listings to a T. Reviews are up, customer satisfaction is higher then ever (as we improved our product quality and tolerances), but organic rankings are still down. FBM rankings are nearly all but gone. Funny enough we ran a heavy ad campaign this year with nearly $700/ day in ad spending and that FINALLY got us decent rankings, as soon as we cut them down, the rankings fell.
We have a theory why:
When Jassy took over as CEO he mentioned that Amazon will focus on increasing profitability by scaling its "High-Margin Services". Note that within Amazon, the ad business is its most profitable division by a long shot, some reports put them at DOUBLE that of AWS, but more realistically it's around 45% margins for the ads, and in the high 30s for AWS.
DISCLAIMER: ALLEGEDLY. Call me a cynic, but changing your algorithm to focus more on high ad-spend products, seems like a perfect playing card for his philosophy.
His second philosophy was 'efficient cost cutting' He closed dozens of warehouses, sacked expansion plans for over 60 final-mile delivery warehouses, and cut the delivery workforce. Note how bad Amazon shipping has gotten over the last 2-3 years, [particularly in the past 8 or so months]
In hindsight, even in the heat of Covid in 2020, Amazon was shockingly efficient.
Seller_BYn3ICHDweKIc
Maaaaan, you are SPOT on! Check this graph from May to April 23' when our page views/sessions fell off a cliff. Dropped exactly in half, and than slowly fell from there. There is NO reason for this to happen except that Amazon did a MAJOR algorithm change. My belief is that it was done so that sellers would use/rely on ads moreso than in the past, and more than organic.
We've always utilized ads. however we used to get around 10k impressions a day at a cost of about .001 an impression; $100.00. We recently jacked our ads up and got 10k impressions and it cost .004 an impression.....or a whopping $400!! They've strangled us soooo much organically that we're literally going to have to close down early early 25' after being here for 14 years. And we used to KILL it here. Now, it seems the only way to get a "good/hefty" amount of sales is to spend a s$%t ton on ads. For us, the numbers just don't ad up. Amazon is taking waaaaaay too much in order for us to make sales. It didn't used to be like this.
After your huge investment in those daily ads, did you see your organic sales jump up? Right now, I think 70% of our sales are ad made sales. I'm so sick of spending on ads however I'm afraid if I turn them off, sales will tank. What Amazon is doing here is downright criminal. Oh, and I also agree, this all happened around the time Jassy took over.
Seller_ODGnET55Q6yM6
It's not a theory, you only have to look at the top rows of page 1 to realize it's mostly Sponsored Ads offers now. Unless you have a dominant brand or a blockbuster product, it's nearly impossible to sell organically. You have to pay more for PPC and charge customers more to cover the cost.
Seller_BYn3ICHDweKIc
You know, I get that it is easy easy money making for Amazon pushing all the ads, but it's really got to be hurting their business and reputation in the long run. At this point, almost everyone I talk to HATES online ads. It feels like you're being manipulated. Kneecapping the organic views of great products with great reviews and prices will bite Amazon in the a$$ in the end. People will go elsewhere.
Seller_ODGnET55Q6yM6
I agree with your first post part, but not with the second. I do think customers are realizing Amazon is becoming an ads-stuffed portal. Also that cost will eventually be dumped on customers.
But nothing will change for Amazon in the immediate because there isn't an alternative with the same logistics and catalog. They did it because they can.
Seller_URZZo8jnoBR3w
Fair point Gusta, but Jassy’s cost cutting measures have not been successful in the past, at least not without a reduction in the quality of the Prime fast delivery. I don’t know if his revenue-increasing measures will follow the same fate, but things in paper don’t translate to real life.
Sure, Amazons logistics are still on top, but the blue brand is at-least as good if you have their plus service with 2-day shipping. Although, their catalogue is just not as vast. Appreciate your reply!
Seller_c7AY5UmbBC07I
@Seller_URZZo8jnoBR3w
This was a huge mistake my Jassy IMHO. Amazon is showing sponsored ads of the more expensive products. it does not take much to do a google search and find the cheaper products on other websites like the competition TEMU.
I have been told these things multiple times about Amazon from customers
1. Too many sponsored ads
2. Sponsored ads not related to their search
3. Being shown more expensive product and having to find less expensive is almost impossible.
Seller_URZZo8jnoBR3w
Nope. When traffic rose, and we cut ad spending, organic sales continued to decline. Our blue*brand sales increased by a little over 100% this year, Organic direct sales increased around 40%.
After we turned off/ scaled down the ads, the sales dropped at a proportion larger than the ad cuts. Ex. Cut 50% add spend (even on worst ROAS ads, impressions & conversions fell by AT-LEAST 50% or more within 2 - 5 days of said cuts). Reverse is mirrored: increase ad spend, and there was a large burst of impressions / conversions before then leveling off.
I am guessing the placement algorithm for ad's sees you're cutting ads and drastically cuts their placement / effectiveness for you to run your reports and see "wow ads work' and increase spending. These are called Hawthorne effects, and AI is very good at manufacturing these scenarios to manipulate human behavior.
For what it's worth I (think/ believe/ assume, not claim) its a completely unethical (but still legal) business practice on behalf of Amazon but I am not well versed enough to say anything beyond that.
Seller_E2a4eXE1ayCZc
I said the same thing and people called me crazy , Amazon have so many hidden fees, they basically make money from customers and sellers , first they charge customers for prime 130 plus and when your are seller , you pay for seller professional account 40 bucks doesn’t make make sense monthly , if your selling a lot they shouldn’t charge 40 bucks and now they charge you for storage fees plus fulfillment fees that’s like 50 percent of what you sell and they have fees extra for storage fees and when a customer return an item they refund it from you and you pay for fulfillment fees what a crazy thing , you only kinda win if you sell in big volumes
Seller_ZG0hjewkF2rFD
My revenue for the last month of the year was $9k, after deducting all Amazon costs including advertising fees, storage fees for more than 2 months, I only earned about $400, which includes my inventory costs, it's unbelievable, now I just want to sell out as soon as possible to avoid additional storage costs. If you sell quickly, you may have a little profit, but if you can't sell within 1-2 months, Amazon's service costs will eat up all your profits and capital.
Seller_Cj39FIFBjVLNf
same story. Amazon takes too much money. not even worth the effort any more. I'm not taking out a loan to scale, when Amazon can't be trusted.
Seller_BMf05ceYXqShI
So sorry it's made such a huge dent in your profits! The ugly truth is though, honeybadger (aka Amazon) don't care. They're not made to support seller livelihoods or small businesses, they're here to make money for themselves. They even compete with us and make Amazon brand products and de-rank sellers for those items (there have been so many lawsuits about this) and pocket the top seller spots for themselves. They're not a "fulfillment" partner like they advertise, they're an affiliate referral business. Hence why they even call their cut on our billing their "referral" fee that takes 40% of everything that runs through their platform. Affiliates are like parasites, they leach resources off of their host. They want to drain us dry.
