Amazon is raising fees for low-priced items by placing new minimum referral fees in many categories, and sellers affected by the change call it a significant increase – depending on the category, fees on a $5 item could rise anywhere from 33% to 150%. And while it’s not clear how many items listed in the Personal Computer category would cost $5, fees for such an item would rise from 30 cents to $1.
The new fees take effect on May 16, 2014, and because of Amazon’s price parity policy, sellers who consider raising prices to cope with the higher fees say they’ll have to raise prices across all the venues on which they sell, including their own websites.
Amazon had previously raised fees in the Beauty and the Health & Personal Care categories by instituting a $1 minimum referral fee, effective March 28 (the same day it announced the new minimum fees in additional categories). Amazon instituted a $2 minimum referral fee in the Jewelry category on January 16, 2014.
As far as the latest fee changes taking effect in May – in categories with a 15% referral fee, including Toys & Games, Sports, Clothing & Accessories and Office Products, items priced below $6.67 will be impacted. For example, an item that sells for $5 currently incurs a referral fee of 75 cents; beginning May 16, that item would incur a fee of $1, an increase of 33.3%.
In categories with an 8% referral fee, including Camera & Photo and Consumer Electronics, items priced below $12.50 would be impacted. For example, an item that sells for $10 currently incurs a referral fee of 80 cents; beginning May 16, that item would incur a fee of $1, an increase of 25%. For a $5 item, the fee will increase from 40 cents to $1, an increase of 150%
“This is a significant increase in fees,” according to an EcommerceBytes reader. “Amazon was already about 25% higher than eBay (including PayPal) for our niche. This will increase it even more for many of our lower cost items. Many of our fees, if we do not raise prices (which, if we follow the rules, means our prices must go up on all marketplaces) will represent 16.6% to 25% of the selling price!”
One seller discussing the changes on the Amazon board said he’s already been dealing with the $1 per item minimum referral fee for Electronics Accessories products already applies to sellers on the Professional selling plan. “Welcome to the club,” he wrote on an Amazon discussion board.
Some sellers said the new fees would hurt their business, but one seller pointed out it could have a positive impact by getting everyone to raise the prices: “This could be great for us; it depends on how customers will react. Adding a per-item fee, assuming everyone has to do so to meet the new fees, will mean a lot less break-even or loss sales.”
Other sellers were unsympathetic to their colleagues who sold low-priced goods. In response, one seller asked, “why are you guys so hostile to sellers of low-priced items? I don’t understand.”
In response, a seller said, “When you – or other sellers – price items very low, it gives customers the impression that Amazon is a venue for low prices, and low values. That makes it harder for we sellers of relatively high value items to sell them.” A discussion of selling strategies ensued.
One seller said in their experience, “loss leaders do not bring in more online sales. They just bring in sales that lose money,” while another seller explained they sell multiple quantities of low-priced items, and they don’t think of profitability on a transaction by transaction basis. The seller explained his selling strategy:
“Thinking about your sales on a transactional basis is one way to consider your business. But it’s not the only way. In our case, we take a non-transactional approach in which we consider the profitability of our inventory over a longer arc of time, making assumptions (based on data) about how our customers behave.
“There seems to be an assumption here that the only way to run a business is to think about your widgets as one-off items that you need to make a profit on, and obviously in that scenario selling 49 cent items with free shipping makes no sense.”
A seller who also sells on eBay said they had already been considering moving away from offering free shipping on eBay because of changes introduced in the Spring Seller Update said, “I think there’s a general trend away from free shipping on these items, and I don’t actually think that’s a bad thing. I think customers will pay for shipping; the hitch has been getting all sellers to charge it. What I don’t think customers will do is pay $5 shipping for five .49 cent cards.”