We could talk about the complexity that Amazon Vendors face, but nothing is quite as problematic as Amazon Vendor fees.
What makes things worse is that most Vendors do not know how to avoid them, and resign themselves to the charges. However, once you know exactly why Amazon charges you, it’s easy to reduce Amazon Vendor fees.
But before we get there, we will explain about the various elaborate fees for Amazon Vendors and why they exist. After that, we’ll show you how to avoid these charges.
Why Do Amazon Vendor Fees Exist?
Obviously as an Amazon Vendor, you know the drill.
Amazon places a purchase order for your products, you dispatch your products and then simply wait to receive payment. It’s a much more simple format than being an Amazon Seller. With that in mind, some of the Amazon Vendor fees are understandable.
After all, Amazon is packaging, storing and delivering your products on every order. They charge certain fees just to cover those services.
So, for the moment, let’s ignore those particular fees and focus on two major fees for Amazon Vendors: Chargebacks and Shortages.
These are not only the most damaging charges for Amazon Vendors, but they are also the easiest to understand. As the 1970’s mass retail chains developed automation in order to ease logistics, expedite supply chains and ensure maximum profits – changes had to be made.
A retail-wide enforcement of standards appeared. If your labels didn’t scan due to low standards, this would require manual inspection for each delivery. In turn, this cost them time, money and diminished their supply chain efficiency. The same logic applied for late deliveries, or deliveries that lacked the full number of products etc.
Chargebacks appeared in an effort to encourage Vendors to maintain the same standards. It is for this reason that Amazon Vendors still fall foul of these fees to this very day – but we’ll get onto how damaging they are to your business very soon.
How Expensive Are Amazon Vendor Fees?
While we do have a full Amazon Vendor Chargeback list and a breakdown further in this article, we’ll do a quick scenario now.
You are an Amazon Vendor, and have just received a Purchase Order from Amazon Retail. They think that your latest product X is wonderful. Their PO requests 100 units of Product X, with each one costing £100.
Scenario For Product X – Mistakes are made
While there were a few delays along the way, you eventually sent 100 units of Product X to the Amazon Warehouse. The only issue is that it arrives just outside the time window set in your PO.
It was unfortunate, but unavoidable. Amazon aren’t partial to tardiness, and they charge 3% of the cost of each unit that arrived late. Your Amazon Vendor fees currently stand at £300. Still, it’s just a little drop in the ocean, right? You still have £9,700 on the way after all…
Oops, you had your Advanced Shipment Notification prepared, but in the rush to prepare your products – you forgot to send it before your shipment arrived!
Well, better late than never we suppose. However, Amazon charge between 1-6% of the cost per unit. You now just gained another £100-600 in Amazon Vendor fees. This depends upon your previous performance and overall Amazon compliance levels, so let’s settle for a hypothetical £400.
New total Payment = £9,300.
Package and Preparation Related
You prepared your products well, but not exactly to Amazon specifications. Parts of Product X should have been boxed instead of being bagged. If you want to learn more about these particular guidelines, check out our table guide for preparation and packaging chargebacks.
Once again, you are charged for a cost per unit depending upon the level of the infraction. Let’s be fair and stick to 4% in this scenario.
New total payment = £8,900 – things are looking a little smaller right now!
This is the part where things can become very expensive.
While you packaged and sent Product X you may have used certain barcodes that were easily obtainable. Instead, you should have sought out certified GS1 barcodes that are Amazon compliant. Or perhaps you used unapproved packaging materials in your preparation process – now you are stuck with even more Amazon Vendor fees.
Receive process chargebacks can range anywhere up to 25% of each carton. So if your mistakes are serious and extensive, that could be another £2,500 in Amazon Vendor fees. We’ll scale that down a bit for our scenario and settle with a more gentle £900 instead.
New total payment = £8,000. Already you have lost 20% of the value from this order.
The Other Amazon Vendor Fees
Up until now we have simply discussed Amazon Vendor fees as chargebacks and shortages. However, you also have a number of other fees which are compulsory. Although Amazon doesn’t technically label these as “fees”, instead they call them “allowances”.
- Internal customer support
- Damage allowances (approximately 2%)
- Market Development Funds – find out more below
- Potential access to Premium Vendor Services including:
- Amazon Vine
- A+ Content
- Amazon Retail Analytics Premium
- Shipping Costs / Freight Allowances
- International Shipping / Return Shipping
- Taxes and Duties
- Currency Conversions
Although some of these are only necessary when it comes to international shipping.
Market Development Funds
These particular allowances are a lesser known type of fee, so let’s explain:
“Market Development Funds” is an ambiguous umbrella term that Amazon designed for their behind-the-scenes work. This includes catalogue management and marketing initiatives Amazon employs in order to promote and enhance product sales.
This “allowance” is usually around 10% with some occasional variances.
Let’s Put Amazon Vendor Fees Into Perspective
So just to clarify, our shipment of Product X was supposed to bring us £10,000.
Obviously Market Development Funds, internal customer support, shipping costs etc are unavoidable as they are enforced by Amazon. So let’s label them “the necessary costs” of doing business.
You have already lost 20% of the money due to Amazon Vendor Chargebacks.
Now add on these:
- “necessary costs”
- Materials invested in Product X
- Your time invested in Product X
And now consider that you are also selling at wholesale price to Amazon. This means that you sacrifice profitability in return for larger orders.
Is your business still making a profit at this point? Even if it is – you are still missing an entire 20% of potential profits that you could use to transform your business.
Some Amazon Fees Should Not Be Charged
In conclusion, we have 2 sets of Amazon fees that we would like to reduce, however only one of them is possible.
The “necessary costs” aren’t a negotiable item. They are fixed prices for fixed work, plain and simple – so they are not an option. However, the chargebacks and shortages are not a necessary charge.
Sometimes you are incorrectly charged by Amazon!
Automation is an incredibly complex and wonderful thing, after all, they strengthen supply chains and increase efficiency at incredible levels. However, they are not infallible; especially at bustling Amazon warehouses.
Has Siri ever misunderstood one of your questions? Did Alexa mess up one of your reminders? Perhaps the task manager even stopped working on your PC…
Technology can make mistakes, and the millions of units being processed daily by Amazon warehouses are no exceptions to the rule. In fact, as an Amazon Vendor, you’ve probably already paid some fees that were not your fault! But what if you could prevent incorrect fees, and avoid future chargebacks in one fell swoop?
Avoid Amazon Vendor Fees
When it comes to chargebacks and shortages, if you don’t dispute, you can’t avoid them.
Too many Amazon Vendors accept these extra charges without a second thought – “Why bother fighting Amazon, they’ll always win?”
It is entirely possible to refute these chargebacks as long as you begin the process within the 30-day period, and include recorded evidence for all of your processes. It places the burden of proof on Amazon and means that if they can’t provide concrete evidence, they withdraw the chargeback.
The only drawback is that this can be time-consuming and requires dedicated personnel. You have to dispute each and every chargeback separately, and it can seem daunting to begin with.
However, there is one tool that you can use. It not only automatically disputes chargebacks with solid evidence, but it can also provide valuable insights into improving your supply chain and keep you within Amazon’s compliance regulations.
Vendor Connect Managed Service
This tool helps Amazon Vendors across the world refute chargebacks and shortages every single day. In fact, it recovers around 75% of all shortages and has a 68% success rate at improving a Vendor’s operational performance.
In a nutshell, this Amazon Vendor tool:
- Operates on a rolling monthly contract
- Automatically disputes incorrect chargebacks and shortages
- Identifies issues in your supply chain and recommends corrections to be implemented
- Maintains your operational requirements within the <5% margin required by Amazon
Oh, and it comes with a free audit as well.
That’s right, you don’t have to jump in headfirst at all. Simply fill in our form below, and one of our representatives will be in contact to arrange your free Vendor Central audit. We’ll take a look at how much your business could be saving every single month and let you choose the next steps.
With VC Managed Services you can regain an enormous amount of your profits, and strengthen your supply chains with no extra effort. Get in contact with us today and we’ll begin the process of returning your revenue!