First, if you haven’t read, please check out this blog post about FBA.
Click to read the article.
There is no simple answer for this. You might have a vendor catalog and you might some products that you could send with FBA. Or you might be doing private labeling, which is both easier and more difficult (on the marketing side. We are going to release different article series on private labeling.)
Let’s say there is already an ASIN for the product that you are thinking of doing FBA with other sellers. You can use some tools to determine what would be the sales like for the product category, but these tools mostly depend on a linear regression of rank and product category. If there’s someone else just created a new ASIN and boosted the marketing campaigns, the sales of that ASIN and product might be low.
So let’s list some questions:
- What’s the total cost of the product?
- What is your shipping to FBA and packaging cost?
- How much Amazon charges for the FBA cost?
- Are there any other FBA sellers on the page?
- What’s the competitors minimum price could be?
- Is Amazon selling the same or different product?
- What is the rank of the page?
- What is the customer ratings for the ASIN?
Now let’s start answering these questions.
Initially we would need to know what is the total cost of the product, which includes the cost that you would buy it from your vendor (with some possible shipping cost for delivery from the vendor to you), packaging cost (such as labeling, the compensation for your warehouse staff per quantity, if any)
(Product used for testing: https://www.amazon.com/dp/B00DSSOVJW)
When you sum of all these variables per SKU quantity, you will get your total cost. Now, let’s go to the Amazon FBA Calculator to see how much Amazon would charge us. As an example, let’s imagine we are selling guitar picks, and let’s imagine that our total cost (excluding Amazon related costs) is $5. Let’s go to Amazon FBA Calculator (https://sellercentral.amazon.com/hz/fba/profitabilitycalculator/index?lang=en_US)
Amazon is going to bring the product details. Then scroll down in the page and press calculate button. You will see the following screen (with the active rates)
Here there are several things to look at. $2.41 is the FBA Cost. There is also Selling on Amazon fees which is $1 fixed (if we have shipped this by ourselves we would have paid a lot more in commission. At least 1 dolar, after certain amount some percentage based on the product category)
- So our total FBA cost is $3.41 per SKU quantity.
- Our imaginary product cost is $5
- Our total cost is $8.41
We cannot sell for this price, because that would not gives us any money. We would receive payments from Amazon, and basically pay it back to the employees and vendor and live on 14 day loan / paying loan cycle.
Let’s look at the current buy box status of the page:
If the buy box owner had the exactly same cost with us, they would be making $2.56 profit per order. That is %23 markup and it is really good for the market average (2% – 15%). Here you can look at the other competitors to see, if there is any seller with or without FBA but couldn’t get the buy box and has a cheaper cost.
Now, we should think that this is not the buy box seller’s minimum price. They are also a business and trying to make money. How low can they go? If you use our software Repricer AI, we can help you with that. You can create a list of ASINs and we track their progress for you and let you know if it worthy of your time and money to sell on the page. Create an account and try our state of the art repricing software and extra tools free for 14 days.
If you don’t have access to historical data, you can look at Google to see what’s the market price for the product and have a general idea. It’s a good practice to be at least shooting for $2 or %5 cheaper than the buy box owner. If page as a really high rank (less than 1000), you can even consider cents. High volume, low margin is going to cover you and if the page has a really high rating, you can think some other sellers also found the page and market adjusted itself in a way that prices are going really down.
Now, let’s go down to the bottom of the page and see the summary:
You see that this is a really old page, started in 2013. It has a high star and #4 and #1 in its categories. It’s really light, so it wouldn’t cost much to ship to FBA using USPS, Fedex, UPS or other carriers.
Now, if the seller is private labeling (which is not the case), they can submit a complaint and take you off the page. If not you can get into the page.
How you should start with your shipments?
By small quantities. Never initially ship more than 10 quantities. Probably your new competitor is also using a repricing software and whenever you start listing with your cheaper price they will automatically go down and and you can see their ‘almost’ minimum price. During this period, you still have some chance to sell (if their repricing software is not Repricer AI, they will have delays up to several hours, or they will make mistakes)
Most of the cases, you can afford losing 10 quantities. You can mark it down if it stays there for a week or two and get some of your money back. If you keep the buy box, that is good news. Wait until your inventory is sold out, or a week and see your average sales. Then if you think if your ROI is good, you can ship accordingly to that.
Try to keep 2 – 3 weeks of inventory on FBA at maximum.
We didn’t cover one scenario; what if there is no FBA on the page, only regular fulfilled by merchant competitors? In that case, all of these apply. Even your price is higher than them, with a small window you can still get the buy box, and again; our repricing software helps you with that.