Q&A: How can I profit selling books with Fulfillment by Amazon?

QUESTION: Back in November I was talking with another bookseller, who sells only online, and she mentioned how well she was doing with Fulfillment by Amazon. I decided to give FBA a try.

I shipped a box of 50 books to Amazon’s warehouse, and I began getting sales immediately. However, when I checked the transaction details I almost had a stroke. On a book selling for $3.45, I made only 88 cents. Most of the books I had sent were newer sci-fi, paranormal, fantasy mass market paperbacks.

I had Amazon ship the remaining books back to me. Even today, I’m not sure how the program is profitable unless you only send high-priced books or can charge higher prices for paperback fiction. What did I do wrong?

ANSWER: I have experienced the same horrible feeling of realizing I made a paltry sum — or even lost money — on an FBA transaction. Very quickly I concluded that I don’t even want to try selling items via FBA priced lower than $9 or $10. The fees add up. Take the example of a one-pound book selling for under $9:

Sales Price: $8.97

Amazon fees
Commission: $-1.35
FBA per unit fulfillment fee: $-0.50
FBA weight based fee: $-0.24
Variable closing fee: $-1.35
Transaction Total $5.53

That $5 and change has to pay for my time scouting and purchasing the book — and sending it to Amazon. Assume I had bought the book for $2, and paid 60 cents for shipping (30 cents for my wholesaler to ship to me, and 30 cents for me to ship it to Amazon’s warehouse). So, to calculate the net revenue for the item:

$5.53
-2.60. – acquisition and shipping costs
$1.97

I’ve cleared less than $2 — barely more than 20% of what I invested. And that’s for something I’ve successfully sold. What about the deadwood I’m accumulating? If the price collapses on a book I’ve put into inventory, I’m out the purchase price of the book, plus return shipping charges from Amazon, and storage fees of a few cents per month. Even if I ask Amazon to dump the inventory, they’ll nickel and dime me for that, too.

If you’re only clearing $2 per transaction, that doesn’t leave much margin for error. What if one in every four books you put into inventory turns out to be a dud? Then your whole business is just treading water, at best. It’s not going to work — your mistakes cost you significantly more under FBA. You haven’t just lost the purchase price for the books, you’re also paying extra fees on top of it all.

So, here’s the way I look at FBA: It’s a way to outsource part of your business. I’ve decided I’m willing to pay fees to get rid of the burden of fulfilling orders and handling customer service. I’ll make less money per transaction, no doubt about it. I’m dealing with mostly hardcovers these days.

So you’ve got to look toward higher priced items. The economics are much better for something that sells for around $13.

Sales price:
$12.95

Amazon fees
Commission: $-1.94
FBA per unit fulfillment fee: $-0.50
FBA weight based fee: $-0.78
Variable closing fee: $-1.35

Transaction Total $8.38

Let’s assume I had bought the book for $3, and again paid 60 cents for shipping (30 cents for my wholesaler to ship to me, and 30 cents for me to ship it to Amazon’s warehouse). So, the net revenue for the item:

$8.38
-3.60 – acquisition and shipping costs
$4.78

Now I’m starting to make some money. Those fixed costs of FBA are a lot easier to absorb at a higher selling price.

Now, if I decided I wanted to deal with lower-priced books again, I’d keep them on hand instead of sending them to Amazon’s warehouse. You can do both — keep part of your inventory for self-fulfillment, and part of your inventory FBA. In doing the fulfillment yourself, there’s 75 cents to a dollar per book that you’ll be able to clear.

So there is additional risk with FBA, but potentially less time invested in day-to-day fulfillment and customer service. The question is, does the time saved in using FBA allow you to scout more books? After all, that’s the fun part of the book business, and that’s the only way to make money at it — finding lots of stuff to sell.

How to charge higher prices

As you know, you can often sell FBA items for about $4 more than non-FBA sellers because Amazon considers shipping fees when sorting by price. So for items fulfilled by Amazon, they assume free shipping. You can see the advantage here:

Also, Amazon is beta-testing a display of FBA used items directly under the Amazon buy box, and this gets additional sales from buyers who perhaps don’t want to take the time to comparison shop on the Marketplace. For example, if you look at the main detail page for this book:

Right under Amazon’s buy box, there’s a tan-colored box, a huge display of the lowest-priced used FBA item, selling at $15 and change. Much easier for buyers to notice this than the little blue link to “XX copies used and new,” which is visible only if you scroll down. Even though this listing is for a used item, and priced only slightly below Amazon’s price for new copies, it can attract buyers, even when the price is double that of competing non-FBA offers — new or used.

You won’t find this tan-colored buy box on most books. It’s being beta-tested and could be discontinued at any time. But I think it’s evidence that Amazon realizes that it’s hard for FBA booksellers to justify the fees and risks of FBA, and this is a potential way for them to enhance revenue for FBA sellers.

Related posts:

1. Is it still possible to sell books on eBay at a profit?
2. Q&A: What profit margin can I expect by selling used books on Amazon or eBay?