Amazon now takes a whopping 50% cut of seller's revenue
What's the story
Amazon's sprawling online marketplace is a favorite of buyers due to the variety of products it offers and the discounts it provides. There are millions of sellers on the e-commerce site. However, sellers are not treated the same as buyers. Based on a study by Marketplace Pulse, Amazon's cut of each sale surpassed 50% for the first time in 2022.
Context
Why does this story matter?
Amazon had a tough 2022. The e-commerce giant faces challenges like rising inflation, economic uncertainty, and a slowdown in e-commerce sales. In the last quarter of 2022, the company's revenue from the e-commerce business dropped by 2% year-over-year. It seems that the company decided to squeeze sellers to make up for its losses.
Fees
The fulfillment fee has been steadily increasing
Sellers are paying more to Amazon now because the company has steadily increased its fulfillment fee. It has also made spending on advertising and logistics unavoidable. A typical seller pays a 15% transaction fee or referral fee, a 20-35% Fulfillment by Amazon (FBA) fee, and up to 15% for advertising and promotions. The total amount can vary based on the product.
Increased cut
Advertising and logistics are considered unavoidable by sellers
In the last six years, sellers on Amazon have been paying more every year. The increase is not due to sellers using more services. The same services have become either more expensive or unavoidable. Paying for Amazon's advertising or logistics is optional, but most consider them necessary for their business. Amazon's logistics service remains 30% cheaper than most alternatives.
Advertising
Sellers have been cutting down on ads
Amazon sellers cannot control many of the fees the company charges them. However, they can control how much they spend on advertising. It seems that sellers are pulling back from spending on advertising. Many sellers believe that shoppers respond to discounts better than ads. Conversion rate, which measures the number of product purchases after clicking an ad, decreased consistently last year.
Hard
It is getting hard for sellers to be profitable
Sellers were able to manage the increase in fees during the pandemic. However, the post-pandemic period has seen consumer spending less. It is getting harder for small businesses to be profitable because they are now spending more on Amazon. Amazon itself is in a tough spot, but placing that burden on sellers is not the way to go.