"Amazon is exploiting its position as a gatekeeper to impose steep and growing fees on third-party sellers," the report by the Institute for Local Self-Reliance (ILSR) states. The nonprofit, a left-leaning research and advocacy organization focused on empowering local communities, says the e-commerce giant will garner $121 billion in proceeds from sellers in 2021, more than double its 2019 total. Stacy Mitchell, the report's author, also calculated that sellers are now paying 34 percent of their revenue on average to the company, up from 30 percent two years ago.
An Amazon spokesperson called the ISLR report "inaccurate" in a statement to TechCrunch, saying that it combines the referral fee (which is mandatory to sell on the platform) and the "add-ons" such as Fulfillment by Amazon and Amazon ads (which are theoretically optional) into one bucket of costs for sellers and proceeds for Amazon. The mandatory referral fee is usually between 8 and 15 percent of each purchase, Amazon says.
Mitchell argues that using the add-on services is vital to success on the platform and, as a result, is cutting deep into margins for small businesses and other third-party sellers. Amazon's market position effectively makes it a monopoly, she writes, and increasing the costs of using its platform amounts to price gouging.
Eli Coen, founder and CEO of Los Angeles-based EliCommerce, an Amazon and e-commerce consultancy, agrees that at least to an extent, sellers must use the add-ons. "If you want to grow and scale on the Amazon marketplace, those are two things you would need to do, running ads and using Fulfillment by Amazon," he says, adding that using FBA is a main way to get the Prime badge that draws many customers.
Coen advises sellers to figure out creative ways to get products ranked organically. Start off with ads and then use them less as you get more reviews and sales, which will also give you a boost in the all-important Amazon search ranking. Further, while Amazon now primarily considers weight in shipping costs for FBA orders, the company is adding an item's dimensions into price calculations in 2022. If the change will affect you, Coen says, you may be able to evade higher fees by asking your suppliers how to make packaging smaller.
For Meaghan Thomas, co-owner and president of Louisville-based direct-to-consumer spice retailer Pinch Spice Market, the price of selling on Amazon is worthwhile. The company takes an average of 29.9 percent of each Pinch Spice Market sale on Amazon, including referral fees and the cost of using FBA for some products, she tells Inc. "That number is not easy to swallow as a small business, but we have gained thousands of new customers this way," she says. Still, she adds, because her product is unusual she has less pressure to spend money on ads than sellers in more competitive categories.
Mitchell argues Amazon hides its tremendous profits from sellers by offsetting them in its financial reports with the losses from Amazon Prime and from selling its own manufactured goods for cheap. An Amazon spokesperson told TechCrunch the company could not comment on 2021 figures.
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