The True Cost of Amazon Returns and How to Reduce Them
Did you know that one of the profit killers in selling on Amazon happens to be customer returns? Let’s find out how it happens and how to lessen it.
|FBA Fee||-$3||Refund fee||-$1|
|Referral Fee||-$3||Referral Fee||+$3|
|Cost of goods||-$7||Cost of Goods||+$7 (If it is Sellable)|
-$7 (If it is not Sellable)
|VAT (Europe only)||-$4||VAT (Europe only)||+$4|
|Profit:||-$13||Sellable Returns Loss:|
Not Sellable Returns Loss:
Note: The fees shown in the table aren’t the actual fees that you have to pay on Amazon; these numbers are displayed just to illustrate the return cost.
Here is an example of a side-by-side table when there are orders and returns.
In selling items, Amazon makes sellers pay for the FBA Pick and Pack fee, Referral fee, Cost of goods, and VAT if you’re selling from Europe. Only then you’ll be able to calculate your profit for the item that has been sold.
When a customer requests a return, the total Sales amount will be reimbursed to the customer. To calculate your total cost of returns you need to understand how the return process works on Amazon.
Let’s say you sell an Item for $30. When the customer requests a refund, they get back the $30 purchase price. Amazon charges you a return processing fee. The fee is for each item and is capped at $5 per item. Amazon also does not give back the FBA Pick and Pack fee since they have incurred cost to pack and ship your products to the customer. Amazon will reimburse you the Original referral fee and any VAT if you are in Europe. The next thing you need to consider is whether your return item is resellable. If it is, then you should add it back to your inventory. If it is not, you also need to consider the cost of goods part of the refund loss.
Many sellers only look at an ASIN’s gross profit margin without considering the cost of returns. To understand if a product is worth selling, you need to know the full details of true profit which is Total Gross Profit – Total Cost of Return. There are many software tools that can calculate this for you. Do your research and know your true numbers.
How to Reduce returns?
- In Seller Central, you can go to Orders>Manage Returns>View FBA Returns. Look at all of the return reasons for each return. Identify the problem and fix it if possible.
- Ensure you are selling the correct product compared to the listing. Make sure the title, description, and images match what you are selling. Make sure the product (ounces, pack size, counts, flavors) are correct before listing the product.
- Read reviews and customer complaints. See the reasons for customer dissatisfaction of the product. This could clue you in on why customers return the product.
- If you sell shoes and apparel, check the Fit rating on Amazon. The higher the rating, the less likely it is to be returned.
- Avoid selling Products with low feedback scores. Typically anything below 3.5 star ratings could be problematic.
Do you have other ideas I may not have mentioned on the list? Could you share it in the comment section? Thank you! See you on our next blog!