inevitable

The New Economics of Books – starting March 1, 2017

| 53 Comments

Change is in the air.  Again.  It seems like every month, Amazon is introducing new changes (a.k.a. new fees) to the marketplace.  It reminds me of this quote:

inevitable

Even more fees were announced yesterday, and it is causing quite a bit of upheaval on “the internets”:

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Before we take a closer look at the fees, it’s important to point out that these increased fees were inevitable.  As this recent article on GeekWire points out, Amazon lost $1.74 billion (yes, with a b!) on shipping costs in the THIRD QUARTER OF 2016 ALONE.  Ouch.  Shareholders will only tolerate those losses for so long before dumping Amazon’s high-priced stock.  Bezos decided to start looking like less of a bozo in this sector of the business by increasing the Prime shipping revenues to help offset the losses.  Unfortunately for third party sellers, that means the cost of fulfillment had to go up.

Now that we understand why the fees are increasing, let’s see just how bad they are.  Here’s a summarized chart of your new net profit figures for a typical book and a typical textbook at a range of prices.  (If you want to see detailed charts, scroll further down.)

(Note: the Fulfillment Fees will increase on February 22, and the Closing and Referral Fees will bump up on March 1, so I factored in all of the new fees as of March 1.  The fees will be slightly lower from October through December, so these fees are the worst case scenario that will exist from January through September.)

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On a typical one pound book, the FBA fees will go up about $1.53 across the board, regardless of the book’s sale price.  For Merchant Fulfilled sellers, the fees will impact them about $1.05 per book.  For heavier textbooks, FBA sellers can expect to pay an additional $2.29, while MF sellers will still experience the same $1.05 price hike.

Author’s note – many of you reached out to me and pointed out that the fees will be worse on a two pound book compared to a one pound book.  You’re absolutely correct.  Thanks for noting that!  Here’s how the fees shake out for each “class” of book, as well as the mix of books in my current inventory of ~15k books:

  • Small Standard Size (21%) – $1.30 additional fees
  • Large Standard Size, <1 pound (9%) – $1.53 additional fees
  • Large Standard Size, 1-2 pounds (40%) – $2.33 additional fees
  • Large Standard Size, 2-3 pounds (16%) – $2.31 additional fees
  • Large Standard Size, 3-4 pounds (8%) – $2.29 additional fees
  • Large Standard Size, 4-5 pounds (4%) – $2.27 additional fees
  • Large Standard Size, 5-6 pounds (1%) – $2.25 additional fees
  • Large Standard Size, 6-7 pounds (1%) – $2.23 additional fees
  • Weighted Average of Additional Fees: $2.03

Key Takeaways:  Is this the end of selling books via FBA?  Hardly.  The market is going to shift dramatically over the next few months as sellers adapt to the new fees.  We will likely see a brief race to the bottom as sellers try to clear out their cheaper/older inventory, but the market should reach a new equilibrium point after that.  Those who don’t adapt their strategies will get burned.  FBA offers in the $4-5 range will get bumped up to the $6-7 range to net the same profits as before.  Ultimately the higher costs will get passed along to Amazon’s customers.  However, sellers will bear the higher fees as well.  For an FBA seller who sells 2,000 books a year, the added fees will deduct roughly $3,000 from their bottom line.  This will hurt larger sellers even more.  Here’s how you can adapt:

  • Buy better books (obviously!) – No rocket science here!  Sourcing $8 books won’t be as profitable as before, but there may be more of them out there once the market catches up to the changes.  Also, a $50 book will have its overall profit margin impacted far less than a $10 book will.
  • Price your books better – The days of pricing ridiculously high and waiting for the right Prime buyer to come along are long gone.  Proper pricing will help you turn your inventory faster, which is in your best interest as well as Amazon’s.  The game is being changed to encourage faster flips.  A repricer may play a key role in keeping a lean and mean inventory (see my recent post about my experience with RepriceIt).
  • Learn to interpret Keepa & Camel charts – A book with a rank of 500k sold a copy 2 or 3 days ago.  The real question is how many copies has it sold in the past six months?  Sales rank alone won’t tell you that answer.  Average rank will help, but it’s not perfect.  Learning to read the Keepa charts will help you avoid sending in duds.  I’m not suggesting that you look at the charts on every single book as you’re sourcing, as that would slow you down significantly.  But taking a look at the charts when you list the books and price them may save you some serious coin in today’s fee-heavy environment.  If you do online arbitrage, you can do your research before purchasing the book, which will give you a bit of a competitive advantage compared to buying at library sales.  Hint, hint.
  • Buy Amazon stock – In February of this year, one share of Amazon’s stock was trading for $500.  It reached a high of $840 in October, and has dropped off a bit to a bargain price (mostly kidding) of $758 as of this afternoon.  Amazon is killing it in other sectors, including their AWS Platform (Web Services).  As they shore up some of their losses by hiking these FBA fees, that ought to help them hit their quarterly targets.  If the stock price does increase, it could help offset your increased fees.  Of course, the stock could crash and burn, and you could lose your investment there.  Who knows what will happen?  **This is NOT intended as investment advice.  If you invest money in Amazon, do so at your own discretion.  If you lose money, don’t blame me.  If you earn a small fortune, however, please keep me in mind.**
  • Partner with thrift stores or libraries – As the fees go up, it won’t be as easy to turn a profit by selling only a small percentage of your inventory.  Many thrift stores have been dabbling with selling online, and they may not be able to keep up as the market shifts.  Look for some of them to dump their Amazon inventory and you can capitalize on the increased supply of good books on your local store’s shelves.  Or better yet, approach the thrift stores and offer them guidance.  You could charge a consulting fee or work out a deal to manage the entire process for them on a commission/consignment basis.  Think outside the box here.
  • Merchant Fulfilling is not the answer – Yes, the estimated profits are slightly better for a $10 MF book than they are for a $10 FBA book.  But as long as customers are willing to pay more for FBA items compared to MF items (and they still are), then FBA still makes sense.  A $10 MF book will net you $4.09 starting on March 1st, but you will likely be able to sell the same book for $15 (or more) using FBA, which would net you $7.71 (or more).  It may make sense to MF some of your long-tail books, but I still plan on using FBA for all of my books for the foreseeable future.  It sure beats shipping out individual orders every night, plus your business can still run in the background when you’re out wandering the globe.

Bottom Line:  Ultimately, these fees were inevitable.  We’ve been fortunate to be able to sell books so cheaply on Amazon’s platform for the past few years.  Amazon has acquired tremendous market share through their Prime program, and they are now in the perfect position to capitalize on that investment.  In the past, booksellers could sell a small percentage of their overall inventory to reach a break even point.  In the future, that percentage will have to rise to compensate for these additional fees.  But at the end of the day, the margins on used books are still exceptional, even if they will be squeezed by the Amazon Machine.

What do you think?  Take a moment to comment below.  Are you going to get out of the business altogether?  How do you plan to adapt to this new environment?

Assumptions:  For the detail oriented people, check out my assumptions and spreadsheets below.

  • Inbound shipping rates (for FBA) – calculated at 25 cents per pound.  These may vary depending on where in the country you live (20 cents/pound is normal in Indiana, 35 cents/pound is more common in Colorado).  If you ship by the pallet your fees will be dramatically lower here.
  • Storage fees were ignored – the above figures are accurate if you sell the book within the first month of it hitting Amazon’s warehouse.  I know this isn’t normal for most books, but it’s a way to look only at the changing fees.  Storage fees are increasing as well by about 20%, but that means you’ll pay 2.4 cents per book per month instead of 2 cents.  Long term storage fees will hurt as well, but they will only be charged on the books you HAVEN’T sold in the first 6-12 months.
  • MF Shipping Rates – calculated using Media Mail rates purchased online (through PayPal Multi-Order Shipping).  These rates are cheaper than you’d pay if you purchased them at the post office, but more expensive than bulk rates if you qualify.
  • I didn’t factor in the cost of inventory – don’t forget to account for these!  Just subtract the cost of your books from the bottom line in the profit figures below.

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53 Comments

  1. Doesnt bother me a bit. I flip textbooks online. I wont sell anything that I cant price at least $35. I am beginning to inch that up litle by little to get to where I dont sell anything for less than $45. I have a book in pending now at $54. I paid $4.98 (.99 plus shipping). I am thinking with some sellers leaving I may do better than before.

    It is getting harder and harder to get into bookselling and make any money by selling books for less than $10-150.

    • Spot on, Billy. A higher ASP will be essential in 2017. That may mean people are able to source fewer books at first, but eventually the market ought to catch up with the new fee structure. Only time will tell!

  2. Increased fees should be a concern to everyone, even arbitragers, in my opinion. I also arbitrage, but I do not limit myself to that method. I think the old ways of selling books on Amazon are no longer relevant, and those who don’t change will suffer. I have a feeling there will be a big shakeout this year amongst booksellers, and only the strong and the big are going to survive, if we are not careful. The same thing happened on Ebay. Just my opinion.

    • “Only the strong and the big are going to survive” – couldn’t agree more, Richard. My point was that with online arbitrage you can do your research better, snag faster-moving inventory, and most importantly stick to higher ASPs. It’s going to be an interesting year, to say the least.

    • I wonder if amazon has gamed this scenario enough. Amazon can make more money selling 1000 books with a $1 profit that it can selling 500 books with a $1.50 profit. Or fronting for us small sellers, that is. We are quite sad, however, with the obvious need for us to leave amazon.

  3. Caleb,
    Thanks for the doing the math, lol.
    Here’s my take on it. Since October I have been paring down my inventory. It is now about half what it was this time last year. But at the same time I have focused on more valuable books with better rankings. The net result is that my turn rate is around 20% per month and my sales dollars are about the same as they were when I had a much higher inventory level. I believe the day of profitable sourcing at thrifts is just about gone. Where I would have purchased approximately 50 books on a run last year, I now may only buy 15 or so. With online arbitrage I seldom buy a book unless I have a good chance of selling it above $25 and doing so in a month or two. I am not interested in MF at all, and I still believe a good ROI is available with FBA if the seller will use a very focused buying and pricing model, as you suggest. The game gets tougher and more expensive but still has plenty of legs, IMHO.

    • Bingo. The future of bookselling is a tad dimmer in the short term, but there’s still room to earn a profit. It’s going to be harder for the casual flipper to earn a decent living without changing their business model.

  4. There is a big difference between the fees of a standard 1 lb book versus a 2lb book as far as these new fees go. I have assumed all the books I am looking at will be in the 1 to 2 lb range rather than less than 1lb. (For trade size paperbacks you can assume are less than a 1lb). The difference is a over $1 in additional fees. Important to consider that as well in doing the analysis.

  5. I am finding more and more that the spread between FBA and MF is narrowing on more titles.Many times less than the fees you will pay. There are still great opportunities on some titles but I have decided unless there is a spread of > $6-7 dollars to be gained by FBA Im going MF.

    • On books where Amazon’s on the listing for under $15, I would tend to agree with this statement. It’s a lower ceiling on the max price, and in these cases MF may save you a buck or two if you’re willing to ship the books yourself. I’m on the road too often to bother with MF, but I could see this benefit in some cases. When Amazon’s not on the listing or on it for a higher price, the spread tends to open up in my experience.

  6. Big Bucks, Big Bucks, ……No Whammy ! ! !

  7. I’m not a numbers guy, so I will just ask the question . Will this kill the penny books? What will be the new minimum for MF? . 99 cents? Overall I agree with Caleb those that can adapt will survive and find a way to prosper. Hopefully some of the weaker sellers who were driving down the prices will end up leaving.

    • Many sellers will leave – at least from what I’m seeing and hearing. We’ll see what actually happens though. Penny books will no longer make the same money, and I would be we’ll see the floor price on FBA offers hover at around $6.00. Some will go lower just to sell it and move on, but we *shouldn’t* see too many $4.00 FBA offers moving forward.

      On the MF side, you could theoretically see books for less than a penny (by which I mean $4.00 – a penny plus the current $3.99 in shipping). Here’s how a $4.00 MF book with free shipping would get charged under the new fees:

      $1.80 closing fee
      $0.60 referral fee (15% of the entire $4)

      That will leave $1.60 available for shipping the book to the customer. For media mail sellers, there’s no room for profit here so the floor price should go up. For mega sellers who qualify for bulk shipping rates, there should still be room here for profit. We may see prices creep lower than $4.00, but many competitors won’t be able to sustain those prices and the prices may creep back up again. Time will tell!

    • I also have wondered about penny books since I buy all my inventory online. I have price notifications in on a number of books that spike to 30-40 during textbook seasons that can be had for a penny at times. Not a lot of those out there but I have found some.

      So, here is what I am wondering. If these fees drive some of the people out of the business as I think it will, where do those books go? I wonder if more of those books will go to the mega sellers. One thing I have learned buying books on Amazon every day is the megasellers dont let books sit around their warehouse. Many sellers leave a slip of paper in their books that show when it was put into inventory. It is rare that I buy a book that that was in a sellers inventory over 2-3 weeks. They will sell it at whatever price they have to to move it quick. Maybe even the Megas will get to where hey can not sell them for a penny. In that case maybe 50 cents becomes the new penny. Or maybe 25 or 60 or a dollar. At any rate I think there will always be textbooks around that can be bought cheaply enough that can sell for a premium during TB season.

      I have more questions than answers right now but in time it will work out.

    • Not a numbers guy? You won’t be in business long then. Business is ALL #’s

  8. I starting pro selling in August 2015 after selling books on MF for about 6 months. Things have changed dramatically since I started selling books. I have had to rethink and retool my whole business model, and this is after selling 3x more in 2016 than 2015! Usually that is a good sign, but instead, I am looking very hard at the numbers, and I am not sure how much longer I am going to continue working for Amazon instead of working for myself! They are not giving sellers any time to adjust before they roll out another change that puts more $ in their pockets, and takes it out of mine. There are a lot of hidden and visible costs in bookselling thru the Amazon platform, and if you can’t control your costs, well, …this is why 80% of small businesses fail, not just lack of sales, but too many costs, and too little cashflow.

    sales for 2016, than 2015! Normally, that would be considered a good start, but instead, I am debating wheter to continue on for the long haul. I don’t know that I would have bothered if I would have known these changes were going to happen. Right now, I am concentrating on my numbers, cash flow, profit and loss, and really analyzing whether it is worth my time. I feel like I am working for Amazon, instead of working for myself.

  9. Hi, does this apply to Canada (sellercentral.amazon.ca) or just the US?

  10. I am only a good 11 months in the book business selling online business. And I have never understood how people can make a decent profit by selling penny books, either as MF or FBA. I made my business model on a different scale. For me profit is crucial and if I want my time spent well, a book had to be sold at least at €12.99. Hence, if I could purchase books at €0.35, I listed them for €8 just to have also “cheaper” books. I sold my company 3 years ago and at the age of 56 I learned during my business career that profit is important. I also had competitors in my former business who wanted to be the cheapest. I never played that game. A correct price will always survive and the proof is that I had 30 years of good business whereas others had a short period of big turnover but their profit was so poor that they did not survive. So let the sunami clean up the ones who don’t have a proper business model !

  11. i’ve slowly been dumping crap books(under $12) out of my account..for the past 30 days i’ve only bought books that can sell for $18 up..i intend now to raise that price to $25..retail arbit for me for Xmas has been gangbusters..more online/retail and far less books..adapt adapt adapt

  12. Hey, I got quoted on one of your blog posts!

    I started sourcing books that would sell for no less than $15 in the last half year (although if I bought a large lot, I would list leftover books down to $8), and have upped that to $20. I should still do okay. I hope to clear as much of the lower priced dog inventory as I can over Q4. I also hope that AMZ offers a free removal period before the February 15 LTSF assessment. They usually do, but if not, I’ll go for the destruction for the cheaper cost ($0.15/book) and write off the destroyed inventory. I’ve moved most of my 4 Million and up sales ranked books over to Half and will probably also start an AbeBooks account to list the items I’m willing to self-fulfill – minimum of $50 and 3 Million and up. (But having said that, I just sold a 5 Mill book I left in FBA today, two months after I listed it, for $185…so maybe I’ll experiment with resisting a small number of titles with high sales ranks.

    I think the cost of low-priced books (even with great sales ranks) is going to rise so high that 3rd party used books will not be able to compete with what Amazon is selling them for new, so that end of the market is going to drop out for most sellers. (Maybe not some of the Self-fufilled Prime megasellers, but I don’t fully understand their model.) That will probably hurt a lot of sellers who buy bulk lots by the gaylord, as many of the books they routinely list will no longer be profitable. Penny books are dead, of course. Most mid-level sellers should probably concentrate on smaller, leaner inventories with quality books with prices that cover the new fees. We may see fewer sellers in the future, which would be a good thing.

    • You’re famous! 🙂

      Well stated. I think the gap between true mega-sellers and the medium/small sellers will widen with these fees. Huge sellers with bulk shipping rates will be able to sell books for <$4.00, while the mom and pop operations will push their prices up to north of $5. We may still have opportunities to buy books cheaply as a consumer or online arbitrage buyer, but the seller supply may change quite a bit. Time will tell!

  13. This is the price of doing business! I don’t see why people freak out when a fee goes up. I am not a large seller and I’m doing fine and I watch my inventory daily and make changes when I believe I need too. If people switch their stuff to other venues, so be it. It will be better for me. Know your business, and work it hard! Have a Merry Christmas!! Jim

  14. Caleb, what will be the profit for a 4lbs textbook priced at $50?

  15. I keep wishing that Amazon would downgrade the “free” 2-day prime shipping to 3+ days, and start charging the prime members extra if they really gotta have it in 2 days. I know, keep wishing, but it would only seem fair to make the buyer decide if it’s really worth more $$’s to get it that quick… Is patience not still a virtue???

  16. Can u do a breakdown of how the storage fees are going up 20%?

    I thought that monthly storage fees were tripling like they currently are in November and December but next year they will in October too. Anyways other reason they are going up?

    • They are going up in January through September from 54 cents per cubic foot to 64 cents. Then $2.35 per cubic foot in October through December. Warehouses get crammed in Q4, and Amazon is trying to use storage fees to help clear out some space. That’s the best I can tell.

  17. maybe AMZN is gonna employ (deploy) picker-drones and dispatch them to a neighborhood near you (me) pronto! LOL

    would solve most of their overhead problems!

    imagine a picker-drone picking exactly the producta buyer wants and delivering it directly without even buzzing a warehouse!!! THAT’S PROGRESS!

  18. I would stay away from offering stock advice.

    “Buy Amazon stock – In February of this year, one share of Amazon’s stock was trading for $500. It reached a high of $840 in October, and has dropped off a bit to a bargain price (mostly kidding) of $758 as of this afternoon. Amazon is killing it in other sectors, including their AWS Platform (Web Services). As they shore up some of their losses by hiking these FBA fees, that ought to help them hit their quarterly targets. If the stock price does increase, it could help offset your increased fees. Of course, the stock could crash and burn, and you could lose your investment there. Who knows what will happen? **This is NOT intended as investment advice. If you invest money in Amazon, do so at your own discretion. If you lose money, don’t blame me. If you earn a small fortune, however, please keep me in mind.**

  19. Would you mind reworking your little sales rank/min price chart in light of all this?

  20. JakeCy
    Thanks for quanting the Az cost increases coming in Feb 2017. You help demystify Az’s confusing manner of informing us that it’s going to cost more to do Biz in 2017 AND to not begin popping anxiety pills / the sky is NOT falling.
    One comment: Mega sellers have significantly higher fixed costs than Mom & pop sellers i.e. warehouse (scanners/ computers / printers to fork lifts etc ) and equipment ; plus their biggest cost should be for a reliable Labor force & current software And do not forget book returns / bad debts, insurance , possible health benefits, overtime, state unemployment compensation taxes and the Feb’s social security tax.
    What does this fixed cost package add to every book : no idea but somewhere between a dime to a half dollar per book sold ?????
    It would be interesting to explore the numbers / break evens at different book sales levels for the Mega sellers. Methinks it would be an eye opener for your Mom & Pop followers like me.

    Merry Christmas and thanks for your insights.

  21. Another great post Caleb! Thanks for all that you do!

  22. Funny how everyone thinks amazon is the only place to sell books.
    Amazon needs to remain competitive in lower fees if they want to keep sellers on board, or they can be punished with less business and more business going to competitor sites. That’s the facts.

  23. My motto is “raise your standards” of inventory. My ASP on Amazon is $33. Also, learn how to do other things, in addition to selling books. Some booksellers need to branch out… the water’s fine. My 2 cents!

  24. Hi, Caleb.

    You’ve missed an obvious problem. With Amazon allowing 3rd party sellers to compete for the new buybox, used books currently in the $8 range aren’t going to have headroom to increase in price to compensate for the additional fees. It’s extraordinarily unlikely that Amazon is going to price books it sells new at $10 to $12.

    I’d seriously consider moving entirely out of books under $10. I don’t think it’s very likely *at all* that entire market moves up to compensate for the fee increase. Paperback popular fiction is going to be almost entirely impossible unless you get your inventory for free *and* can’t move it locally or through another channel for more than $2.

  25. Great analysis. Thank you.

    I want to draw your attention to the chart, “Future FBA Fees on Large Standard Book.” I believe you have miscalculated the margin.

    I may be missing something so I stand ready for rebuttal.

  26. How will this effect online arbitrage techniques like Eflip?

    Will MF prices go higher on average, thus making our purchase prices higher?

    • Only time will tell – if it’s a perfectly efficient market, the average MF prices will go up $1.00 and the average FBA prices will go up $2.00 so everyone has the exact same profits as before. That’s unlikely to happen though. But as long as more customers are purchasing Prime items (demand) than sellers are supplying them (supply), the FBA prices will remain higher relative to the MF offers and the eFLIP model will continue to work. With the large increase (~50%) in Prime subscribers in 2016, the market is still looking solid moving forward for FBA Arbitrage.

  27. I’m so happy to have this post. I just stand back and watch so many people claiming the sky is falling with these fees. To me it seems they are missing the point.

    ALL costs go up at some point. The idea that the business model of buying nickles to sell for 6 cents is no long profitable shouldn’t be a surprise. And yes if you have some low priced items already in the warehouse you may have to take a loss.

    I used to own a couple retail stores that sold truck accessories. Most of business was for new trucks. Try having a bunch of inventory based on a truck and have the new model come out with a slight change that makes your old item no longer fit.

    Yes there was a market still but not the same market and the price had to start dropping just get them out the door fast enough before that market dried up.

    Thanks again for making this post

  28. Hi Caleb, Thanks or the numbers & advice. I’m a smaller size bookseller whose done well FBA. Despite the adjustments, things are looking good. Your advice is on point! Have a great weekend, Lou

  29. Hey Caleb,

    Quick question about pricing – I’m new to FBA selling (was MF before), and was wondering how you approach it. I’ve definitely outsold MF sellers with my FBA pricing for used, but I was wondering – if there are no FBA prices for New OR Used, do you price over the lowest New price and still make the sale? Just curious if that is possible or not.

    Thanks, in advance!

    – Dan

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