A neighbor of mine who makes high end silver jewelry was doing fine with the gallery he used (in Santa Fe). The gallery collected about 30% of his sales price in fees.
Another gallery approached him, asked to represent him instead. They took 50% in fees. He switched anyway.
His income went up (and stayed up). Presumably the new gallery provides some combination of better environs, more and/or different customers, better salespeople.
It still seems wrong that fees could be this high, for a jewelry gallery or for amzn. But it shouldn't be assumed that the high fees necessarily mean reduced income for the original seller.
"But it shouldn't be assumed that the high fees necessarily mean reduced income for the original seller."
I agree. It just gets passed down to the customers. Most of my shock was directed at the 50% increase in fee in just a few short years. You can't do that without having a lot of leverage.
As a business owner pricing a product or service, if your costs increase you can either take the marginal cost out of your net income or increase the price.
Taking it out of your net income is simple: You keep prices the same, revenue remains the same, and profit drops a bit.
Increasing the price is more complex; you are changing one component in a system of dynamic feedback: When you raise the price, fewer people buy your product, so the outcome may be less revenue and less profit. The impact of price changes on purchasing is called elasticity: Some products - e.g., fancy restaurant meals - are easily forgone and are thus price sensitive. Others, like necessary healthcare, can be priced extortionately and people will still buy it.
Arguably, if you are the mythical optimal manager, you've already priced your product to maximize revenue and therefore any change will decrease it. In that case, price increases will only worsen your profit.
The reason for your price increase is orthogonal to the customer's purchase decision - you raise the price, they buy less. They usually don't know and don't care why - do it for greed, to cover additional cost (and maintain your beloved profit margin), because your finger slipped on the price-your-goods app, whatever.
Back in the 80's, my company sold compilers through third party mail order houses. They all demanded providing the product to them at 50% of their selling price.
It's what having somebody else advertise, collect orders, process payments, ship, and deal with returns is always going to cost you.
If it's unacceptable to your business, sell directly. My company did both.
I neglected to mention that the mail order resellers demanded we provide them with product at 50% of the price we retailed it. So, if we lowered the retail price, we'd also have to lower the wholesale price.
Nobody was being stupid here. Or maybe I should say that one learns the ropes fast or goes bust.
I am pointing out that your example includes risk transference. Unless they also charged you for shipping, storage, and returns.
There is a difference between "let me buy from you and I need room to make a profit" and "you can sell through me but you bear all costs but I still want my profit".
Yup, it makes me wonder what % of consumer goods for sale via FBA are from retail theft rings. 52% fees on stuff that cost you $0 ain't bad. Otherwise, it's very very bad.
> Would be curious to see numbers on the bigger items. Have you used FBA?
Yeah, I've done enough FBA to rank somewhere between a serious hobbyist and an actual lifestyle business.
There is a sweet spot. If you're selling lightweight crap items, even the small shipping and fulfillment costs still tend to dominate. If you sell huge stuff, the shipping will bite, but not as bad as you'd expect -- Amazon has very good rates. The big problem for bulky items tends to be warehouse fees, and also the logistics of getting it to the FBA warehouse in the first place.
I'd say around 1 cubic foot is exactly where you want to be (with the dimensions carefully chosen to keep you in a favorable category, of course). I believe 18"x14"x8" is the biggest legal standard package.
Somewhat counter-intuitively, if you miss that standard cutoff, you might as well go big (3+ cubic feet) since you're paying the same oversize rate either way, the only drawback is warehouse costs. There's sort of a no-man's-land in between toaster-size and microwave-size.
Anyway, here's the actual fulfillment fees, if you're curious (notice how reasonable the rates are in the "Large Standard" range):
Depending on what services they provide that might not be terrible, its basically high end art gallery margins, but for consumer products with low margins that seems unsustainable. I'm curious how much AliExpress takes.
https://archive.ph/yw3Bv
In 2016, they collected 35.2%. In 2022, they collected 51.8% in fee.
That's insane.