Returns have a way of really eating your profits. I think this is pretty obvious. You bought an item for $50 and flipped it for $100. Amazon paid you $80. Awesome, you just made $30 and 60% return on your investment (ROI).
Then you get the dreaded email saying that you have a return. Now you are stuck with no profit and just the cost of $50. The item may not be worth $50 anymore and you may not be able to return it to the store to get your $50 back. Uch!
Oh well, hopefully it doesn't happen too much and your overall profit margins can sustain some returns. Otherwise you need to rethink what you are doing.
What you may not realize is that aside from losing your commission, Amazon also charges you fees for handling the return on your behalf.
Amazon breaks down returns here but let's take an example of one return to show what happens.
I sold the following item for $229 and I had the following fees
FBA Order Handling Fee - $1
FBA Pick and Pack Fees - $1.04
FBA Weight handling Fees - $1.59
Per Item Fee - $0.99
Referral Fee on Item Price - $13.74
Adding all that together I was paid $210.64 by Amazon for the $229 sale.
Just to confirm: when you put the same item in the FBA Fee Calculator I get almost the same amount, the difference is just about $1. The difference is that I am now a "Professional Seller" and I have a $1 fee reduction per item but a monthly $40 fee.
Unfortunately, this item got returned so we can see the breakdown of what I got back:
The buyer was returned their full $229.
I was paid $210.64 previously. $229 was taken away from my account, $13.74 was credited to my account. That's the FBA Referral Fee on Item price from before. The $0.99 per item fee is returned as well. All this is very intuitive. They are returning the commission to you because the sale got reversed.
Then there is the refund administration fee of $2.75 which is tacked on so my account is debited a total of $217.02 when I was only credited $210.64. That's a difference of $6.38. Larger than the $2.75 refund administration fee. There is still $3.63 unaccounted for which Amazon did not credit to my account. What happened?
To find the missing $3.63 you have to go back to the original fees you were charged.
They are:
FBA Order Handling Fee - $1
FBA Pick and Pack Fees - $1.04
FBA Weight handling Fees - $1.59
Per Item Fee - $0.99
Referral Fee on Item Price - $13.74
We already discussed the refund for the Per Item Fee and Referral Fee. Those got credited back to you account. If you add the fees for the Order Handling, Pick and Pack and Weight handling, you get to exactly $3.63.
Those fees which don't show up on transaction view are not credited back to you account. Those fees remain and are why I lost $6.38.
The refund administration fee is calculated as follows. It is equal to 20% of the Amazon referral fee, up to a maximum of $5 per item.
In my scenario, my referral fee was $13.74. 20% of that is $2.748. I was therefore charged $2.75 If the item was more expensive I would have been charged more but only up to a maximum of $5 per item.
So now you know what happens to your money when a customer starts a return. I'm not commenting on the fairness of these fees but at least there is some calculation to it that you can figure out on your own and know whether or not you are being charged properly.
Then you get the dreaded email saying that you have a return. Now you are stuck with no profit and just the cost of $50. The item may not be worth $50 anymore and you may not be able to return it to the store to get your $50 back. Uch!
Oh well, hopefully it doesn't happen too much and your overall profit margins can sustain some returns. Otherwise you need to rethink what you are doing.
What you may not realize is that aside from losing your commission, Amazon also charges you fees for handling the return on your behalf.
Fees Associated with Returns
Amazon breaks down returns here but let's take an example of one return to show what happens.
I sold the following item for $229 and I had the following fees
FBA Order Handling Fee - $1
FBA Pick and Pack Fees - $1.04
FBA Weight handling Fees - $1.59
Per Item Fee - $0.99
Referral Fee on Item Price - $13.74
Adding all that together I was paid $210.64 by Amazon for the $229 sale.
Just to confirm: when you put the same item in the FBA Fee Calculator I get almost the same amount, the difference is just about $1. The difference is that I am now a "Professional Seller" and I have a $1 fee reduction per item but a monthly $40 fee.
Unfortunately, this item got returned so we can see the breakdown of what I got back:
The buyer was returned their full $229.
I was paid $210.64 previously. $229 was taken away from my account, $13.74 was credited to my account. That's the FBA Referral Fee on Item price from before. The $0.99 per item fee is returned as well. All this is very intuitive. They are returning the commission to you because the sale got reversed.
Then there is the refund administration fee of $2.75 which is tacked on so my account is debited a total of $217.02 when I was only credited $210.64. That's a difference of $6.38. Larger than the $2.75 refund administration fee. There is still $3.63 unaccounted for which Amazon did not credit to my account. What happened?
To find the missing $3.63 you have to go back to the original fees you were charged.
They are:
FBA Order Handling Fee - $1
FBA Pick and Pack Fees - $1.04
FBA Weight handling Fees - $1.59
Per Item Fee - $0.99
Referral Fee on Item Price - $13.74
We already discussed the refund for the Per Item Fee and Referral Fee. Those got credited back to you account. If you add the fees for the Order Handling, Pick and Pack and Weight handling, you get to exactly $3.63.
Those fees which don't show up on transaction view are not credited back to you account. Those fees remain and are why I lost $6.38.
Calculating Refund Administration Fee
In my scenario, my referral fee was $13.74. 20% of that is $2.748. I was therefore charged $2.75 If the item was more expensive I would have been charged more but only up to a maximum of $5 per item.
So now you know what happens to your money when a customer starts a return. I'm not commenting on the fairness of these fees but at least there is some calculation to it that you can figure out on your own and know whether or not you are being charged properly.
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