Following a successful trial in American markets this February, Amazon is reducing referral fees for multiple product categories in the UK and the EU.
Amazon’s share of retail is huge – over £4 in every £100 spent in the UK is spent on Amazon. Only four companies beat that; Sainsbury’s, Tesco’s, Asda and Morrisons. Outside the groceries sector, Amazon stands unchallenged.
(This may be why Grocery is one of the categories seeing a bigger reduction, from 15% to 8% on items costing £10/€10 or less.)
By reducing referral fee percentages, Amazon will make its platform even more appealing to potential Sellers. With a little over half of all sales on Amazon being made by third party sellers, attracting more Sellers in – and encouraging Sellers to increase the amount of business they do on Amazon – is key to increasing their market share even further.
The referral fee reductions take place on June 5th.
Breaking Down Amazon Referral Reductions
From 15% to 8%
- Health & Personal Care
- Grocery (Beer, Wine & Spirits excluded)
This reduction only applies to items with a total sales price of £10/€10 or less.
From 15% to 10%
Furniture, excluding mattresses, with a total sales price greater than £175/€200, will reduce referral percentages from 15% to 10% on the portion of the price above that value.
From 25% to 5%
UK referrals on Jewellery items have been at 25%, but any portion of total sales price greater than £225/€250 will instead be charged at 5%. (EU referrals drop from 20% to 5% for the same values.)
From 15% to 5%
Watches referral fees will be reduced on the portion of their sales price above £225/€250. The drop will be from 15% to 5%.
Per-Item Minimum Referral
All categories other than Grocery and Media (including Books, Music, Video, Video Games, DVD and Software) will now have a minimum per-item referral fee of £0.25/€0.30.
Referral Increase in France
TVs, Laptops, and Computers sold in France will see their referral fee adjusted from 5% to 7%.
Example High-Value Referral
Imagine a hypothetical UK customer ordering a ladies’ watch with a value of £300 and a matching necklace with a value of £400 from the same Amazon Seller. For that £700 order, the Seller would have paid £45 (15% of £300) for the watch and £100 (25% of £400) on the necklace. The total payment is £145.
Under the new system, they would pay £40 (15% of £250 and 5% of the remaining £50) for the watch. They also pay £70 for the necklace (25% of £250 and 5% of the remaining £150). The total payment under the new system is £110 – increasing profit by £35.
Example Low-Value Referral
Another customer is stocking up on over-the-counter medications, cold remedies, vitamins and other low-cost Health & Beauty essentials.
Their spend comes to £40 over 20 items, none of which have a total cost of over £10. 7 of those items have a low enough price that they instead charge the minimum per-item fee of £0.25 per item. These items account for £6.65 of the total spend.
Under the old rule, the total referral fee would have been £6 (15% of £40).
With the new system, the referral comes to £4.42 (5% of £33.35, plus 7 £0.25 minimum fees). This is a saving of £1.58.
(An order with the same spending breakdown in Groceries would not face the minimum per-item fee. So that order would have a total referral cost of £2, down from £6.)