eBay to Charge Final Value Fees on Shipping Costs

by Lisa Suttora on March 16, 2011

With a still shaky economy, gas prices soaring, shipping carrier increases, fuel surcharges and sales growth that trails the growth of ecommerce and competitor Amazon, eBay has picked an interesting time to implement fee changes that will potentially amount to an overall increase for millions of  sellers.

And while some early media reports proclaimed a fee decrease, industry insiders that understand how the numbers work provide a clearly more accurate picture.

At the root of the potential fee increase is eBay’s decision to charge Final Value Fees on the total amount of the sale, which includes charges to the customer for shipping.

Yes, eBay is now charging fees on what is categorized by your bookkeeper as a business expense. (The IRS doesn’t tax businesses on expenses.)

You can read the full announcement here.  At the core of the issue is this:

Sellers subscribed to a Store: To reward free and low-cost shipping, Final value Fee rates will be reduced and applied to the total amount of sale—including shipping—starting July 6.

Here’s how it breaks out:

eBay starts by reducing Final Value Fee rates.  Sounds good right?

For example, currently if you are a store owner and sell a lamp for $25 and it costs you $25 to ship the lamp, you pay 12% of the final sale price.

12% of $25 =$3.00

In July that fee drops to 11%.

But here’s the hitch. The fee now applies to your item price plus shipping costs.

Under the new rate, which takes effect in July, you’ll be charged 11% on the item price $25 + shipping $25 = $50.  Your new  fees?  $5.50    A fee increase of 83%.

Now let’s say all along that you’ve been charging $50 for that lamp and offering FREE shipping. In this scenario, you’d see a fee decrease of .50 ₵

But here’s the “X” factor in all this.  If the marketplace is used to seeing this lamp priced at $25 + $25 shipping.

It is highly unlikely that you or anyone in your category has been selling that same lamp at $50 + free shipping.

In the case of these gorgeous, heavy, one-of-kind lamps, the seller must take extreme care to make sure these make it to the buyer in one piece.

Granted, with a lighter weight item, you will not see this variance.

If a seller has been selling a  lightweight bracelet for $21 + Free Shipping, they are already paying a Final Value Fee on the total order price.

Sellers who have been incorporating their shipping into their product price and offering Free Shipping will generally see a fee decrease with the lowered Final Value Fees.

However, in the above scenario a seller has determined that they can afford to incorporate Free Shipping and add the cost into the price of the product because it works for their business model.

Under the new policies, sellers have no choice. Whether it works for your model or not, you’ll be paying FVF on the total amount of sale.

Additionally if you’re a Top Rated Seller, the 20% TRS discount is no longer worth quite as much.  Even though fees are being charged on the total amount of sale, TRS discounts only apply to the price of the item.

The rules change for non-store subscribers and auction format listings… more about that in my next post.

The Bottom Line for Your Business

The bottom line is that this is not a fee decrease across the board.  In fact it’s not even a fee decrease on a per seller basis.

Every seller can potentially see fees go up on some of the products they sell and down on other products. It all depends on the product and how you list it.

So it’s very important to take some time and look at your most common pricing/shipping scenarios. You won’t be able to look at every product, but if you start with your most popular items, it’s a start.

Revisit your product line, your pricing strategies and your fees as you continue to list this month.  A daunting prospect for already busy sellers.

You may be wonder why eBay would make  such a change? Especially during a time when margins are more squeezed than ever, especially for small sellers.

eBay has stated that “buyers have told us they love free shipping”.  Of course they do! Buyers would love free products too if it were an option.

But free shipping was never meant to be the norm. It was meant to be used for special promotions.If you give your kid a birthday cake every single day of the year, it ceases to be special. It becomes ordinary. Expected.   The same holds true for free shipping.

… In fact there is no such thing as free shipping.  There is a hard cost to shipping.  And either the merchant or the buyer pays that cost.  (Last I heard FedEx wasn’t shipping products for free.)

So, should you keep your business on eBay? Only if it can be profitable there.

And as with any business, the purpose is to turn a profit. If the model is no longer profitable, reassessing and reinventing your business is the only way to continue to thrive.

-Lisa

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