How Does Amazon Make Money

Amazon works on a complex business model with various value propositions and different customers. But its main source of revenue is the marketplace and e-commerce stores which form the foundation for its other businesses. For example, in 2019, the company had net sales of $280 billion and a net profit of $11 billion, and around 50% of sales were from e-commerce stores.

Revenue Sources

The Amazon marketplace has multiple revenue sources such as:

Sales: Amazon works like an e-commerce platform and sells its products on the platform. A considerable percentage of Amazon’s revenue comes from the sales of these products. The company competes with other third-party sellers and brands to attract customers to the marketplace and promotes its own brand.

Listing fee: Amazon charges a listing fee from third-party sellers to list their products on the platform. The fee starts at 2% of the product price and varies for various categories of products.

Commission or Closing fee: Amazon charges a commission from the merchants every time a product is sold through the platform. The commission depends on the price of the said product and the fulfillment channel used by the merchants.

Prime subscriptions: Amazon also offers prime subscriptions to the customer for an enhanced shopping experience on the platform. The prime members get access to unlimited free, fast deliveries, the prime video where they can stream the latest movies and tv-shows, prime music where they can enjoy ad-free music streaming along with unlimited offline downloads, free in-game content on popular mobile games, unlimited 5% reward points, prime reading, and exclusive access to top deals and coupons. The membership costs $119 per year and $12.99 per month.

FBA (Fulfilled by Amazon): Amazon offers various fulfillment options to merchants. They can either go for FBA, where Amazon stores, packs, and delivers the product to the customer, or they can go for easy shipment where the merchant stores and packs the product while Amazon delivers it. The company charges a different fee based on the option chosen by the merchant, this brings us to share the amazon profit calculator for beginners amazon sellers.

Kindle direct publishing: Amazon offers publishing services to independent authors as well as publishers. The company publishes the book, makes it available on the kindle store, and provides the author 70% royalty.

Cash Conversion Cycle

Amazon’s cash conversion cycle is one of the most important strategies of its business model. The company generates short-term liquidity by receiving payments from the customers before paying for the product to the suppliers. This allows Amazon to invest in its growth using the suppliers’ balance rather than being tied up in the inventory loop.

Using this mechanism, Amazon has successfully dominated various industries and diversified its portfolio from being an online bookstore to ‘the everything store’.

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