Ep 643: Amazon Fees Hit 40%: How to Claw Back Margin and Stop Wasting Ad Spend (Pilothouse)

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Go to triplewhale.com/bfcm26 and start building towards your most profitable Black Friday Cyber Monday today. It's all killer, no filler. I'm back with Tyler, head of Amazon at Pilot House. To talk about what we're coining or Tyler was coining in the notes as the Amazon Paradox,

which sounds like a conspiracy film from the 70s of the fan of that genre. So explain to me what you mean by the Amazon Paradox. You can't afford to be on Amazon but you can't afford not to be on Amazon.

“Obviously oxyparotic but you know those two paths I think we can venture down”

and understand what I mean by both and then maybe try to find how to solve that Paradox together.

And the first path we can go down is people feeling like they can't afford to be on Amazon.

Yes, and why is that profitability just right out of the gate? And I think that's something that you hear more and more and more these days with brands and sellers is it's just harder to sell on Amazon and it's for a few reasons. It's that fees are increasing but also it's becoming that much more competitive which is then driving up advertising costs as well.

So across the board your fees are increasing and squeezing you and taking a much larger percentage of your overall sales. For example, in 2020, so pre-COVID fees were about 26% of the cost of your products and now it's close to 40%. So it's in that 34% range and you know the sellers and the brands are the ones that are taking that hit. So how do you as a brand now navigate this and still be successful on Amazon? And the numbers bear this out. One of the things I'm talking

about on the podcast one of my friends does this cultural podcast and he's really going into the concept of the death of the middle. How this there's this big challenge right now where the bigger getting bigger but the middle is getting squeezed massively and according to to my numbers here half of Amazon's GMV in that 2020 range was about 15,000 sellers. Now that's down to 8,000 sellers and actually the overall number of sellers has actually decreased on Amazon which is kind

of surprising. It's the first time in the last few years where there's less seller signing up to be on

Amazon. And that's because they're getting squeezed. I think they're getting squeezed. It's a lot harder

So Amazon's algorithm has changed from pre 2020 as well and there's Cosmo that has been introduced

and there's speculation that it's no longer just the A9 algorithm. It's what's being coined maybe as a 10 plus Cosmo and just at the highest level brands are being provided with more velocity on the Amazon side. So if you bring in traffic from outside Amazon on to Amazon that tells Amazon that you're a bigger brand that you have better brand authority and Amazon in their algorithm will score you better as well, which is that's not something that ever played into the route with them before.

So the whole bigger getting bigger if you have a lot of brand to traffic coming into the site

is probably because your big as well and then that's an indicator to Amazon. So I do think that

did you say the death of the middle? Yeah. Is that overstating it? You know what? I do think that it likely is true but if you had a certain level of velocity on Amazon before you didn't necessarily have to be the biggest brand but you were big on Amazon and in Amazon market share. So those brands still maintain during this period but the biggest thing is that these brands like Nike and many others like Nike have brought their ad budget to Amazon. So now you're competing

with them. Whereas a lot of brands before you could just go in purchase their brand to share because

they weren't there to convert it. So there were a lot of smaller sellers that were able to feast on that.

“We've talked about it on the podcast but I think the ad ecosystem in Amazon is one of the fastest”

growing aspects of the service. I think you articulated there but maybe go in a little like is it because ads have become table stakes in order you know because they've invested so much in their ad platform now investing in ads is really one of the key ways that you're able to to generate scale or volume which so it just adds into the cost equation. Yeah so there's a few reasons for that. So it's becoming more competitive. So cost per click, sir, increasing. The Amazon's ad real estate

on their search engine results page has also increased. So used to be like 70% organic listings. Now it's lit and Amazon's constantly changing where those ads are on the page. So the customers don't know what a sponsored ad is versus an organic ad. So Amazon knows that is a big growth lever for them as a business so they're further investing into that in many ways.

“And then I think you referred this in beginning but just dive back in ads are one of the biggest”

additions to this middle squeeze but the service fee and talking to me a little bit about the the service fee ecosystem and how that's changed and who that affects most. So the service fees are taking up a lot more of what would have been your take home. So you go back 10, 15 years ago, a lot of brands could set up on Amazon and do really well because after fees which were just under 30% plus advertising brings you to around 40, 50% the rest you could reinvest into your business

or take home as long. Now you're actually getting into like that 50% 60% range before you even invest in ads. So that is just becoming a lot more difficult because now cash flow is an issue. So how do you manage your cash flow because Amazon also doesn't release it to you right away. So if you're making less profit and then it's also being released to you late then you're not able to operate as fluidly as you have in the past and what brands are able to do that a lot better,

“a lot of the bigger brands. So I think that plays into it as well. And back back to the ad”

push as well. I'm seeing April 15, 20, 2016, 20, 26, Amazon moved to deduct ad spend straight from seller disbursements instead of letting sellers float it on credit cards. So that's another cash flow crunch. Yeah, exactly. That's interesting. So they take your ad costs out of your sales revenue. It would be from your invoice. Yeah from your invoice. Interesting. So is there anything else on the can't afford to be on Amazon side? On that side, it's all about trying to understand what are

those costs too because from the highest level, it's like, okay, FBA fulfillment fees, referral fees,

There's inbound fees that Amazon's charging. There's freight fees. There's returns and charge

facts as well. And all of those fees add up to be like five to eight percent as well. So that further takes away from your margin. And you might not necessarily know it's happening because individually, it looks like a percent here and there. Or slightly under a percent here and there. But amalgamated, it is a big chunk of your margin. So the so what here? There's a few tips, especially in the reimbursement

“front. So Amazon will sometimes wrongly charge you or lose or damage your inventory. So you need to”

go get those fees back and you need to get them reimbursed. And Amazon will pay them back to you. You just have to dispute it. A lot of brands don't. You can either do it yourself or there's tools

that help you do that. So you can get some of those fees back and then they'll take a percentage of

what you got back. So that would be one tip. And then another tip which a lot of sellers are using is AGL or AWD. This is Amazon global logistics. So if you have a manufacturer, let's say in China, you can deliver it directly from that manufacturer to Amazon's warehouses and fulfillment centers directly from them using Amazon's cargo and ships. So they'll transport it for you so that you don't have to organize that yourself and then send it into Amazon. And it usually saves brands

like 3-ish percent, let's say, overall in their margin. But that actually adds out, especially if you're doing 100,000 units a month. So those two things will help you claw back some margin on your side. And then you either can reinvest that elsewhere or you use it to help cash flow. And then back to the state of things with the number of sellers actually shrinking. Do you think that is to do with, because it's like you've got all of these constraints and changes on the

Amazon side. And then you've got tariffs. And the amount of percentage points that in the amount of sellers that kind of went down due to the the terror of pressure, do you think that the decrease

“in sellers has more to do with the tariffs or more to do with the changes on Amazon?”

I think if you remove tariffs from the picture at the end of the day Amazon is trying to take more. Even if you remove that from the picture, it is likely just how do you win within the Amazon ecosystem? Regardless of that, because everyone's dealing with that same tariff issue. So in theory, it should affect that whole market or your competitors unless people have found loopholes, which I mean, that's personal to each brand and they can find that. But on Amazon,

I think there are ways that you can try navigate within that ecosystem better than others. And I call it operational rigor. And not everybody is deploying that. Like there's fees being left on the table. And there's options that aren't being used that can actually help you save and market. And whereas previous years, those would be nice little padding your numbers increasing your profit. But it's kind of like becoming table stakes in this new

stricter environment. Exactly. And the other piece of profitability is advertising, which I haven't really spoke about under that lens of can't afford to be on Amazon, because I actually think it ties why you can't afford not to be on Amazon with can't afford to be on Amazon. So I'll pause on advertising and we'll talk about it after. Q4 is coming. And if you've ever run holiday ads, you know that it's the most expensive

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“rules for details. Let's jump over to why I think a lot of people know high level why you cannot afford”

not be on Amazon. Something like 70% of the U.S. marketplace commerce flows through Amazon.

What why else can you not afford to not be on Amazon? So a few stats that I always like to read out.

journey on Amazon more than Google more than anywhere else right now. What that tells you is that consumers see Amazon as the biggest marketplace in the world and they're using that to help them do research and to look at you and your competitors. Two prime penetration in the U.S. and Canada. So 75% of people in the U.S. use a prime membership. It's 55% in Canada. But those are high numbers. Right. A significant portion of both those populations are prime members which signifies that they're

buying on Amazon. The other piece is that it's estimated that 10 to 20% of customers like to

purchase for the first time on Amazon. If you're trying to create brand awareness on Instagram or

TikTok and that customer likes your product, they decide to then go search on Amazon and you're not present. You might be leaving out that segment of buyers. Well, by not being present there. All these things

“suggests that you should be on Amazon. Customers are using Amazon as an important part of that”

buying journey. And then we didn't even get into all of the search volume that's happening around the generic searches for your product. So what do you mean by that? So most people who are selling a products, there's a customer on Amazon searching for that product, generically. And that is your in with a new customer base as well. And maybe you don't want to compete on the most generic searches. But there are tremendous amounts of long-tail searches happening on Amazon every single day

around your products. And you can go on those niches and start to build customers from those generic searches as well. So not only do you want to own your brand new searches. You also want to build based on generic searches that are happening on Amazon. And you know, eventually you can build up into the shorter-tailed terms if you build up enough velocity on the long-tailed. Does Rufus play into this? All I have stats here about how since as of November 2025, Rufus has

250 million active monthly users, which is up 150% year over year. So people are using this as a buying

“surface. And what does that affect keywords at all? Because I know whenever I think about keywords,”

I type in a few keywords. But whenever I'm searching or engaging with my, you know, one of my AI's, it's just a verbal diarrhea of what I'm thinking at that moment. And so that's kind of translating into search keywords. Are you seeing that the uptake of Rufus is affecting this equation at all? So Rufus is now called Alexa for shopping. So, okay, Amazon merged the Rufus technology with their Alexa technology. And now that is called Alexa for shopping in the US. So it operates like Rufus

instead, it just also has data from Alexa. And I think that those people that are searching on Amazon are using Rufus or Alexa for shopping in two different ways. You can either search using Rufus. So in the search functionality, you can actually click on Alexa for shopping and type in a question to Amazon. And it will consolidate products that fit the context that you gave it. Or you can use Alexa for shopping on the product page itself and ask questions about that product that you're purchasing.

And that's where a lot of customers are currently using Alexa for shopping is on the product pages.

“And it's not as high yet on just using it generically on searches. Does that check out?”

Yeah, I think so. So I think that stat is showing that those customers are finding it helpful when they're looking at the product itself. And you can ask it questions about the product. And then you can optimize your page so that you feed your information into Alexa for shopping so that it can give the right answers back to the customer. And anyone using Alexa, if you're not going to access it, obviously Alexa is going to prioritize

any sort of shopping on Amazon. So if you're not on Amazon, you're not going to get those Alexa shoppers. Yeah. Exactly. The other piece of the equation may be for why you can't, for why, like on the ledger for the value that Amazon's providing and why you can't afford not to be there is they are rolling out free tools that are helping sellers as well. So that are increasing the value, whether it's seller, seller central canvas or some of the other opportunity explore other

tools that you're finding really useful that they've rolled out to try to offset maybe some of the

the cost squeezes on the other side. One of and and you're saying first party tools like from

aren't that useful. But the best report that they provide to sellers and I would urge every single seller

to use this report is the SQP report. It's the search query performance report in seller central. You find it in brand analytics and it shows you what your percentage share of purchases are, clicks are and impressions. So you can see generic keywords and you can identify how many or what percent of those customers purchases are going to your brand for that keyword and then you can line it with your ad spend. So this is a good question to transition into ad spend if you like to because

“I think that's really how you can tie finding efficiency within your advertising to make sure that”

you're more profitable with also taking advantage of the customers that exist on Amazon that are

ready to purchase your type of product. So I'm setting myself up here and I'm going to dive in on that one because I think a lot of brands they'll choose a tacos and say okay I need a 5% or 30% tacos. So that's the percentage allocation of your overall sales that you can use on advertising. I would say no matter what percentage you land on depending on the type of brand that you are, it's how you actually put those dollars to use and that is the differentiator with driving

incrementality and profitability for your brand. A lot of brands or agency will use that as a

vanity metric whereas if you're using tacos in alignment with a report like SQP that I mentioned

or a ranking report from Helium 10 you can actually align those three reports and see if you're spending over here are you actually driving an incremental change in your share of purchase rate for a specific keyword and then also what is your organic right doing as you spend into that keyword and if you're not seeing a meaningful change but 10 to 15 to 20% of your ad spend is going into

“those keywords maybe there's different white space that you need to be looking at because you've”

reached the top ability to drive incremental sales and your organic position is actually winning on those sales so you're cannibalizing that organic reach. It makes sense not a lot of brands would just think that's all incremental it's not because it might be a generic term that you're bidding on but your organic listing was going to convert anyways so now you need to reallocate that spend to a different white space or niche and go in when those customers and increase that purchase

rate and then you monitor your rank and your purchase rate on the spend that you dial back and as you start to lose then you can start to dial that back again and then that way you're optimizing the spend that you do have to drive incrementality and avoid cannibalization. Would you say that's the sort of number one tool you have like ads are both the and so it's seeing a paradox is they're both one of the major causes for the cost inflation they're also

if you do it really efficiently it's also your major lever to continue to succeed and to actually scale on Amazon. Yes I do believe that. I do think you need operational rigor because as you free up margin you can then reinvest that back into your ads to then be more efficient there. But we see we do a lot of audits and we see a lot of waste that's spent and I would urge brands to look at their last month their last quarter and see how many keywords were spent on that

led to zero sales. I would also urge you to see your top keywords that you are spending on and look at what your purchase rate is in SQP or what your organic rate rank is on helium 10 and see if you actually really do need to be deploying that spend there or can you actually move on to the next area to conquest. So that would be the actionable area I would suggest brands do because that's where you're actually going to drive incrementality with the limited spend that you do

have. Beautiful. Those are the major advice pieces you give to brands who come in here you're saying the biggest things that you can't change a lot of the fee structure. As you say there are

“ways I think you can be more efficient in making sure that you're recruiting fees that you shouldn't”

have had to pay and making sure that you're categorizing the right way to make sure that you're

top advice to brands that you give who kind of come in for an audit that maybe think about Amazon

in one way and you're urging them to think another. So I would see if you're leaving money on the table with reimbursements. So are you not disputing those fees or charge backs? Well that's a great place to start either do it yourself or use it to. Are you efficiently transporting

“your inventory. So if you want to use Amazon's network which is called AGL can you and you likely”

save to the 5% in freight costs by using that. So that's on the operational side and then on the advertising side are you using more than just the advertising data to make your decision. Are you using things like your SKP report and your helium 10 ranking data or whatever other tool you use to

help with ranking and are you aligning those three things together to make sure that you're effectively

using that ads then. There's a lot more that goes into it as well but at the highest level I'd say those are like three really easy wins to to go and make sure that you're saving and improving your margin and then also making sure that the limited ads can that you have is actually driving incrementality and also is more profitable. And then one final note about the future of these platforms is as we move into things like agente shopping, you know agents and different, you know tools

whether it's claw or catch a BT or or perplexity they're going to drive you to the path of least resistance to in order to make a converted purchase. And so I imagine in a lot of these cases they're going to be using Amazon to make suggested purchases and therefore again for the future if you're not on Amazon you might be missing out on a little bit of that agente future. Yeah and I would say as we start to see that happening more and more then that's where we definitely have those conversations

“but I think even before that agente future comes I think everyone should be on Amazon but you need to”

operate in a way on Amazon to make sure that you're still driving margin and it is possible we do it for a lot of brands and I think you just need to do it in a way that's way different than pre 2020 and pre 2016 because it is table stakes as you said. So I think we can update the Amazon paradox to be you can't afford not to be on Amazon and you can't afford not to be working with an agency as savvy as pilot house. Is that more accurate? I would agree with that statement. I like how

you somehow. Yeah, oddly enough on the pilot house all killer no filler or D to C podcast. Well thanks for coming on again Tyler look forward to connecting you with you again in the near future. I see that I don't this I don't know if it's on your radar I don't know if you're going or not

“but I hear that Amazon accelerate 2026 is coming up at the end of this month have you been to that show?”

I have been but previously the pilot house. Yeah, it'd be interesting to know what kind of things

get go on there what I or what predictions are always tough. But where do you see Amazon making

like what are the rumor mills talking about about upcoming releases for what the moves Amazon might be making in the future? I think they definitely want to invest in Amazon for shopping. So what used to be ruthless? I think they see the other major LLNs as competition now because people are going to chat GPT let's say to help them purchase a product and Andrew Jassy came out and said we can actually do all of that way better because we have all of your purchase behavior and

you're browsing behavior whereas the LLNs don't. So I think they are going to try and own that space in the future. Very cool. Well, you heard it here first folks. Thanks for coming on the podcast that I tell you so straight. Thanks, sorry. Thanks so much for listening to today's episode. If you're not a subscriber to our newsletter you can do that right now at direct to consumeralloneword.co. I'm Eric Dick and this has been

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