How does Amazon Make Money?

So, if is a giant online marketplace of people buying and selling things among each other, then how does any money make it back to Amazon?  There are two major ways that they do it. 

1.  Amazon sells its own products

Many of the products that you can purchase on Amazon are actually owned by Amazon itself.  Just like many other stores, Amazon buys products where there's high supply and low demand, and then sells them where there's low supply and high demand in order to make a profit.  Think of them as a convenience store on a grand scale: you're basically paying them for the convenience of buying an item without having to struggle with running around trying to find a store that has it in stock, comparing prices between different stores, or getting the item back home if it's heavy or bulky.

And, as mentioned in our How Does Amazon Work article, Amazon now sells its own unique line-up of high-tech gadgets, including tablet computers, mobile smart-phones, e-readers, and media streaming consoles.

2.  Amazon gets a cut from third-party sales

Similar to popular shopping websites,, and, when other people sell their products on Amazon, Amazon still gets some of the profit.  Why is that, you ask?  Well, think about it: Amazon eliminates a lot of legwork for someone looking to sell things.  It allows them to easily organize their inventory and expose it to thousands of potential customers at once.  It can even take the hassle out of setting up delivery of their merchandise and collecting payment.  All of that must be worth something, right?

There are two types of third-party seller accounts on Amazon -- "Professional" and "Individual" -- and the amount of money Amazon makes from each varies.

  • Professional -- Amazon collects a $40 per month subscription fee, but does not collect additional fees from sales on a per-item basis.

  • Individual -- can sell on Amazon for free, but Amazon collects a $1 selling fee from each item sold.

In addition to these fees, there are closing fees of $1.35 per item that Amazon collects from the sale of "media" items (e.g. books, DVDs, video games, CDs, video tapes, and so on).  Variable referral fees are also collected by Amazon for each item sold, depending on its merchandise category.

You can read the full list of fees that Amazon charges its third-party sellers here.

In the event that a third-party seller tries to get you to process a payment for an item outside of Amazon, they may be trying to avoid these fees, or they may be running a scam.  Bottom line: DON'T DO IT.  It's best to look for another seller, one who plays by the rules.

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