In past years, we have always ran the numbers and decided that labeling products, saving our business the 20 cents Amazon charges to label items when shipped into FBA, was the right decision. We would simply take the wage of the employee divided by how many items they could label in one hour and come out with a cost per labeled item ($15/hr divided by 120 units/hr = $.125 per labeled item). This was lower than the $.20 Amazon would charge, and thus we would label ourselves, making a net additional profit of $.07 per item. Pretty simple.
Then things changed both in the labor market and the cost to label items. In 2021, Amazon changed the price to label items from $.20 to $.30; a large jump. So it would make sense that there is even more of an incentive to label items, right? Maybe. The conversation is a bit more complicated than that. Read below as we go into what to consider.
First, we have to address the rising cost of labor in the United States. Depending on what index you like to follow, wages grew in the United States on average 2-5% through the last 5 quarters. This is especially true of the manual labor
and entry level jobs. You can see countless stories of businesses needing entry level labor, such as Mcdonalds requesting 14 year olds apply and Pizzeria’s offering to ‘literally hire anyone’. As such, those that do enter the workforce are able to demand significantly higher starting wages than they would have been able to demand months ago. Speaking from experience, there simply aren’t enough job seekers at the moment to fill the vacancies, which drives up prices. Thus, the starting wage for a warehouse worker could be anywhere from $15-$20/hr.
Second, we have to consider the time and cost associated with simply finding the individual who is intended to label the product. The hiring process as stated earlier is bleak at best. In a 2016 article, The Society for Human Resource Management stated the cost of hiring a new employee is $4,129 with searches lasting on average 42 days. In a more recent article, this cost is estimated at $4,000 per Glassdoor. We have to assume these costs have risen due to difficulty in hiring and inflation. These costs can include outside recruiters (which will likely take 20-25% a new hire’s yearly salary), posting to job boards such as LinkedIn or Ziprecruiter (which gets expensive really fast), the cost of the wages paid to internal hiring teams, and any additional background checks / drug screens.
Lastly, we have to consider the largest cost driver, training the individual to learn your in house systems. Sure, an employee can likely learn how to print off labels in the first week or two, but they will be far from an independent member of the team. We see most warehouse workers needing about 1 year of training before they can identify problems, create solutions, and act 100% independently. This cost of training is likely tens of thousands, which is exasperated if they do not stay with the business for a full year. These are in addition to non salary benefits which are approximately another 10-15% per employee.
This is also assuming that you have enough sales to have someone labeling 8 hours a day. If you ever run out of items, the individual's productivity per hour would drop.
Thus the cost of hiring an employee at $15/hour for one year could be calculated roughly as:
$5,000 - the cost of finding the employee and fees.
$20,000 - the cost of training in year one, spread across wages paid to employees and managers.
$5,000 - the additional benefits paid to the employee in year one.
$31,200 - The employee wage over 40 hours a week, 52 weeks a year.
$61,200 = Total cost in year one of new employee.
Thus, this employee effectively costs $61,200/ year or $29.42 an hour. So to break even on labeling, this employee would now have to label 98 units an hour ($29.42 / $0.30 = 98 units).
If you believe your employee will be able to label more than 100 units an hour, you are covering your cost. These costs would be smoothed significantly if they stay for longer than a year, but they would get even steeper if the employee stayed only 6 month! This means keeping your employees is vital from a cost perspective.
It’s important to also remember the lost opportunity cost spent in the hiring and training, opting out of all the other potentially profitable endeavors you could have undertaken. These costs are incalculable. If you are the business owner, your time is the most valuable asset you have, as such any time spent training sacrifices other projects.
So, if you think you are a great hiring manager who can also train your new employees quickly, look to hire. But if you have additional profitable opportunities in front of you, you may want to explore those first and let Amazon do the heavy lifting on labeling each item.
Alexander V. Johnson, Mixt Solutions.
Mixt Solutions is an online sales company specializing in Amazon based consulting. They are a top 500 Amazon Seller worldwide doing over 1,000,000 transactions on Amazon per year. They partner with some of the biggest companies in the industry.