Manufacturer Analysis – How to Customize Backpacks for Amazon?

Hello everyone, I’m SENHAN. Recently, many of our customers who produce Amazon backpacks have been inquiring about our dropshipping service. When asked if we could directly provide FBM services to Amazon, my opinion is that it is not advisable. First of all, it’s not that we are unwilling to produce products for small customers, nor is it because we dislike the low profit margins. In fact, such behavior does not enable the customer to obtain the desired profit from this business.

1.Analysis of profitability

1.1Profit model analysis

By establishing a financial model for a benchmark backpack product priced at $49.99 at the retail level, we discovered that the profit model of e-commerce has changed. Previously, it mainly relied on cost control through factory procurement, but now it is more dependent on the optimization of downstream logistics and the efficiency of platform operations.

Typically, the total cost of BBP for each product is $38.25. Based on this calculation, each product can generate a profit of $11.74, with a profit margin of approximately 23.5%. This analysis indicates that for those selling products on Amazon, the cost of the product itself ($12) actually only accounts for 24% of the retail price. The majority of the cost is spent on international logistics, Amazon’s FBA shipping fees, and advertising expenses for promotion.

1.2. The three major threats to profits

At present, it has become increasingly difficult for sellers to make profits.At present, for sellers engaged in cross-border e-commerce, it has become increasingly difficult to make profits. There are mainly three reasons for this:

• First of all, the FBA fees for Amazon have been increasing, and the rules have become increasingly complicated. For instance, for standard-sized items priced above $50, the delivery fees have been raised. Additionally, they have introduced a low inventory level fee. If your inventory management is not good, you will be fined.
• Secondly, sales commissions are also very important. For products like backpacks, the commissions are usually quite high, such as 15%. If you can’t come up with a solution in the product design (such as adding an electronic accessory) to secure a lower commission (such as 8% to 10%), then the profit will directly decrease.
• Finally, the competition among new platforms like Temu is very intense now. They adopt the “0 commission” strategy and keep the prices extremely low (for example, a small backpack is sold for only 17.2 yuan). This forces Amazon sellers to lower their prices as well, resulting in even smaller profit margins.

So the current situation where dropshipping cannot generate profits is because the price of the product is no longer the most important consideration factor. For a backpack, the transportation cost already accounts for a very high proportion of the total cost. Therefore, I usually recommend that customers purchase in bulk to spread out the transportation costs and obtain more profits.

2.Baseline Backpack Product Modeling and Assumptions

Of course, for our customers, our products must be both high-quality and reasonably priced. Let’s make a rough model to make this assumption.

2.1Define the reference product file

The retail price is set at $49.99. This price has been carefully considered by us as it directly affects our profits.

• Amazon has announced that starting from 2026, the average shipping fee for standard-sized items priced over $50 will increase by $0.31 per item. Therefore, we have set the price at $49.99, aiming to ensure product quality while minimizing the higher FBA fees charged by Amazon.
• The package size is 45 centimeters (length) x 30 centimeters (width) x 10 centimeters (height), and the weight after packaging is 1.1 kilograms.
• According to Amazon’s standards, this product falls under the large-sized category. This classification requires a weight of no more than 22 kilograms, and no side can exceed the specified length (for example, the longest side cannot exceed 105 centimeters).

2.2Operating expenses assumption

• Initial EXW cost: $12.00 USD.
• Return rate: 6%.
• Target ACOS (Advertising Cost per Sale): 15%. This is the level of aggressive and efficient advertising investment required to achieve a “bestseller” status in a highly competitive category.
• International Logistics (DDP): Estimated at $3.50 per unit.

2.3Cost breakdown of factory ex-factory price (EXW)

• The initial EXW cost of BBP is $12.00. This is usually composed of the following three elements:
• Raw material cost: Approximately 65% (7.80 US dollars), including fabrics, accessories and supplementary materials.
• Direct labor cost: Approximately 20% (2.40 dollars).
  Factory management expenses and profit (OH): Approximately 15% (1.80 dollars).

3.Overall cost analysis of selling a product