What is Commission / referral fee?

What it is

The commission, which some marketplaces call a referral fee, is the marketplace's charge for listing your product and bringing you the customer. It is usually a share of the selling price, deducted from every order before you are paid.

The rate depends on:

• the category, and often the sub-category;
• the price band, with different rates above and below set prices in some categories;
• sometimes the fulfilment method or programme, and temporary promotions.

Read the fee schedule closely

Three details change the amount more than the headline rate:

1. The base. Check whether the percentage applies to the price including GST, including shipping charged to the customer, or neither.
2. The band. A price slightly above a band boundary can move the whole order to a higher rate.
3. Returns. On a return, some marketplaces refund the commission minus an administration charge, and some keep part of it. The refund often appears in a later settlement.

Marketplaces change fee schedules several times a year, usually with notice in the seller dashboard. Keep a dated copy of each schedule you sell under, so you can check the deductions later.

GST on commission

The marketplace charges GST on its commission and other fees, and bills them on a tax invoice, usually monthly, to your GSTIN in each state where you are registered with it. That GST can be claimed as input tax credit once the invoice appears in GSTR-2B and the other conditions are met.

In the books and in margins

• Commission is an expense (selling cost), not a reduction of sales. Show sales in full and commission separately.
• Match the commission in the settlement reports to the marketplace's monthly fee invoice. Differences usually come from returns, fee refunds or incorrect rates.
• Charge commission to each SKU's CM2, because it varies by category and price.

Once every fee and the GST on it is added up, the gap between the selling price and your payout can be much larger than the commission rate alone suggests, so work out the payout for every SKU before you set its price.