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Manage Your Inventory and Amazon FBA Storage Costs Effectively
There are plenty of fees that an Amazon seller needs to consider when building their business. From the Amazon seller fee that impacts every transaction to the fulfillment fee that covers the packing and shipping costs of sales completed by the online retailer.
Yet, due to its complexity, one of the most significant Amazon fees is also one of the least understood. Sellers, particularly those pursuing Amazon Prime status for their products, will often rely on Fulfillment by Amazon (FBA). This decision means using Amazon’s FBA warehouses for product storage and paying the accompanying FBA storage fees. It also makes managing inventory within Amazon’s facilities a responsibility that sellers can’t afford to underestimate.
What are Amazon FBA storage fees?
As sellers compete for Amazon’s coveted buy box and strive to provide customers with a shopping and shipping experience that builds loyalty, many turn to Fulfillment by Amazon (FBA). The service offers businesses an opportunity for an Amazon seller to outsource order fulfillment by sending products to an Amazon warehouse for simpler and faster shipping. Amazon employees pick, pack, and ship the order when a customer purchases these products. In addition, Amazon manages the customer engagement regarding the purchase and will process returns for those orders. In some cases, returned items are resold via Amazon’s warehouse deals, eliminating the headache of dealing with returned items for participating sellers.
Although this model can increase a seller’s competitiveness on the shopping platform and minimize the time and resources spent on getting products to a customer’s door, it does come with some significant costs, most notably the Amazon FBA storage fee.
In addition to the Selling Plan and Referral Fees that all sellers pay when selling on the Amazon marketplace, opting for FBA requires paying Amazon for both shipment costs and also the space that products take up inside the company’s fulfillment centers. Since the advantages of FBA are attractive to high-volume sellers, and the space to keep products in Amazon’s inventory is limited, FBA storage fees are intended to encourage sellers to move products quickly and avoid housing items for extended periods.
How are Amazon FBA storage costs calculated?
Fundamentally, the storage portion of any Amazon FBA fulfillment fee is determined by the number of cubic feet the inventory takes up inside Amazon’s facility. At this time, individual selling accounts have a storage limit of 10 cubic feet. Depending on their inventory performance index and how long they have been an FBA seller, professional selling accounts may or may not have storage limits.
However, calculating the monthly storage fee is slightly more complicated than just accounting for a product’s size. It also considers an item’s relative size, the time of year, packing requirements, how many products are stored, and product classification. Each plays a role in the final price and Amazon fee changes are not unusual. The specific characteristics that Amazon considers are:
- Product size tier – Ranging from small standard-size to special oversize, product tiers are measurement categories based on a product’s weight and dimensions when it is fully packaged and ready to ship. A product that exceeds a tier’s limit for any single measurement – weight, length of longest, median or shortest side, or length + girth – will fall into the next highest tier. There are six total tiers: small and large standard size and small, medium, large and special oversize. Items in the oversized tiers incur a lower rate per cubic foot.
- Current month – Since demand for products increases during peak shopping seasons, so do the FBA storage fees. While rates are lowest from January through September, sellers can see fee increases of nearly 200 percent from October through December. For example, the standard-size rate increases from 83 cents per cubic foot to $2.40 per cubic foot during the holiday season.
- Product volume – In addition to determining the size tier, a product’s dimensions and volume, when fully packaged, are also used to calculate the cubic feet of space that must be multiplied by that tier’s rate. Therefore, products in the same tier are charged differently based on their actual size.
- Average daily units – Any storage fee for Amazon FBA is calculated based on the average number of units stored in the facility per month. Because of this, your inventory performance will play a crucial role in determining your final FBA fee each month.
- Dangerous goods classification status – Of course, products that must be sold through the FBA Dangerous Goods program require special handling and storage. Due to the added requirements, these products will be charged a higher storage fee than their non-dangerous counterparts.
Apart from the primary storage fees that FBA sellers face, Amazon can also penalize them for products that remain in their fulfillment centers for too long. In May of 2022, Amazon adjusted its policy regarding older inventory inside its warehouses. Previously known as a long term storage fee, the new aged inventory surcharge adds a fee of $1.50 per cubic foot for each piece of inventory stored by Amazon for between 271 and 365 days. Once the inventory age of an item passes 365 days of storage, the surcharge increases to the greater of $6.90 per cubic foot or 15 cents per unit.
When are Amazon FBA storage fees due?
At one time, FBA storage fees were only invoiced twice a year. The current policy is that any Amazon storage fee that an Amazon FBA seller owes will be due monthly based on the inventory in the warehouse at the end of the previous month. The price includes both the monthly inventory storage fee and any aged inventory surcharge.
For most sellers, FBA storage fees will be due between the 7th and 15th day of the month. Companies participating in Fulfillment by Amazon can access many useful fee tools via Amazon Seller Central to review the status of their inventory and estimate their storage costs.
Minimizing Amazon FBA storage costs
Of course, the only way to avoid FBA storage fees entirely is to self-manage your company’s order fulfillment responsibilities or rely on a different third-party provider. Doing so won’t eliminate the costs though, only shift them away from Amazon. But that doesn’t mean that sellers using FBA don’t have some control over their costs. Several strategies can be implemented to minimize the monthly FBA storage fee and still reap all of the benefits FBA can provide to an Amazon seller.
Manage Inventory Levels
One of the most obvious ways to avoid excessive storage costs when participating in the FBA program is to manage inventory health at the FBA warehouse efficiently. Since storage fees are based on the average daily units within the facility, finding a balance between the amount of product in stock at a given time and sales is critical.
While the shipping and transportation costs of delivering your products to Amazon’s warehouses may benefit from larger shipments of FBA inventory, you will likely lose those savings to higher storage costs that result from more cubic feet of space and having more items stored there. Instead, it can be more effective to plan monthly deliveries of inventory that will be nearly depleted before the next shipment. This approach will minimize both the space and number of units used to calculate FBA storage costs.
Skyrocketing Amazon storage fees are often the result of inventory not selling as quickly as expected. Not only can sellers struggle to deal with the impact of declining sales, but they also face an increased bill for their warehousing costs due to products taking up more space than planned and sometimes the inability to adjust incoming shipments of new products accordingly.
If inventory is piling up at an Amazon fulfillment center, it can be helpful to consider a price adjustment that will increase sales and allow you to avoid a higher-than-usual FBA storage fee. While a lower price will also impact your bottom line, it will be offset, or possibly even less damaging, than the increased FBA costs. Sellers may also benefit from a comprehensive digital promotion, such as Amazon Sponsored Product ads or other tools that can strengthen the influence of a sale.
Remove Aging Inventory
Amazon’s aged inventory surcharge is clearly designed to discourage sellers from allowing products to take up space for more than a year. In some circumstances, the extra charge could increase per-cubic-foot fees by more than 700 percent on some inventory. That is a substantial cost that virtually every retailer would want to avoid.
Fortunately, if managing inventory and pricing adjustments are not enough to keep your products cycling through amazon fulfillment at the right pace, there is one other option. Amazon FBA allows sellers to remove unsold inventory from their warehouses. Of course, there will still be a cost for this service. Pricing for a removal order starts at 52 cents per unit and increases with the item’s weight, up to $5.05 for products between 4 and 10 pounds. Products requiring special handling or that exceed 10 pounds can cost more to remove.
When placing a removal order, sellers will have the option to have the items returned or destroyed. Similarly, FBA offers a liquidation option to avoid continuing to pay storage fees. Liquidation requires sellers to pay both a per-item processing fee and a 15 percent referral fee on top of the liquidator’s contracted rate. Still, it may allow a company to recoup some of the inventory’s value.
Simplify your selling with Amify
The team at Amify can make your path to growth on Amazon easier than you imagined. More than 60 experts in warehousing, logistics, optimization, content and more are waiting to help you focus your efforts where they matter most.
As you face inevitable increases to Amazon seller fees and shifting demands on your company, you need a partner who is ready to respond with the right approach. Contact us today for a free consultation, or read more about the $400 million in sales we’ve already helped our clients generate on Amazon. Hurry, don’t let your business be left behind.