Amazon’s Fulfillment By Amazon (FBA) service is a compelling option that can open the door to new opportunities. But the first step is understanding the cost structure associated with FBA, including the strategies for reducing Amazon FBA fees and increasing margins.
Whether you are already using FBA services or simply considering it now, this information can help you on your path to maximizing profitability with Amazon FBA fee management.
Know your Amazon fees
When selling products on Amazon, it’s important to understand the various fees associated with your inventory. The most common fees include referral, fulfillment, and storage fees. Referral fees are charged as a percentage of your item’s sale price and go towards Amazon for providing a platform for you to sell your products. Fulfillment fees are charged for the services Amazon provides packing and shipping your products to customers. Storage fees are charged monthly for keeping your inventory within Amazon’s warehouses.
While a complete overview of Amazon’s seller fees is available here, this article will focus primarily on providing an Amazon FBA fee breakdown and calculations. These fees can seem daunting to navigate, but understanding how they are calculated is critical to making informed decisions that will lead to long-term success and profitability on Amazon’s platform.
Calculating Amazon FBA costs
The calculation of Amazon FBA fees involves multiple factors, including the item’s size and weight, the time it spends in the warehouse, and the location it ships to. The FBA fee can be divided into three main components: pick-and-pack, storage, and shipping.
The pick-and-pack fee covers the cost of locating, picking, packaging, labeling, and preparing an item for shipment. Storage fees are charged monthly based on the volume of space your products occupy in Amazon’s warehouses. Lastly, the Shipping fee depends on the shipping method chosen by the customer and their delivery location. By understanding the components that make up the FBA fee, sellers can better calculate their profits and optimize their product offerings.
One way to estimate these fees is to use Amazon’s FBA Calculator, which considers these factors and provides a clear breakdown of the costs involved. By factoring in these fees when setting prices, sellers can ensure they are covering their costs and turning a profit.
When it comes to selling products through Amazon’s FBA program, the size of the items you sell will significantly impact the fees you will face. Amazon’s package size tiers are currently determined using the following weights and dimensions.
The smaller the product tier, the lower the fulfillment fees on Amazon will be. In addition, FBA fee amounts can vary within size tiers depending on the product’s weight. Amazon’s Small and Light program offers reduced fulfillment costs on qualified items, allowing sellers to pass savings to their customers. It’s important to note that FBA fees for oversize products can be significantly higher than those for standard-size products. This is because these larger items require more space and resources to store and transport. As a seller, it’s essential to weigh the pros and cons of selling oversize products and determine whether the increased fees are worth it in the long run.
Don’t forget the storage fees
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 2022, Amazon adjusted its policy regarding older warehouse inventory. 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.
Managing and minimizing FBA and storage fees is crucial to running a profitable business on the platform. There are several strategies that sellers can use to achieve this.
Keep your FBA costs down
Efficient inventory management is key to reducing FBA fees. Keeping track of how quickly items sell and restocking accordingly can help avoid long-term storage fees by avoiding overstocking items that don’t sell quickly.
It’s also important to consider the size and weight of your products. Both of these factors significantly impact FBA fees. If possible, look into ways to reduce the size or weight of your product packaging without compromising the integrity of the product. This could potentially place your product in a lower-cost FBA size tier.
Amazon provides tools like the Inventory Age page and Inventory Health report to help you monitor and remove slow-selling inventory. Use this tool to identify inventory at risk of incurring long-term storage fees and remove these items from Amazon’s warehouses or shift your pricing or marketing strategy to avoid unnecessary costs.
Finally, understand the fee structure and stay updated on any changes. Amazon occasionally updates its FBA and storage fees. Awareness of these changes and adjusting your strategy accordingly can help you minimize costs.
Smart FBA strategy starts 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.