Originally published on November 14, 2019, updated July 20, 2020
Millions of third-party sellers use the Fulfillment By Amazon (FBA) program to manage part or all of their order fulfillment needs. After all, it's a convenient, speedy, and reliable way to ensure that customers receive their orders in a timely fashion. However, it's important to account for all costs (including FBA fees) to ensure accurate margin data.
While the FBA program provides numerous benefits for sellers, it isn’t free. Amazon FBA fees change frequently, and having a smart inventory management strategy is key. Let's explore what you need to know about how to avoid additional storage fees, how to know if you qualify for referral fee discounts, and how the Inventory Performance Index (IPI) score affects your Amazon account.
Amazon has grown by leaps and bounds in the last 25 years. New third-party sellers are listing their products every day. In fact, in his most recent annual Letter to Shareholders, Amazon CEO Jeff Bezos pointed out that 58% of Amazon sales are made by third-party sellers.
What does this mean for you? Amazon FBA has grown alongside the number of third-party merchants, and space comes at a premium. Selling products through FBA is a smart move for many sellers, because it means that items are Prime-eligible and Amazon does most of the legwork for picking, packing, shipping, and customer service.
However, as the program has grown, FBA fees have also increased. Fulfillment centers simply can’t become a repository for unwanted inventory, because space is limited and storing inventory that isn’t moving costs money. The Inventory Performance Index and increased FBA fees are designed to encourage sellers to keep their inventory moving steadily.
Amazon varies FBA inventory storage fees according to time of year, estimated volume, and item size (standard-size or oversize). In order to calculate unit dimensions to determine estimated volume, a unit must be packaged and ready to ship according to FBA policies. Only then can it be measured by length, width, and height.
Amazon charges an additional fee if units are not packaged as outlined by the FBA program policies. Calculating these fees manually requires careful math, since there are several variables to include; a small mistake could add up to major costs for an FBA seller. You can use the FBA Revenue Calculator to see cost comparisons between fulfilling orders yourself and via FBA. See 2020 US FBA fulfillment fees for current fee information.
If you’re looking for an easier way to manage FBA fee calculations, consider RestockPro. FBA storage fee data is automatically calculated and accessible within the Estimated Margin calculator of the Restock Suggestions grid. Up-to-date data is synced from Amazon several times per day to include FBA fees, commissions, monthly storage fees, and variable closing fees.
Amazon's inventory storage fees vary by month, with higher fees during the busy Q4 selling season.
January-September: $0.75 per cubic foot
October-December: $2.40 per cubic foot
January-September: $0.48 per cubic foot
October-December: $1.20 per cubic foot
Fees are higher for items that are sold through the FBA Dangerous Goods (Hazmat) program. These items require special handling and storage. The monthly FBA inventory storage fees for items sold through the Dangerous Goods program are as follows.
January-September: $0.99 per cubic foot
October-December: $0.78 per cubic foot
January-September: $3.63 per cubic foot
October-December: $2.43 per cubic foot
You can learn more dangerous goods here.
In September 2018, the way that long-term storage fees are assessed changed. Instead of being assessed semi-annually, the fees are now assessed monthly. Inventory cleanup dates are on the 15th of each month.
In 2019, Amazon eliminated long-term storage fees for items that are in a fulfillment center for 181-365 days. Long-term storage fees will continue to be charged for items that are stored for over 365 days.
Because of potentially high costs, many sellers will want to avoid long term storage fees. The challenge increases for larger items, since fees are based on volume. How can sellers avoid these charges?
Avoid FBA for listings with poor sales rank. Of course, the right sales rank to target will depend on the category. Some categories sell better than others. For example, a rank of 20,000 in Toys & Games will be much better than the same rank in Sports & Outdoors. It can also be helpful to look at the number and quality of reviews the item has received.
Use smart inventory restocking. Calculate how much you can expect to sell over the next couple of months and send in a limited amount of inventory at a time to avoid getting stuck with slow-moving items. RestockPro is extremely helpful because it streamlines your supplier information, purchase order management, and FBA restocking process. This greatly decreases the likelihood of having any significant quantities of inventory in Amazon fulfillment centers long enough to incur long term storage fees.
Download the Inventory Health report to see which SKUs could be charged if you don’t sell out of or remove the aged inventory. This report has columns specifically to show the age of your sellable inventory, estimated long-term storage fees, and more.
Based on your aged inventory and concentrating on those with the highest fees, get strategic about how to sell as much as possible before the next cleanup date, which is on the 15th of each month. Use more aggressive pricing to capture the Buy Box. Consider using advertisements and other tactics to bring more traffic to listings with poor sales rank. For instance, think about if the title or other listing data has been changed to make the product less appealing. If so, update the product listing as soon as possible. Open a case with Amazon support if you don’t have the required ASIN authority for a shared listing.
Based on your most recent Inventory Health report, decide if you would like to leave some aged inventory at Amazon fulfillment centers because the fee is minimal. This could be an especially good option for very small items. When you decide what to keep, create removal orders for the remaining aged inventory.
Some inventory is still likely to make a profit and you might decide to send it back to FBA. Some excess inventory will likely never sell because of fierce competition or because the sales rank is so low.
Some suggestions about what can be done with this “unwanted” inventory include:
With careful inventory management, your goal should be to minimize the number of items flagged for long-term storage fees. But, as any retailer knows, sometimes you will have inventory that does not move as expected. When that happens, we advocate proactive management so that your investments in inventory and storage are as productive as possible.
Amazon uses the Inventory Performance Index to establish a baseline for inventory performance. You can track this metric on the Inventory Performance Dashboard, which also provides customized recommendations for FBA sales growth and cost reduction. This score is updated weekly based on your ongoing inventory management.
Amazon may limit access to storage for sellers with an Inventory Performance Index below 500. Sellers who keep their score at 500 or above will have unlimited FBA storage for standard and oversize items. (Note that monthly storage fees and long-term storage fees will still apply.)
IPI scores are evaluated on a quarterly basis. If your IPI is below 500, you will receive a notification from Amazon and you will have six weeks to attempt to get your IPI score above 500. If you are unable to get your score to 500 or above in that time, Amazon will limit your FBA storage for the following quarter.
With the FBA inventory storage limits policy, sellers cannot create new shipments to Amazon until their current inventory level drops below their storage limits. If existing inventory exceeds those storage limits for a given month, merchants will be charged an Inventory Storage Overage Fee for the inventory that exceeds storage limits. This fee will be based on cubic foot of storage; Amazon is updating their tools to reflect this change as it is currently based on number of units.
Hazmat storage limits are handled separately from this policy. You can learn more about hazmat storage here.
Do you fulfill some or all of your Amazon orders through Seller Fulfilled Prime? If so, you may qualify for referral fee discounts. Amazon sometimes offers discounts to sellers who fulfill orders through the Seller Fulfilled Prime program.
To find out if your items are included in a referral fee discount, go to the Manage Inventory page in your Seller Central dashboard. Filter your products by Status (Active) and Fulfilled by (Merchant). The referral fee discount will be displayed in the Fee Preview column if your SKUs qualify. Sellers who are currently enrolled in the Seller Fulfilled Prime trial are not eligible for the referral fee discount until they have successfully completed the trial.
Depending on your product category, you may be eligible for other Amazon fee promotions. Check the Fee Discounts page to see if any of your items qualify. Referral fee discounts are applied when an order is placed for qualified products during a fee promotion. These promotions are only available for a limited time. See referral fee changes for 2020.
Amazon has consolidated order handling, weight handling, and pick and pack fees into a single fulfillment fee by weight for the FBA Small and Light program. Small and Light items in the FBA Label Service will be charged $0.10 per unit.
Effective February 15, 2020, all standard FBA storage fees apply to Small and Light. This results in a per unit fee of $0.15. Removal and disposal order fees will also be aligned to the changes made for standard FBA.
Whether you're a new seller or a seasoned merchant, having a clear understanding of what to expect regarding Amazon FBA fees can help you protect your profit margin and inform your overall pricing strategy. For example, if you do qualify for a referral fee discount, you may be able to sell your product at a lower price, which could boost your order volume and ultimately your overall seller health.
Originally published on November 14, 2019, updated July 20, 2020
This post is accurate as of the date of publication. Some features and information may have changed due to product updates or Amazon policy changes.