Editor's note: This guide has been updated to reflect Amazon's fee changes for 2023.
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 an annual Letter to Shareholders, former Amazon CEO Jeff Bezos pointed out that 58% of Amazon sales are made by third-party sellers. That percentage has remained largely the same in recent years even amidst a changing Amazon landscape.
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 also introduced FBA restock limits by storage type in April 2021. Your restock limits are calculated at the account level and by storage type: standard-size, oversize, apparel, footwear, flammable, aerosol (restricted), or extra-large. A new FBA capacity management system was launched in 2023. Limits will still apply for each storage type.
Amazon added the extra-large storage type in April of 2022. Flammable and aerosol storage-limit adjustments are also handled separately from the other storage types.
Amazon varies FBA inventory storage fees according to time of year, estimated volume, and item size. 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 2023 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 postponed annual FBA fee adjustments in 2021 due to the COVID-19 pandemic. The 2022 fees, as expected, brought some higher fee rates and also introduced a new calculation method: the greater of unit weight or dimensional weight will be used to configure the shipping weight for all large standard-size units and all small oversize, medium oversize, and large oversize units. Small standard-size units and special oversize units will go by the unit weight.
Rising fuel costs and economic inflation throughout 2022 caused Amazon to add various fees throughout the year, including its first-ever fuel and inflation surcharge and a holiday peak fulfillment fee for core FBA items.
The 2023 US FBA fulfillment fees take effect on January 17, 2023. Here are the per-unit fulfillment fees based on size and price ranges:
Apparel and dangerous goods have separate per-item fee structures. As of February 16, 2023, Amazon will begin using the greater of the unit weight or dimensional weight to determine the shipping weight for all large standard-size apparel products. You can see a detailed breakdown with examples on Seller Central.
Amazon's inventory storage fees vary by month, with higher fees during the busy Q4 selling season. Beginning February 1, 2023, monthly FBA inventory storage fees for off-peak periods (January-September) will be increasing by $0.04 per cubic foot for standard-size products and $0.03 per cubic foot for oversize products. The change will first take place in March 2023 for storage throughout February 2023.
On October 1, 2023, monthly FBA inventory storage for peak periods (October-December) will be increasing by $0.20 per cubic foot for oversize products. The change will first be reflected in November 2023 charges for storage in October 2023. There's currently no change to peak monthly inventory storage fees for standard-size products.
Standard-size Items
January-September: $0.87 per cubic foot
October-December: $2.40 per cubic foot
Oversize Items
January-September: $0.56 per cubic foot
October-December: $1.40 per cubic foot
On April 1, 2023, Amazon will introduce a new storage utilization surcharge for the monthly storage fee. This surcharge will be based on your storage utilization ratio, which is the ratio of your average daily inventory volume stored in cubic feet divided by the average daily shipped volume in cubic feet over the past 13 weeks. Amazon calculates the storage utilization ratio on the last day of the month.
The surcharge will only apply to Professional sellers with a storage utilization ratio above 26 weeks. If you meet the criteria, it will be added to your base monthly storage fee and applied to the daily average volume for the space that your inventory takes up in Amazon’s fulfillment centers. You can see a complete breakdown of the details in Seller Central.
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 with inventory cleanup dates occurring on the 15th of each month. Amazon briefly eliminated long-term storage fees for items in fulfillment centers for 181-365 days in 2019 but brought them back in 2022 due to ongoing storage space issues.
Related Reading: How to Increase Sales on Amazon FBA
An FBA aged inventory surcharge (previously known as the long-term storage fee) will be applied to units that have been stored in fulfillment centers for 271 to 365 days. It will continue to be charged for units that are stored for more than 365 days.
As of April 15, 2023, new tiers -and additional charges- will apply to inventory in storage for 181 to 270 days with the exception of items in the clothing, shoes, bags, jewelry, and watch categories in the US.
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.
Additionally, using an algorithmic repricing tool can help you keep pricing competitive and sell your items at a consistent rate. This increases your chances of winning a share of the Buy Box.
Download the FBA Inventory report (formerly known as 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 ranks. 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 FBA Inventory 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 generate as much ROI 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 the IPI threshold. In 2022, sellers who keep their score at 400 or above will have unlimited FBA storage for standard and oversize items. Monthly storage fees and long-term storage fees will still apply. The IPI threshold often changes, but following general inventory best practices should be enough to keep your score above the threshold.
IPI scores are evaluated on a quarterly basis. If your IPI is below 400, you will receive a notification from Amazon and you will have six weeks to attempt to get your IPI score above 400. If you are unable to get your score to 400 or above in that time, Amazon will limit your FBA storage for the following quarter.
Need help improving your IPI score? Check out this free checklist.
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 feet of storage.
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 All 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.
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.
There are several changes to the program effective January 17, 2023. The item price for eligible products will increase from $10 or less to $12 or less. The size tiers for small standard and large standard for 1 lb and under will be divided into 4 oz increments, while the size tiers for large standard over 1 lb will be divided into 0.5 lb increments. Amazon will also use the greater of unit weight or dimensional weight to determine the shipping weight for all large standard-size units, while small standard-size units will use the unit weight.
What happens if an item you send to Amazon to be fulfilled with FBA is lost or damaged at a fulfillment center or by a carrier operated by or on behalf of Amazon? Amazon will replace the item with a new item of the same FNSKU or reimburse you. Learn more about this policy and how to create a claim.
It's also important to monitor Amazon pick and pack fees. If you are overcharged due to incorrect measurement of your item's weight and dimensions, you have 90 days to request reimbursement. Companies like GETIDA can help mitigate the process of monitoring your fees and submitting a claim.
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.
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