Amazon has a rather fraught history where its sellers are concerned. Plenty of third-party vendors struggle to make a profit due to Amazon’s high fees, but that clearly doesn’t bother them. The eCommerce giant isn’t doing business for the brownie points, and that was made pretty clear when they recently announced fee increases for their sellers.
Since there are so many different types of Amazon seller fees to start out with, it can be a bit tricky to figure out exactly how they affect your profit margins. It’s possible to do all the math yourself, but the bigger your online store is, the more numbers you’ll have to crunch. Some sellers opt to use services like Shopkeeper.com, which gives them all the data they need for informed decisions. One thing’s for sure: a lot of sellers on Amazon are currently scrambling to figure out how these new changes will impact their bottom line.
To make it even more confusing, the different types of fees aren’t changing uniformly; some of them only have miniscule increases, while others could really dig into the profits. Plus, some people will be more affected than others, depending on what types of products they offer. It’s a complicated situation, and the key is for sellers to optimize their strategies as soon as possible in order to avoid losses.
Here’s an overview of how each Amazon fee will be changing for sellers:
FBA Storage Fees
Starting on the 1st of February, 2022, inventory storage at FBA (Fulfillment by Amazon) warehouses will cost more per cubic foot. They were already charging an increased rate during peak months (October – December), and that fee will stay where it’s already at: standard-size packages will cost $2.40 per cubic foot, and oversize packages will cost $1.20 per cubic foot. The “off-season” prices (January – September) are where you’ll see an increase: standard-size packages will cost $0.83 per cubic foot (vs. $0.75 per cubic foot previously), and oversize packages will cost $0.53 per cubic foot (vs. $0.48 per cubic foot previously).
FBA Removal and Disposal Fees
While most inventory items will leave the FBA when they’re sold, some of them are in a condition that prevents that from being possible. When that happens, it’s the seller’s responsibility to either pay for Amazon to ship it back to them (so they can get rid of it themselves), or pay Amazon to destroy the item. With nine different size tiers, this one could take some heavy calculating. Suffice it to say that, effective on the 18th of January, 2022, all categories except the smallest one will increase by more than 200%. That’s a pretty steep price hike, and even though it won’t apply to every unit (only the ones that have to be removed or destroyed), it’s still significant enough to eat into an otherwise healthy profit margin.
This category contains the only bright spot in the fee changes. Most referral fees will stay where they are, but a few of them will actually decrease. Lawnmowers and snow throwers are seeing a reduction in referral fees, and items with a total sales price over $500 are going to see a drop to 8%, where previously the referral fee was 15%.
FBA Fulfillment Fees
Since this type of fee applies to every item that passes through an FBA warehouse, it’s important to keep an eye on. Even though a few of the price hikes are only a few cents, that can still have an impact on the profit margin; sellers could realistically have to discontinue some of their offerings because of this fee alone. Some categories will only increase by 2%, but others will go up by as much as 12%.
Here’s an example of how even an increase of a few cents could cost too much in the long run. Say there’s a $10 item for sale on Amazon, and its gross margin is 20%, or $2. Since the Small Standard fulfillment fee applies to this item, the 8% increase in that fee will end up taking 10% off the profit. Now you’re only making a 10% gross margin for every unit you sell, all because of that one fee increase.
Each seller will have to examine every fee category to see exactly how it would affect them, but most of them will end up facing the same scenario: tight profit margins will get even tighter, and in some cases an item won’t even be worth listing anymore. Even if an item was profitable to begin with, these fee increases are sure to put a dent into them as well.
Aged Inventory Surcharge
Not only are sellers dealing with fee increases; they’ll also have to plan for a brand-new fee. Sellers were already paying aged inventory fees for any items that had been stored in an FBA warehouse for more than 365 days; the cost came out to $0.15 per unit, or $6.90 per cubic foot (sellers were charged whichever fee was greater).
Now there’s going to be another fee starting in the middle of May 2022, which will apply to any inventory that’s been in an FBA between 271 and 365 days. This fee will amount to $1.50 per cubic foot, and it’ll be charged in addition to regular storage fees.
This fee may have an undue influence on the products that sellers offer. Since they’ll be trying to avoid aged inventory surcharges, the priority will be on fast-moving items. There will also be less incentive to experiment with new products; if they don’t sell as expected, they’ll cost more to store in the long term. However, sellers still have the option to move select products to non-Amazon fulfillment centers with lower rates, so that’s one possible solution to the problem.
Third-party sellers on Amazon are looking at significant fee increases in 2022; these new fees will definitely affect their bottom line, but they could also change the range of products they’re able to offer. Even so, if sellers can adjust quickly, they’ll be able to minimize the impact on their business.