Amazon FBA(fulfillment by Amazon) is a part of the Supply Chain services run by Amazon. This program focuses on ways to make it easier for registered sellers to scale and outsource their e-commerce businesses.
Every Amazon seller or business owner needs to have a proper understanding of how Amazon FBA fees work to maximize profitability on their products. Thankfully, this article contains a clear breakdown of how Amazon FBA fees are calculated and business strategies you can use to optimize cost.
Alright, let’s proceed.
1. Overview of Amazon FBA Fees
First of all, FBA fees are the costs charged for selling on Amazon and they vary based on your product’s size, weight and category. Earlier this year, Amazon updated their rate cards for standard-sized, large bulky and extra-large size products. The Amazon FBA fees include:
- Fulfillment fees
- Storage fees
- Referral fees
- Removal and Disposal fees
2. Detailed Breakdown of FBA Fees
Fulfillment fees
FBA fulfillment fees are cost charged based on services offered through picking, packaging, handling and shipping of your items to customers. It is measured based on the size, weight and category per unit of your product.
Storage fees
This includes the cost charged for both short-term and long-term storage of products in your inventory at fulfillment centers. Short-term storage is also referred to as monthly inventory FBA storage fees and is charged between the 7th and 15th of each month depending on the size of your product, its category and the time of the year your products are in the inventory e.g. holiday seasons like Christmas.
In contrast, the long-term storage is calculated twice a year in addition to monthly inventory fees on February 15th and August 15th. It is also referred to as Aged Inventory Surcharge and the cost is charged when your inventory contains products that have been stored at the centers for at least 365 days. Aged Inventory Surcharge charges can be avoided by managing your inventory in a way that products won’t stay at the centers for long.
Referral fees
Referral fees are charged by Amazon when a customer buys a product. Usually, 15% is taken from the total price of the product sold but sometimes, the percentage varies based on the product category and can be as low as 8% for full-size appliances and personal computers as high as 45% for Amazon Device Accessories.
Removal and Disposal fees
Amazon FBA Removal fees are charged from your account after you submit a removal order indicating that your products be taken off the inventory and returned to you. The price varies based on the size and weight of your products.
In some cases, a disposal fee is charged when sellers decide to discard a product that’s not selling and accumulate storage fees. This is usually based on the price, size and shipping weight of your products. Interestingly, the price of a disposal order and removal order are the same and if you request to remove a product and then decide to dispose of it, an extra cost would be placed.
Although these costs might seem like a lot, it’s a good offer considering the services attached to Amazon FBA such as its quality logistics and a popular trustworthy platform you can rely on.
3. Tools and Resources for Calculating FBA Fees
Tools and resources like the Amazon FBA fee calculator or other third-party tools and software used for FBA fee estimation teach you how to maintain profitability by helping you make well-informed decisions that can optimize your product selection.
As an FBA seller, you need to get an accurate calculation of your fees so that you can easily create a profitable pricing strategy for your business by avoiding listing products that won’t yield profitable returns on your inventory. Also, an accurate calculation teaches you how to sell your products at a competitive price after estimating the costs in advance.
4. Strategies for Optimizing FBA Costs
One of the major ways to ensure FBA cost optimization in your e-commerce business includes employing efficient inventory management or turnover practices like Amazon’s inventory management tools.
For instance, regularly reviewing and managing inventory levels by analyzing sales data is needed to predict the demand for your products accurately so that they are not stored for a long term in the inventory. You can also conduct an ABC analysis to prioritize high-value, high-demand items ahead of low-demand items.
Also, optimizing the dimensional weight of your products by resizing and ensuring cost-effective packaging solutions, can help avoid payment of unnecessary FBA fees. Dimensional weight is a pricing technique used by Amazon to account for the amount of space a package occupies based on its actual weight or dimensional weight. By using compact and protective packaging you can ensure that your products are lightweight, protected and cost-friendly.
Another strategy used to optimize FBA costs is avoiding long-term storage fees by monitoring your inventory age and implementing proactive inventory turnover strategies. Some of these include using Amazon’s inventory performance (IPI) to optimize and maintain product listings and reviewing the Recommended Removal Report which provides a list of products that Amazon recommends you remove from their fulfillment centers
In addition, removal and disposal strategies can be done by planning for seasonal inventory and utilizing removal orders effectively.
5. Leveraging Amazon Programs for Cost Savings
As an Amazon seller, there are some programs available on Amazon that you can use to save the cost of FBA fees. They include:
FBA Small and Light Program
Amazon Small and Light program(SnL)) enables sellers to save money on fulfillment costs by offering standard pricing (usually below $7) based on the size and weight of the item. Eligible products are small and lightweight products, they include all items that are 16 x 9 x 4 inches or less and weigh under 4 oz for a flat rate cost of $1.97.
If the weight is greater than or equal to 4 oz, but lighter than 10, the flat rate cost of fulfillment is $2.39.
Subscribe & Save Program
This program only works after you have subscribed to Amazon. It provides free shipping and discounted prices on auto-deliveries and scheduled deliveries on eligible products. With subscribe and save, you can save up to 15% off when you receive 5 or more products in one auto-delivery to one address. Cost management programs like this, allow business owners to easily estimate and allocate their budget to prepare ahead for the future and mitigate risks.
Multi-Channel Fulfillment (MCF)
MCF involves the use of third-party logistics (3PL) solutions to enable you to use FBA orders outside Amazon FBA thereby leveraging Amazon’s fulfillment network and a team of experts to pick, pack, ship, and deliver your customer orders from off-Amazon sales channels.
Some of the cost considerations and benefits include faster deliveries on customer orders, and storing your inventory at Amazon fulfillment centers.
Although Amazon’s FBA and MCF programs are similar, they have one major difference: FBA focuses on sales made through Amazon’s website while MCF focuses on sales made through a seller’s channels, eg Etsy.
6. Analyzing and Adjusting Pricing Strategy
You can incorporate FBA fees into the price of products by having an understanding of your profit margin, adding discounts or coupons and setting a competitive and profitable business price. You can also review and adjust your pricing strategy by careful analysis of market conditions, production costs, consumer behaviour, and other factors that influence the demand and supply of goods or services.
Conclusion
Whether it’s employing efficient inventory management or turnover practices, analyzing and adjusting pricing strategy, leveraging Amazon programs for cost savings or use of tools and resources for calculating FBA fees; these strategies are needed to understand and optimize FBA costs.
As a business owner aiming for profitability, resources like the Amazon Seller Central website, Jungle Scout blog or YouTube page, and Helium 10, a helpful tool, will help to improve cost efficiency and provide an avenue for further understanding of how to optimize your FBA costs effectively.
We hope this article has been helpful, stay tuned for more updates.
