Thursday, December 15, 2016

Important Changes to FBA Fee Structure

There was a lot of news out of Amazon FBA including some new ingredient listing requirements for Health and Personal care but the one that will affect everyone is the new general fee structure for everything.

You can find the announcement with all the details here.

The key trends are that storage fees are going up, October is the new November, Amazon wants you to pay for Fulfillment Center processing and fulfillment fees are changing (mostly cheaper) but not totally.

Here are the specific changes:

Consolidation of Fulfillment Fees

  • Consolidation of Fulfillment Fees: Effective February 22nd 2017, the Order Handling, Pick & Pack, and Weight Handling fees will be consolidated into a single, per-unit Fulfillment Fee. See details (or scroll to Fulfillment Fee schedules below).

The gist is that it used to be that orders of multiple units incurred smaller fees per unit than orders of single units.  For example, if one iPad incurred a $10 fee, 2 iPads incurred a $19 (or usually less).  Part of that was the $1 per order fee which remained at $1 no matter how many units were ordered  but part of it were the rest of the fees.  This made a major difference on items that people tended to order multiple of since you can reliably earn more per unit than the calculator said.  That's a thing of the past.

It's important to note that while fulfillment fees for smaller items are going down, fulfillment fees for large and oversized items are increasing.  Profit margins will change for items you have been selling so it's important to reassess every item to make sure it's still worth it to sell.

Inventory Placement Service Changes

  • Change to Seller Shipment Requirements: Effective July 19, 2017, Amazon will increase how often you are asked to send items to multiple destinations when creating your shipping plan. For each shipping plan, you may choose to follow Amazon’s guidance or use the Inventory Placement Service, which gives you the option to ship to fewer destinations. A per-item service fee applies when you use the Inventory Placement Service; the fee depends on the number of destinations you choose. See details (or scroll to Inventory Placement Service Fee schedules below).

We've talked about Inventory Placement Service before.  IPS is Amazon's way of getting you to pay for fulfillment center processing.  Basically, you pay a per unit and a weight based fee to have your items sent to one fulfillment center.  This saves money on shipping and is more convenient to ship but the fees can be massive.  Also, once they get to the one center, Amazon is going to move some of them around to where it needs to go so sometimes you don't go from backordered to live any faster.  It's just more expensive.

The new fees are actually lower and give you the option of choosing 1, 2 or 3 centers to send to.  Overall, I think it is better to have more options. If you can avoid the fees and keep everything going to one Fulfillment Center, even better 😉

October is the New November Fees

  • Alignment of Q4 Inventory Storage Fees:  Effective October 1, 2017, the monthly fee for inventory storage in October will be increased for Standard-Size and Oversize units to be consistent with the storage fees for November and December. See details (or scroll to Monthly Inventory Storage Fee schedule below).
  • Alignment of Q4 Fulfillment Fees:  Effective October 1, 2017, we will reduce the Fulfillment Fee for all items shipped in October. October fulfillment fees will be consistent with fulfillment fees in November and December. See details (or scroll to Fulfillment Fee schedules below). With the reduction in fulfillment fees, sellers that reduce the storage space they use in October have the opportunity to pay lower total FBA fees in October.

I've dubbed this October is the new November.  The same increase we saw this year for November and December storage fees will now include October.   You can also see that storage fees from January through September are increasing from $0.54 per cubic feet to $0.64 per cubic foot, an increase of almost 20%.

Media and Zero-Fee Fulfillment Changes

  • Higher Fees for Media products: Effective February 22, 2017, the Fulfillment Fees for Media items will be increased to match the Fulfillment Fees for Non-Media items.
  • Elimination of Zero-Fee Fulfillment: Effective February 22, 2017, the Zero-Fee Fulfillment discount for standard-sized items that sell for $300 or more will be discontinued. Fees based on the product size tier will apply.

This change probably doesn't affect too many people.  I'm not sure but the Zero-Fee Fulfillment change may make iPads more expensive to sell.


- Storage is going up by 18.5% for 9 months, more than 400% for 1 month (October) and staying the same for 2 months (November and December).  This may be because their fulfillment centers are too full even with building more or they think the market can bear the increased fees which I think is true in general.  People will adapt and also pay more storage fees.

This will likely mean that I will focus on smaller items (lower fulfillment fees, storage fees increases are less significant on smaller items).  It might also mean sellers might start price increases more quickly ("Race to the Bottom") which is usually bad but can be good if it clears out sellers more quickly.  Think Kohl's.  Many sellers may start to think about renting a storage unit to ship more items into Amazon as they sell instead of sending all at once.

I have just started selling with Walmart with a much smaller volume than Amazon.  One of the disadvantages/advantages of Amazon is that there is no FBW (fulfillment by Walmart), which means you need to fulfill all orders yourself which I'm learning is quite expensive if you aren't selling the right sized items (for a different post).  You need to have your inventory with you since you are merchant fulfilling so I have already started the process of storing more inventory with rented space.  One of the luxuries this affords me is "free storage."  I'll already renting the space for Walmart, if I can decrease my storage fees (especially long term storage fees), I can use those savings to offset some of my rent and the breakeven number for Walmart is even lower.

For example, let's say rent is $500 a month and I can save $150 a month in FBA storage fees by storing at my rented space, if I can make $350 a month via Walmart (after all fees), I can breakeven on the new rent. If I can make more than $350 a month (sounds reasonable though the numbers are rounder for illustration purposes), it's now worth it to rent the space.

- October is the new November.  This one is tough for me.  I paid massive storage fees in this past November to make sure I was in stock in late November and early December.  My October storage fee was the highest all year since I was starting to build up my inventory but November storage fees were more than 4x my October fees.  Having to pay that increased fee an extra month next year would be really tough.  Big hit on the margins.  I will have to flood FBA with inventory even later next year than usual since they did a pretty good job in late November getting things in stock from the Fulfillment Centers, I was pleasantly surprised.  No Q4 stuff before late November next year.

- Consolidation of Fulfillment Fees.  I'm cool with this, nice to have some carrots instead of only sticks.  Might make me focus on smaller items, which I've been doing anyways but won't change too much for me.

- Inventory Storage Placement Fees - whatever, I'm not paying them.  I'll figure out a way around the issue.


Overall, I think the news is bad if only for the significant increase in storage but it will probably allow me to better focus on a smaller number of SKUs and make sure everything is selling and build up my Walmart inventory at the same time.  These were both part of my goals for 2017 anyways but my inventory turnover will probably speed up a bit.

How do you see the changes affecting you?  Will change what you sell and/or how much you buy at once?