Amazon Prime is gaining popularity more and more, continuously breaking thresholds of the number of users on their site year after year. Customers go out of their way to buy more goods to maximize the benefits of their Prime memberships.
Sellers recognize this and quickly adapt to selling their products using Amazon’s FBA program. With FBA, comes great perks like outsourced customer service, incredibly fast shipping, and dedicated offsite storage.
These immense perks, as great as they are, come at a cost. One of the many costs that are associated with the Amazon FBA program is storage costs.
As you know, storage is finite. Amazon only has so much space where they can store their seller’s goods. In order to facilitate the demand, Amazon forwards the cost onto their sellers to keep the service available. The cost is structured in a way to give incentives to sellers to churn inventory quickly and get rid of lagging products.
These incentives are evident in the Amazon FBA Storage Fees schedule. There are different fee schedules and changes can be difficult to anticipate. Here I have included all the different types of Amazon FBA storage fees you can expect.
Amazon charges both long term and short term Amazon FBA storage fees. These fees are charged to your Amazon seller account on every 15th of the month.
If you have incurred storage fees in the past, you may review the Long Term Storage Fee Report.
How Amazon Calculates Storage Fees
Amazon utilizes FIFO (First in, First out) accounting method when calculating storage fees. FIFO essentially means items sold or removed are deducted from the inventory that has been stored with Amazon for the longest time. This remains true regardless of which unit was actually shipped or removed.
Monthly Storage Fees
Monthly storage fees are broken into two schedules: before March 1st and After March 1st.
The Storage Fees for dangerous goods are slightly more expensive.
Long Term Storage Fees
Once your inventory has been in a fulfillment center for more than 365 days, you will be charged a long-term storage fee every month. Your seller account will be charged $6.90 per cubic foot or $0.15 per unit, whichever amount is greater.
If you decide to remove a product (particular ASIN) that is subject to long-term storage fees at the next inventory cleanup date, Amazon will record that. Amazon then will not allow you to send in any more units of that ASIN for three months following the date of removal.
Strategies to Avoid Storage Fees
One of the main reasons people get charged excessive Amazon FBA storage fees is because their products are lagging, not selling quickly enough. Because of this, the excess inventory sits on the shelves for long periods of time.
However, there are methods to avoid this.
Ship your Inventory Back
The simplest way is to simply ship your inventory back to you. This will quickly stop your inventory for continuously raking up more months of long term storage fees. Unless with confidence, I know the product will sell out within the next month, I will refuse to pay long term storage fees. It is far too expensive.
In order to do this, you can submit a removal order.
As long as you set up a removal order before the cleanup date you will not incur long term storage fees. This cleanup date deadline is 11:59 PT on the 14th of the month.
The inventory does not need to be physically removed from storage by the deadline. As long as you have submitted the removal order, you won’t incur the long term storage fees. You also will not be charged the removal order fee until your inventory has been successfully returned to you.
For efficiency, you can set an algorithm to automatically submit a removal order request if certain criteria are met.
Here you can find the fees for disposing or removing inventory from FBA facilities.
Discount Pricing Strategies
In my experience, the most cost-effective and least stressful way to reduce the number of Amazon FBA storage fees is to sell products at a discount. This is a good idea especially if inventory demand is lagging and the products are just sitting in storage.
Sometimes it makes sense to sell your products even at a loss in order to reduce storage fees. The lack of cash flow and excess storage fees hurts your business in two ways:
First, it stops the bleeding quickly. Long term storage fees can easily sneak up and bleed out your bottom line.
Second, in retail businesses, standards are measured in terms of accounts receivable turnover ratio. Lower turnover reduces the number of times your money earns a return. I rather sell a product at a loss and get the money back quicker. This will allow me to reinvest the capital into another set of inventory that will sell quicker.
Amazon charges a fee to return your inventory and once it’s returned; you’re still left with a problem on how to liquidate it. It may make sense to sell your inventory at a discount to mitigate potential losses.
Utilizing Amazon Promotions
Oftentimes Amazon will offer promotions to their sellers. Sometimes these promotions include an offer to allow sellers to remove items from FBA for free. They wave the fee to removal orders during the promotional time.
This offer is not always offered however it is something to keep in the back of your mind if the situation allows for it. Keep an eye out for promotions as sometimes they come in great times.
Another good way to avoid long term storage fees is to add a promotion of your own to your product. Run ads on your product. If the ads cost less than the storage fees and get your products sold then it is a win.
Time your Inventory and Manage It
When buying items in extremely large quantities, if you have the ability to, only send in a portion of total inventory. Assuming it is only one SKU, the goal is to develop a proof of sales.
With your sale’s proof, you can develop a timeline for how long it takes to cycle through your inventory. This data will help inform you on how much inventory you can afford to send in order to mitigate storage costs. Ideally, you only want to have 30-45 days worth of inventory in storage.
Become an active manager of your product. If you find inventory lagging, investigate why. These are the steps to process improvement and help you understand the industry at a deeper level.
The better manager you become, the more success you will find as your ROI will remain consistently high. Poor inventory management is the number one factor that leads to excessive long term storage fees.
Identify Inventory that is at Risk for Long Term Storage Fees
You can use both the Inventory Health Report or Inventory Age Report to see a breakdown by ASIN. The report will identify how long your inventory has been there.
To find the Inventory Age page:
- Go to the Inventory tab in your seller account
- Click on Inventory Planning
- Go to the Reports tab, then Fulfillment.
- Lastly, click on Inventory Health and Recommended Removal reports