Online selling business demands the use of the warehouse for storing your inventory before they are all set to be packaged and shipped to the buyer upon purchase. For ensuring the perfect condition of your inventory, great care must be taken while storing the products. However, this comes at a cost that most sellers struggle to cope with especially the Amazon FBA Sellers. Fulfillment by Amazon (FBA) is an outsourced shipping and handling program offered to Amazon sellers by the marketplace. If you are an FBA seller that literally means that Amazon is doing all the heavy lifting for you which can be considered as a benefit.
However, once a year on February 15th and August 15th, Amazon charges the FBA sellers with long-term storage fees or you can say the marketplace performs what it calls an ‘inventory cleanup’. Amazon storage fees are something that every FBA seller should be educated about because if you aren’t careful or aware, these charges can quickly end up eating into your margins or even result in losing money on your inventory.
In this post, we will cover everything regarding the storage fees that Amazon charges its sellers and how you can save your FBA business from total loss.
As a seller, you are required to regularly assess your storage charge risks and adjust your strategies to make certain you reduce their impact on your margins. If you ask why, well, if you haven’t noticed yet; the storage charges keep going up.
Amazon is growing so rapidly that they are struggling to fulfill the demand for space in their warehouses or fulfillment centers. The fulfillment centers are filled the moment they are built. Therefore, space is in such a high demand that it doesn’t come free. If you aren’t careful enough, the criteria of storage charges can pile up to an extent that it becomes difficult to afford one.
What items are charged?
If the fulfillment centers are stocked up with your product with multiple units for the past six months or longer, you will be charged with long-term storage fee.
In case, if you fall under this criterion, Amazon will send you an email a month before every charge date (January and July) alerting you that you owe the marketplace long-term storage fees.
How much is each item charged?
- $11.25 per cubic foot is the fee charged for the items that have been in the storage for 6-12 months
- $22.50 per cubic foot is the fee charged for the item that has been in the storage for more than 12 months
In simple words, the larger your items and the longer they have been in the fulfillment centers, the more expensive it will get to avail the storage services.
There are two types of storage fees charged by Amazon that you need to familiarize yourself with. However, with both types of storage fees, the only way you can keep high-profit margins and gain success is by using smart inventory management.
Monthly Inventory Storage Fee:
The monthly inventory storage fee is the cost that every FBA seller has to pay for doing business with Amazon. As you know that the storage spaces in fulfillment centers are a valuable commodity and the costing tends to grow up as the demand goes up. Therefore, when planning inventory, you must keep in mind that the more the inventory more the inventory fees.
How is it calculated?
The monthly storage fee is calculated based on the everyday average volume of storage space in cubic feet occupied by your inventory at the fulfillment centers. Amazon owns the calculation used for determining the charges you will pay for the storage space and they even specify it in the Seller Central.
Amazon reserves the right to make its own measurement of the weight of packaged units, cubic feet, or representative samples. In case there is any conflict between the information provided by the seller and an Amazon measurement, Amazon’s Measurement will preside over.
There are two types of product rates – oversize and standard size. The main difference between these two product rates is that while the standard size products take less space, the arrangement of the standard space is more complex than the oversized products as warehouses often use drawers or bins to efficiently store the items.
On the other hand, the storage rates for standard size items are generally higher but the oversize storage charges are even higher since the charges are calculated in cubic feet.
You will have to pay the monthly storage fee between the 7th and 15th day of the month and the rates will vary depending on the time of the year. During the holiday season, the rates, not surprisingly, will significantly go up.
Long-Term Inventory Storage Fee:
Apart from the monthly inventory fee that is mandatory to be paid monthly, Amazon charges an extra fee twice a year for any inventory that has been sitting in the fulfillment centers for six months or more. As space is limited in the fulfillment centers, Amazon wants their storage spaces to be used by the products that are selling well. If you sell Amazon ton of inventory that doesn’t sell, the inventory will just sit on the shelves gathering the dust and taking up space. Hence, the marketplace will charge according to the usage of the storage space and will work actively to encourage you to carefully manage your inventory to keep their fulfillment center efficient and profitable.
How is it calculated?
As said earlier, the long-term inventory cleanup happens two times a year – 15th February and 15th August. There are two fee tiers designed. The first one is for the inventory sitting in the fulfillment centers for 6-12 months and the second one is for the inventory sitting in the fulfillment centers for more than 12 months.
How to determine which Units are potentially Subject to Long-Term Storage Fees?
There are few ways in which you can get the idea of which of your units is subjected to a long-term storage fee. There are certain tools within the Seller Central that can help you determine how exposed you are to the hefty storage fees. It can help plan a strategy for avoiding future fee hike if possible.
The Seller Central provides a report which shows how much the seller owes to Amazon for using its storage services.
You can access the report by-
- Log into your Seller Central account
- Open the Inventory tab and select Manage Inventory
- Now, select Inventory Dashboard
- Scroll down until you see FBA Inventory Age Box
- Click View Details for accessing the Report that you want to see
This will show you-
- The Inventory Age of your products
- Number of units in the storage for 6-12 months
- Number of units in the storage for 12 and more months
- Est LTSF (the estimate long-term storage fee) for each product
For calculating the total estimated fees-
- Download the report as a CSV (Comma-Separated Value)
- Open the CSV file in Google Sheets or Excel
- Create a SUM formula for adding up the estimated fees for every product
Best Practices for avoiding Long-Term Storage Fees
Amazon recommends certain ways to avoid paying these hefty charges. Below are some of the ways recommended by Amazon which can be used to reduce your storage fees in the future.
FBA can be a great selling platform but as you know it comes at a cost. As said earlier, there is a monthly storage fee as well as a long-term storage fee. You can avoid paying the storage fees if you strategically time your next restock and by offloading products.
#1 Use Careful Strategies for Stocking Inventory:
Whenever launching a new product, always start with small inventory until you get the idea of how quickly your product is selling. The best practice would be to avoid sending in more stock to the fulfillment center than you think will sell during the six-month period. To give yourself the longest possible time to sell your products, prepare to send your inventory soon after the cleanup dates which is either 15th February or 15th August.
Obviously, you always want to keep your stock full, but if possible, avoid overstocking right before the inventory cleanup date because when the next cleanup date arrives in six months, all your products that haven’t sold will subject to a long-term storage fee. It is in your best interest to send most of the remaining stock in shortly after the inventory cleanup so that when the date of the next cleanup date arrives, your unsold products will not yet have hit the six-month storage milestone. This technique primarily buys you extra six months for selling your unsold inventory before any long-term charges are incurred.
#2 Plan Discounted/Flash Sales to Avoid Paying during Cleanup Dates:
If you have products sitting in the inventory for 6 months or more, you can evade paying the long-term storage fees by selling all the products before the cleanup date arrives. Check if you have any items left that are in the inventory for 6 months or more. Obviously, it is not as easy as it sounds to sell all your products before the cleanup date. But there are tools supported by Amazon that can help you make promotions for quickly offloading the inventory.
Tools like LandingCube allow the sellers to create flash sales for the products thereby making them easier to sell. This way you can avoid paying long-term inventory charges. It is better to run discounts on at-risk inventory if you want to offload them quickly. Consider running a price promotion for moving the inventory more quickly and then drive traffic to your landing page for promoting the products you want to offload. Headline Search Campaigns and Sponsored Product Campaigns are a great way to increase sales volume. These techniques will accelerate in selling your products quickly. But you will want to weigh the benefits and costs of your unique situation. The more the products are, the higher will be the charges for storing them. So, it would be intelligent of you to offer higher discounts, if possible.
#3 Optimize Product Information Pages to Grow Sales:
It is important when it comes to quickly offloading the inventory is to make sure that all the essentials of the product description page are enhanced for driving sales. Essential details like product description and image quality cannot be accentuated enough. On the other hand, product reviews also play a crucial role in driving sales. More the reviews (positive) you have, the more information your potential buyers will have for making a smart purchase decision. There are tools that can help you accumulate legal and authentic product reviews and customer feedback for your listings. Some of them are free while some are chargeable, but it is worth the investment.
Read the following blog to know more about optimizing the amazon product listing:
#4 If it Makes Sense, Remove or Liquidate Inventory:
If you have done everything possible and still you can’t offload the inventory before the inventory cleanup date, you can only avoid paying the long-term storage charges by liquidating some or your entire at-risk inventory. Else, you could also create a removal order to have the inventory returned to you or even destroyed. The only way to determine whether this strategy is worth a shot is to do some calculations.
- In the Seller Central, open the Inventory Health Report
- Determine the estimated Long-Term Storage Fees
- For determining the impact, add this storage charges to the profit margin calculations
If the calculation (fee) generated is such that you will anyhow lose money no matter what if you continue to keep the inventory in the fulfillment centers, then using this strategy is probably an intelligent move.
In conclusion, we would like to say that it is essential to be strategic regarding your inventory management approach to avoid the storage fees both monthly and long-term. Running out of inventory is always something that you must avoid but overstocking can be just as detrimental to your FBA business. It is advisable to implement premeditated inventory management practices as a soon as possible if you want to avoid paying those hefty charges when the inventory cleanup dates arrive.