It would’ve been interesting to be a fly on the wall when Jeff Bezos met with his executive team and expressed the desire to open Amazon’s platform to third-party sellers. There’s lots of lore in the industry, and I’ve read articles about how much resistance there was initially and how the directive rolled out much faster than the underlying infrastructure to support the program. I recall the early days of Amazon marketplace selling and how cost-effective it was to utilize Amazon’s network. That was sixteen years ago! Kaidako’s team’s FBA experience goes back more than a decade, not quite to the beginning, but close. Our history predates pesky things like long-term storage fees, Inventory Performance Indexes, stock and SKU level limitations, and many other challenges facing today’s sellers. That experience gives us knowledge and perspective to best navigate today’s Amazon marketplace ecosystem on behalf of our clients.
You can’t beat the fulfillment by Amazon program for cost-effectively fulfilling your orders to the end consumer. There are plenty of articles outlining the fees and costs of selling on the platform. However, this article reveals aspects of managing your FBA inventory that sellers often neglect to consider, not exactly hidden fees or secrets, but items less apparent.
FBA aged inventory surcharge
What is it? Inventory that has been in a fulfillment center for more than 365 days is charged a monthly long-term storage fee in addition to the standard monthly fee. In May of 2022, Amazon introduced an additional fee on items that have been at the FCs between 271 and 365 days. The 365+ fee is $6.90 per cubic foot or $0.15 per unit, whichever is greater. By contrast, a standard-sized unit is charged $.83 per unit from January to September and $2.40 per cubic foot during Q4. The new 271-365 fee is $1.50 per cubic foot, roughly twice the typical fee.
How to avoid it? Sellers should no longer consider FBA as an extension of their warehouse. Instead, it’s best to think of it as a hybrid between short-term storage and the last mile of delivery. Average warehouse rates for pallet storage vary, but recent surveys place averages at around .45 per cubic foot and less when storing by pallet[1]. The bottom line: Amazon fulfillment storage rates are high but worth the tradeoff to receive favorable ship-to-customer fulfillment rates and gain access to 200 million Amazon Prime customers; however, sellers need to take care to minimize additional charges.
October-December fees
What is it? As mentioned above, sellers pay a premium for storage during the fourth quarter holiday season, roughly 3X the typical fee.
How to avoid it? Sellers can’t prevent the Q4 surcharge. However, it is crucial to closely monitor SKU performance during this high-volume time of year and take necessary measures if you have underperforming SKUs.
Unplanned service fees
What is it? Sending products to the fulfillment centers prepped incorrectly or not Amazon compliant can be a costly mistake. Unplanned prep fees can range from $.20 for missing labels to $1.00 for failing to bubble wrap items that require such prep. Additionally, non-compliant shipments can cause account health issues and interfere with your ability to send in shipments.
Two mistakes we see frequently are oversized boxes and either missing or multiple barcodes on a product. The oversized box issue usually occurs because somewhere in the supply chain, a supplier changed the outer carton/colli, and the supplier didn’t convey that information to those involved in the fulfillment process. Oversized cartons incur a $25 per box fee and can trip an inbound performance metric, get enough of those, and Amazon will suspend your shipping privileges. The second item: multiple or missing barcodes, occurs when a warehouse isn’t aware a SKU is being sent with an FNSKU required – i.e., non-commingled inventory. We’ve also seen 3PLs apply the FNSKU label but forget to place it over the manufacturer’s barcode.
How to avoid unexpected prep fees: The Seller central shipment plan workflow is pretty good about “calling out” items that require prep. Sellers need to realize, however, that they are ultimately responsible for understanding the various routing requirements. We recommend two “guardrails” to help avoid these fees and inbound performance issues.
The employees on the line are your last line of defense for outbound shipments. Make sure new shippers are trained and familiar with all the Amazon routing requirements associated with your product. During the training, stress the difference between a manufacturer barcode and an FNSKU – drill home the one product, one scannable barcode issue.
Ensure everyone in the supply chain knows that outer cartons shipped to Amazon cannot exceed 25″ and that such a change will require repackaging case packs. We recommend something as simple as yardsticks at every shipping station to provide a firewall in avoiding oversized carton charges and inbound performance penalties. Shippers should check anything outbound that looks close to exceeding that dimension. Additionally, we suggest running the inbound performance report weekly; this will help you identify issues and prevent you from repeating the same mistake on a given SKU.
Although many prep issues can arise, addressing these two and familiarizing your frontline warehouse workers with the relevant routing guides and materials will go a long way in preventing additional fees and unnecessary account health headaches.
Mismeasurement
What is it? Although not an Amazon fee per se, we frequently see variations received by Amazon measured differently. You should have a process to confirm that Amazon measures your product accurately and that the same measurement is applied across variations.
If you discover mismeasured SKUs, you can open up to 20 remeasurement requests a month via Seller Central Support. If Amazon determines the product was mismeasured, they will issue a reimbursement; most importantly, you’ll be charged the correct FBA fulfillment fee moving forward.
Returns
Although category specific, e-commerce business return rates are pretty high. Across accounts, the Kaidako team sees a range from 5-15%, and generally, about 1/3rd of that will be returned unsellable. Use the Voice of the Customer reports in Seller Central to review NCX rates and take corrective actions.
In conclusion, FBA has changed over time, necessitating understanding all the factors that will increase costs associated with the program. Although sellers have limited control over some expenses, sellers can take steps to mitigate these costs. Take the time to educate yourself and your team and develop systems to identify and rectify issues as they arise.
Do you feel you should be achieving a higher level of success on the platform or want to get some honest insight? It’s always free to contact us for a listing or account discussion. Kaidako’s team has over a century of e-commerce experience. We are experts at bringing clarity and calm to what may seem like a calamitous marketplace. Discover why our client retention rate is 100%.
About the author: Stu Eisenman is CEO and a Co-founder of Kaidako, an Amazon-centric agency helping brands and manufacturers realize the full potential of direct-to-consumer sales on Amazon. A self-described OG retailer, he has decades of retail and e-commerce success. Kaidako’s team has sold nearly a billion dollars worth of products on the Amazon marketplace, either as a third-party seller or on behalf of clients.
[1] https://www.warehousingandfulfillment.com/resources/pallet-storage-and-pricing/
