The success of Amazon usually means the success of Amazon sellers… except when they pass the cost of doing business onto their vendors. With Amazon’s newest price increases, third-party sellers are paying extra for using Amazon fulfillment centers, leaving many wondering, “how do you lower Amazon FBA fees?”
To combat overcrowding in their fulfillment center, Amazon began instituting a penalty on a low Inventory Performance Index (IPI) for their third-party sellers, who provide just over half of their sales.
Initiated on July 1, 2018, these penalties affect merchants with an IPI score of less than 350, charging additional storage fees and barring them from sending new stock to supply centers.
This move comes just a few months after they increased the blanket storage fees to 75¢ per cubic foot during the January-September period and to $2.40 during the October-December period. On September 15, they’ll raise long-term storage fees even more: $3.45 per cubic foot per month for items left in storage centers from 181 to 365 days.
This is hard news to hear for third-party sellers using FBA. That’s why we wanted to help reduce your costs by offering some advice. Check our our 3 ways to lower your Amazon FBA fees.
1. Listen to the Inventory Performance Dashboard
Thankfully, Amazon isn’t completely leaving its sellers out in the cold on this one. To coincide with the new IPI penalties, Amazon offers sellers an updated Inventory Performance Dashboard to allow them to monitor their inventory activity and provide suggestions for raising their score.
Source: Amazon Services
With a design similar to credit scores, this colorful dashboard gives you clear visual cues for problematic areas, aimed to give sellers more advanced notice to fix troublesome areas before they grow out of hand. This enables more accurate stock forecasting and facilitates planning ahead.
On top of that, the dashboard offers advice on how to raise your IPI, which, when followed, can spare you some of the penalty costs. The advice comes in three areas:
- Restock Recommendations — When to restock to maintain a healthy in-stock rate.
- Excess Inventory Suggestions — How to reduce storage fees and carrying costs from excess inventory. Here is a quick guide to liquidate excess inventory.
- Stranded Inventory Actions — “Stranded Inventory” can be a vague coding for a variety of problems FBA’s computer has with your listing. The dashboard highlights ways you can rectify these problems to make all of your inventory available for purchase.
Through tighter management, in-part thanks to a more detailed dashboard, you’ll be able to side-step penalties from a low index score.
2. Be Selective About Which Items You Store with Amazon
FBA fees hit some products harder than others. By choosing which products you fulfill through Amazon and which you handle yourself, you can effectively reduce your costs.
For starters, don’t use FBA for anything under $15. Amazon’s fulfillment fees are based on weight, not price, so making up the difference for low-cost items is much harder. In other words, a $1 item and $100 item that weigh the same both cost the same to fulfill. Do the math to calculate the appropriate margins.
By the same logic, you don’t want to store heavy items either to avoid the higher FBA fees on extra weight.
Finally, avoid overly large items. The April pricing increase is by cubic feet, as the September increase will be, so the less room you take up an Amazon warehouse, the less FBA fees you have to pay. Again, the information is all laid out for you, so it’s just a matter of calculating what you can afford.
3. Combo Packs
Last, here’s a neat trick for reducing FBA costs, courtesy of an Amazon seller via Reddit, lroosemusic. Instead of pulling your low-cost items from FBA, package them together and sell them as a single unit.
Selling items in packs, whether multiples of the same product or combo packs (such as a combined plate, bowl, and silverware package), only incurs the fees of one item. It’s a smart way to circumvent extraneous product fees, not to mention it can be a powerful sales tactic.
You’ll have to pack the items, but luckily polybags come cheap so it’s not a big deal.
When debating issues with FBA, it’s always important to check into how much it would cost to ship items yourself. Other fulfillment providers may offer better deals, so do your research before blindly signing up with Amazon. Of course, FBA has plenty of advantages that are worth the money, and often it turns out to be the cheapest option. The important thing is that you do the necessary math beforehand so you know for sure. A lot of your fulfillment answers are in the numbers.
Editor’s Note: This blog post was originally published September 2018 and was updated in January 2020 to reflect more accurate and relevant information.