Every year, Amazon raises storage fees for the holiday season to reflect the higher demand for warehousing during Q4. This means you pay a premium to house your inventory with FBA during the Halloween to New Year period. This year, these holiday fees have skyrocketed higher than they’ve ever been.
What does this storage fee increase mean for sellers? How can you offset these fees and boost your margins during the holiday season?
Basic storage fees
These holiday increases come on top of Amazon’s overall 2018 adjusted fees. It’s important to understand what the basic FBA fees look like to see where this year’s cost increases are coming in.
Last year, Amazon announced a few new changes to FBA inventory fees:
Monthly inventory storage fees increased by $0.05 per cubic foot for standard-size and oversize items (April)
Long-term storage fees were adjusted based on size and assessment date (September)
There is a minimum charge of $0.50 per unit per month for items in inventory for 365 days or more
Sellers are already seeing increases in their FBA storage. Now that Q4 is raising these even higher, it might be pushing some smaller and newer businesses out of the ranks.
Another implemented policy comes with the Inventory Performance Index. Any sellers with an Inventory Performance Index below 350 might have limits on how much they can store and use FBA. Those sellers with an IPI greater than 350 have access to unlimited storage. For those under 350, though, they can be charged an overage fee of $10 per cubic foot per month based on excess storage space.
This means sellers who consistently show top-notch operations processes will be rewarded over those with ineffective logistics. These numbers are re-evaluated every three months to ensure the strongest businesses are getting the most space.
Holiday storage fees
Amazon holiday storage fees are basically increased storage fees to accommodate the influx of sellers trying to get their goods in FBA warehouses.
The holiday season (and the related storage fee increase) takes place October 1 to December 31. That means we are already in the thick of it. It also means it’s time to get your goods to FBA if you plan to use them.
This season, monthly inventory standard-size storage fees increase by $1.71 and oversize fees by $0.72.
|January – September||$0.69 per cubic foot||$0.48 per cubic foot|
|October – December||$2.40 per cubic foot||$1.20 per cubic foot|
Long-term storage fees remain the same regardless of the holiday season because long-term is usually more than one season. But if you’re interested in long-term storage for overflow of inventory, the monthly cost for items in fulfillment centers for 181-365 days is $3.25 per cubic foot and those for more than 365 days is $6.90 per cubic foot.
You can learn more about Amazon’s storage fee system here.
Amazon’s goal with raising inventory fees for the holiday season is threefold:
· To discourage short-term sellers who only sell on Amazon for the holiday season
· To make more money by optimizing on demand
· To prevent overpopulated warehouses and ensure the most efficient inventory process (in order to deliver top-notch service to customers)
This means they’re trying to keep only the top sellers who have a history of selling with FBA. If you haven’t previously sold with FBA, it might be more challenging for you to get a spot in a warehouse this season.
How to optimize margins with fees
Whether you’re using FBA or another service, you want to figure out how to best optimize your processes for the greatest margins during the holiday season.
What are some ways you can focus on boosting your margins and streamlining your business to profit from the holiday rush?
1. Sell the right products.
When choosing the products to focus on for the holiday season, you want to consider trends, target audience, as well as the product itself. Is the product light and small, which makes it cheaper to ship and store? Or is it large and heavy, which means it takes up more room and costs more on the backend? Keep in mind how the products you sell will impact all of your operational costs.
2. Choose the right logistics process.
Shop around to make sure that working with FBA is the right solution for you and your products. Some smaller warehousing companies offer cheaper storage, especially for particular types of products. If you don’t want to pay Amazon’s hefty fees and fight for warehousing space, you can look into third-party inventory just for the holiday season.
Keep in mind that this won’t allow you to utilize FBA’s labeling, picking, packing, or shipping services, so you might want to work with the third party warehouse to see if they offer similar services.
Still, keep in mind that FBA is the most reliable for Amazon. It will also ensure your seller account remains in good standing, which has an impact on your ability to win the Buy Box and get those critical holiday sales.
It’s hard to keep up with the influx of orders during the holiday season. A lot can slip by unnoticed until it’s too late. Automating your inventory management with a system like Skubana allows you to take a hands-off approach to logistics, so you can focus on marketing, selling, and customer service.
How much your goods cost is the biggest factor in your margins. Some sellers will raise their prices during the holiday season to offset the increased storage and shipping costs. However, this can also make you less competitive if others are selling similar products for less.
So, make sure you do a competitive analysis and use repricing software to find the best price that will maintain margins for the holiday season. Repricing software works well because it will continuously monitor your price, your competitors’ prices, and your margins to ensure you are headed on the right track.
5. Get products in early.
Whether you’ve decided to use FBA or a third party, get your inventory in fast. The earlier you get your products to the warehouse, the more likely they’ll have space for you. It’s not uncommon for Amazon to start turning away even top FBA sellers because warehouses are too full by the time the products arrive.
If you’re still struggling to order your products, contact Seller’s Choice now. We can help you find the right production partners fast.
6. Maintain seller metrics.
In order to be successful as an FBA seller, you need to maintain certain metrics that prove you’re a credible and reliable business. Amazon will measure you based on how quickly and effectively you deliver service.
Target performance metrics include:
Order defect rate: <1%
Pre-fulfillment cancel rate: <2.5%
Late shipment rate: <4%
If you don’t meet these minimum metrics, you could lose your selling privileges altogether and get kicked from FBA.
Maintaining other seller metrics—like 95% of your shipments have valid tracking numbers—also boosts your rank in Amazon’s eyes. The greater your seller ranking, the better Amazon FBA will treat you during the holiday season.
The holiday season is already here, so it’s time to get your inventory prepped and ready. Consider how an increase in storage fees will impact your margins, and take necessary steps to ensure your net take home is strong enough to push your business forward into next year.
How do you offset Amazon’s storage fees? Let us know in the comments below.