Amazon is the powerhouse in the world of e-commerce. Among its many services for sellers, one of the most crucial is Fulfillment by Amazon (FBA). Though sellers can choose from Fulfilled by Merchant (FBM) or Seller-Fulfilled Prime (SFP), FBA stands out as the most popular and convenient option for them. In this blog, we’ll cover the overview of Amazon fulfilment services and Amazon FBA fees, helping you to understand types, factors and calculations of the cost of selling on Amazon.
Fulfillment by Amazon (FBA) is a one-stop solution for selling products on the giant platform. Amazon FBA sellers let the company store their products in their warehouses (Amazon Fulfillment Centers), pick, pack, ship, and provide customer service for these products. Vendors ship their goods to Amazon’s fulfilment centres; thereafter, Amazon handles all consumer enquiries, returns, and refunds. In addition, the FBA offers eligible customers same-day or next-day shipping and the Prime Badge to products.
How much does Amazon FBA Fee cost?
This section of blog discovers the types of Amazon FBA Fees, factors affecting its cost and how to calculate Amazon FBA Fees. Let’s get started.
Types of charges included in the Amazon FBA Fee:
1. Fulfillment Fees: These cover the costs of Amazon picking your product from storage, packing it, shipping it to the customer, and handling any customer service inquiries related to the order. The fees vary depending on the size, weight, and dimensions of your product.
- Pick & Pack Fees: This covers the cost of selecting your product from storage and prepping it for shipment.
- Shipping Fees: This covers the cost of Amazon shipping your product to the customer (varies based on weight, dimensions, and destination).
- Customer Service Fees: Covers the cost of Amazon handling customer inquiries and returns related to your product
2. Storage Fees: Storage fees cover all the costs for storing your inventory by Amazon. Monthly charges for inventory storage are based on the average daily volume (in cubic feet) of the space your goods take up in Amazon fulfilment centres. When an item is properly wrapped and prepared for shipping, the volume measurement is based on its size.
- Monthly Storage Fees: The base cost of storing your inventory in cubic feet per month.
- Peak Season Storage Fees: Increased storage fees are applied during times of high demand.
- Long-Term Storage Fees: Amazon may increase fees by keeping inventory moving by charging additional fees for items that have been in storage for an extended period (usually exceeding six months). This encourages sellers to manage their inventory effectively.
3. Aged Inventory: One of the significant costs of using Amazon FBA is storage fees. Amazon charges monthly for all items stored in their fulfilment centres for more than 181 days. This cost emphasizes the importance of maintaining sound inventory health to avoid unnecessary charges. Effective inventory management and monitoring can help minimize these fees and improve profitability.
4. Returns Processing Fees: Amazon provides customers with free return shipping on certain orders, and as a seller using FBA, you may incur returns processing fees. These fees are charged when Amazon processes returns from customers. Understanding these charges is essential for accurately calculating your overall costs and adjusting pricing strategies accordingly.
5. Removal, Disposal, and Liquidation Fees: As a seller, you have the option to have Amazon handle your inventory in various ways when it’s no longer needed. There are per-item charges for the removal, disposal, or liquidation of inventory stored in Amazon’s fulfilment centres. This flexibility can be beneficial for managing excess inventory or products nearing expiration, but it’s crucial to consider the associated costs when making decisions about inventory management.
Factors Affecting Amazon FBA Fees:
Listed below are the factors that affect the FBA fees by Amazon:
- Product Size and Weight: This factor directly affects fulfilment and storage fees. Larger and heavier products take up more space in warehouses and cost more to ship, leading to higher fees. Choose lightweight and compact products whenever possible. Consider optimizing packaging to minimize wasted space and reduce dimensional weight.
- Fulfilment fees typically have a base rate that increases per pound for items exceeding a certain weight.
- Dimensional weight (size of the box) is often used alongside actual weight, whichever is higher. A bulky but lightweight product could incur higher fees due to dimensional weight.
- Storage Duration: Inventory stored for extended periods incurs additional long-term storage fees. This incentivizes sellers to keep inventory moving and avoid warehouse congestion. Implement effective inventory management practices to forecast demand and avoid overstocking. Consider offering promotions or discounts to clear out slow-moving inventory before long-term storage fees apply.
- Amazon has a standard storage fee per cubic foot per month.
- During peak seasons (leading up to holidays), storage fees might increase significantly due to higher demand for warehouse space.
- Long-term storage fees may apply after exceeding a specific storage duration (often six months or more).
- Seasonal Factors: Prices, particularly storage fees, can fluctuate based on seasonality. Peak shopping seasons like holidays see increased demand for warehouse space, potentially leading to higher storage fees. Plan inventory levels strategically, keeping higher stock levels closer to peak seasons and reducing inventory during non-peak times.
- Consider using fulfilment centres in different regions to potentially avoid peak season storage fee spikes in specific locations.
- During peak seasons, Amazon might introduce temporary storage fee increases to manage warehouse capacity.
- Fulfilment fees might also be slightly higher due to increased overall order volume.
- Category of Products: Different product categories have varying fee structures that can significantly affect your overall FBA costs.
- Media Category (Books, DVDs, Music, Video Games): In addition to referral fees, closing fees are applied per item sold.
- Apparel: There may be different fulfilment fee structures due to additional services like garment measuring or tagging.
- Hazardous Materials: Due to specific safety regulations, businesses may incur additional storage and handling fees.
- Bulky or Oversized Products May have higher fulfilment fees due to the extra space they occupy in warehouses and on shipping trucks.
- Fragile Products: Might require special packaging materials and handling, potentially leading to slightly higher fulfilment fees.
Process of Calculation of Amazon FBA Fees:
Accurately estimating your FBA fees is crucial for setting profitable prices on Amazon. Here’s a breakdown of the detailed step-by-step process to calculate Amazon FBA fees and profit margins:
1. Gather Product Details: Note down the dimensions (Length, Width, Height), weight, category and selling price of your products.
2. Utilize Fee Calculation Tools: Sellers have the option to either use Amazon’s in-house FBA fee calculator tool or use third-party tools.
- Amazon Seller Central Fee Preview: This free tool allows you to input your product details and receive estimates for fulfilment and storage fees. It’s a great starting point for basic cost estimation.
- Third-Party FBA Fee Calculators: Several online tools like Jungle Scout or SellerApp offer more comprehensive fee estimates. These tools often consider historical data, market fluctuations and competitor analysis to help you determine the cost of selling on Amazon.
3. Consider Additional Fees & Options: additional charges like referral fees (percentage of the selling price) or closing fees (applicable to specific categories) to determine the final cost. Meanwhile, Amazon offers various fulfilment options like FBA Small & Light or Multi-Channel Fulfillment (MCF), whose prices may vary depending on your needs & requirements.
Exploring Alternative Amazon Fulfillment Methods
While Fulfillment by Amazon (FBA) is a popular choice, Amazon allows other methods for sellers. Here’s a closer look at two alternative fulfilment methods for Amazon sellers:
- Fulfilled by Merchant (FBM): This method gives you complete control over the fulfilment process. You store your inventory, package orders upon receiving them, and ship them directly to customers. While offering more control over fulfilment costs, this method requires significant investment in storage space, packaging materials, and shipping services.
- Seller-Fulfilled Prime (SFP): This program allows you to leverage the Prime badge for your products while managing fulfilment yourself. To qualify, you need to meet specific performance metrics related to order fulfilment speed and on-time delivery rates. Established sellers with a proven track record of meeting fast-shipping targets or businesses with a strong fulfilment infrastructure capable of handling SFP requirements can use this option. It also allows sellers to offer Prime benefits without the full FBA commitment.
The best fulfilment method depends on your business size, product type, sales volume, and budget. Consider factors such as resources, sales volume, profit margins, objectives of business, & needs of customers when making your decision.
The Bottom Line
Amazon FBA offers various advantages for sellers, making it a popular choice due to scalability, reduced costs, faster delivery and enhanced customer service. However, sellers should be cautious while choosing the right fulfilment method, whether FBA or alternatives like FBM or SFP, depending on factors such as business size, product type, and customer expectations. Understanding Amazon FBA fees is crucial for sellers looking to leverage the platform’s vast reach and logistical capabilities. By comprehending the various charges involved—from fulfilment and storage to referral and closing fees—sellers can optimize their pricing strategies and operational efficiencies. Ultimately, being well-informed about these fees empowers sellers to make informed decisions that align with their business goals and maximize profitability on Amazon.
