Amazon’s FBA program is a favorite among retailers for a reason. You can let one of the world’s most reliable services handle your shipping and order processing, so you can focus on growing your business. But it does come with a few downsides, including hefty fees for long-term storage.
However, unlike the fees to maintain your account or get your product shipped, this particular set of fees can be circumvented if you play your cards right. I’ll begin by outlining what long-term storage fees are exactly, and then explain the ways you can avoid paying them.
Why are there Long-term Storage Fees?
Amazon implements these fees to make room in their fulfillment centers. It’s important to their business that there is plenty of space for the products that sell most quickly. To encourage sellers to clean out the inventory that doesn’t sell as well, they charge long-term storage fees for any units in the fulfillment center for more than 6 months. These charges are measured twice a year, on February 15 and August 15.
There are two different fee sets:
Units in the fulfillment center for 6-12 months: $11.25 per cubic foot.
Units in the fulfillment center for 12+ months: $22.50 per cubic foot.
How do I know what you units will have fees?
You can calculate your potential fees easily with Amazon’s Inventory Health Report, which will show you a number of units, paired with the fees they will cost you at the next inventory review date. Once you clean up your inventory, the estimated fees go down.
Note: Amazon uses the FIFO (First In, First Out) system to track the inventory.
Your options for avoiding Long-Term Storage fees
If you’ve looked at your Inventory Health Report and found some alarming numbers, don’t panic yet. There are several ways to get the inventory moving faster. The first thing to do is to make sure you are checking this report throughout the year, not just around Amazon’s cleanup dates. Your inventory health report shows you not only which units are at risk of incurring long term storage fees, but also how long your entire inventory has been sitting at the fulfillment center. Throughout the year, check the report, and make sure you take note of any products that have a number of units older than 90 days. This will give you more time to plan ahead, so you’re not overwhelmed come February and August.
An alternative to relying on Amazon’s Inventory Health Report is using a 3rd party inventory management solution, such as RestockPro. A solid inventory management software will give you visibility on your turn rate and profitability, helping you proactively manage your inventory and avoid being surprised by long term storage fees.
If you find you have a number of slow moving products, you’ll need to make a plan on how to move your units. This can be accomplished by a.) using sales tactics to get them sold through Amazon and b.) removing them from the fulfillment center.
Getting aged inventory sold through Amazon
Adjust prices: Often, a slash in prices can get slow inventory moving quickly. Make sure that you are holding the Buy Box for the ASIN, and that your price is comparable (or lower) to any similar products available on Amazon. As long as you don’t need to comply with a MAP (Minimum Advertised Price) policy, you can go as low as you need. Sometimes, this might even mean selling your product at cost. Do the calculations, and decide which will hurt least: reducing your profit margins at time of sale, or paying the storage fees.
Hold promotions: This method can work for many MAP sellers, depending on your agreement. Take a look at Advertising > Promotions in Seller Central, to set up a promotion and get units moving. For example, you could do a “Buy one, get one free” deal with two of your slower-moving ASINs. Lightning Deals may also be available for some of your slow moving products.
Consider Sponsored Products: Even if your product comes at a great price, it won’t sell if no one can find it. Sponsored Products is a PPC (pay-per-click) ad platform available through Seller Central, using it can help get your products visible at the top of the Amazon search page. It’s particularly useful if you’re selling a newer product that hasn’t yet gained search traction, and is coming up on the 6 month deadline.
Multi-channel fulfillment: A last option for selling through Amazon is to use their multi-channel fulfillment program. This means you can sell your units on other e-commerce sites, and Amazon will still pack and ship the units for you using the inventory you have stored at their fulfillment centers. They don’t charge a referral fee, and the pack and ship costs are comparable to other 3P fulfillment services.
Removing aged inventory
Trying some of the above ideas should help you out, but you may still have inventory at risk for fees. It’s then that you should considering getting that inventory shipped back to you. This might soundly costly, but it’s often cheaper than keeping it stored with Amazon. Here’s the breakdown of return charges:
Standard size units: $0.50 per unit
Oversize units: $0.60 per unit.
Note: It takes Amazon 2-4 weeks to ship the inventory back to you.
What to do with returned inventory
Once you have your inventory back, what’s next? There are several possibilities. You could sell online on eBay or a flash sales site, or on your own website. You could also bundle it and sell it wholesale to a brick and mortar store.
Or, instead of searching for other sales channels, consider negotiating with your supplier. Some will let you swap it out for a different product, or return it for credit. As a couple final resorts, you could liquidate the inventory, or donate it to charity and get the tax write-off. It may take you a little while to figure out what to do with your returned units, but in the meantime, you won’t be racking up more fees from Amazon.
Managing your inventory can seem daunting, but the tips in this article should help you increase your inventory turnover throughout the year, with hopefully few additional adjustments during the bi-annual Amazon inventory cleanup. As you devote a little time to avoiding fees and maximizing your turn rates, you’ll find that you not only save big on cash, but you also give yourself peace of mind.
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