In case you missed it, Amazon is increasing FBA fees for 2017 in nearly all areas of billable fees, including shipping and storage fees.
It’s no surprise that Amazon is raising fees but the amount is more than inflationary – most fees are going up 10%+ and some are going up 50%+. Whenever a company announces fee increases they always like to paint their increases in the most rosy manner possible to hide the true extent of the increases. In this article I’m going to give an objective no-B.S. viewpoint of how much Amazon fees are being raised by and how it affects you.
Major Structural Changes
There’s several structural changes Amazon is making to how it bills us for FBA fees. These major changes include:
- No more pick and pack fee and order fee – everything is one fee
- Holiday peak rates now start from October as opposed to November
- Amazon will be asking you to ship to more destinations – if you choose to ship to 2 or fewer destinations you will be charged a placement fee
Who’s Getting Screwed and Who’s Not?
The crux of who is getting screwed is anyone storing inventory at Amazon, especially during the holiday season, and media sellers. Here’s a summary of who’s going to see the biggest changes. I’ll break down the fee breakdowns for each of these categories in more detail below.
Major Fee Increases:
- Sellers previously in the ‘media’ category (fee increases of 54-97%+)
- Everyone storing inventory at FBA. Storage fees are 370% higher during holiday seasons and Amazon has coyly added an extra month to the holiday season
- Everything else remaining equal, a person storing standard size items will pay 29% more in storage fees in 2017
- Oversize items which aren’t exceptionally heavy (i.e. oversize items weighing 5 lbs will see fee increases of 10-14%)
- Anyone who uses Amazon FBA as their only storage location and can’t keep inventory in another location
Minimal Fee Increases:
- Large Oversize and Special Oversize (Fee increases of approximately 2-4%)
- Standard Size Media (Fee decreases of 1-6% for items under 1 lb and fee increases of 4% for larger items)
Fee Increases – Standard Size (NOT-Oversize) Items
Fulfillment fees for standard size items are actually not increasing by much (and in some cases, they are decreasing). However, for media products they are increasing A LOT.
- Media and Non-Media items are now grouped together
- Items that were previously considered ‘media’ will see fee increases 54-82%. Non-media items have negligible increases
Fee Increases – Oversize Items
The fee increases for oversized items are a little more complicated. Amazon has increased the base ‘per item’ fee but not increased the weight surcharge at all. This means lighter oversized items will see bigger increases than heavier oversize items (at least on a proportional basis). Here’s a summary of the changes and how it will affect a 5 lbs oversized item.
- Oversize items that are not especially heavy (i.e. 5 lbs packages) will see a 10-14% fee increase
- Oversize items that are very heavy will see minimal fee increases
Storage fees are where the biggest fee increases are occurring, which doesn’t come as a surprise given Amazon’s serious dire straights lately in terms of not having sufficient capacity. Here’s a summary of the major changes:
- Amazon has coyly added an extra month to the Holiday Peak Season (now it lasts from October to December instead of November to December) which will affect everyone enormously
- Everything else remaining equal, a person storing standard size items will pay 29% more in 2017
- Everything else remaining equal, a person storing oversize items will pay 10% more in 2017
Where the storage fee increases really sneak in is with the addition of an additional ‘peak month’ into the storage fees. All other things equal, your storage fees will increase 29% in 2017 with the addition of the extra storage fees incurred in October along with the other increases. Consider the example below where a seller uses a consistent 10 CBM of storage each month.
How Will This Affect You?
Some people will argue that these fee increases won’t really affect anyone. The fee increases affect everyone equally and therefore prices will rise accordingly. There’s three problems with this argument:
- Amazon is not a completely efficient market – many sellers will not be aware of the true extent of these fee increases and not raise prices accordingly
- Brick and mortar retail sales are not affected making buying off of Amazon comparably cheaper
- Companies with other storage solutions can offset the storage increases by storing less inventory at Amazon and thereby reducing their costs
In my opinion, prices will definitely rise slightly but not enough to offset the fee increases. Therefore, everyone’s profitability will likely decrease slightly.
What Can You Do?
- Figure out the true fee increase to you and adjust your profitability estimates appropriately
- Keep less inventory at Amazon, especially during the peak season (October to December)
The first thing you need to do is give a true and honest estimate of how much your FBA fees are increasing and determine the true impact to your business’ profitability. It is so common for businesses to encounter expense creep – expenses creep up very gradually each year in many different areas and over time these gradual increases have dire affects on profitability if prices aren’t raised appropriately. This is a good time to review your prices and consider increasing them if you haven’t recently.
The second thing you should do is store less inventory at Amazon. If you don’t have your own warehouse or 3PL now is the time to start looking. It’s possible to find 3PLs who charge $20 or less per pallet storage which is much less expensive than Amazon. Especially during Amazon’s peak season, this will save you a lot of money.
The end of the year often brings announced fee increases from vendors, and Amazon is clearly no exception. Since FBA’s inception Amazon has (in my opinion) been subsidizing sellers to encourage the growth of the platform. Fee increases were inevitable. Thankfully, the extent of the fee increases were not as significant as they could have been. However, I wouldn’t be surprised if this time next year the increases are more significant.
How will Amazon’s fee increases affect your business? Will it be dramatic? Or will it barely affect you? Share your thoughts in the comments section below.