Fulfillment by Amazon (FBA) is a service that allows third-party sellers to leverage Amazon’s well-established, extensive warehouse and distribution network to store, handle, package and ship their goods to customers. It oversees all the seller’s logistical needs for a fee, allowing them to focus on product development, marketing and other core business operations.
An Amazon FBA fees breakdown includes visible and hidden costs. Amazon states the visible fees, such as fulfillment, referral and storage fees, in the fee structure. In contrast, hidden FBA fees are unexpected or overlooked costs. Recognizing these expenses and knowing how to keep them low or use alternative services is essential for maximizing your business’s earning potential.
Amazon FBA Hidden Costs Explained
As an Amazon third-party seller, your profits are critical in facilitating growth and financial stability. One of the ways to safeguard your earnings is to know the hidden costs of Amazon FBA. They include:
Long-Term Storage Fees
While FBA charges a short-term monthly storage fee on your inventory, it also imposes a long-term storage fee on the goods you store in the Amazon warehouse for over 12 months. These costs can accumulate fast, especially with slow-moving stock.
Shipping Inventory Costs
Besides weight, the cost of shipping your goods to an Amazon warehouse depends on the location and shipping method. You’ll spend more if you initially ship your products to multiple warehouses. Costs also vary if you’re using an independent logistics provider or an Amazon partner carrier. Your shipping expenses may also unexpectedly increase due to rounding up.
Peak Season Fulfillment Fees
The FBA fulfillment fee rises during peak seasons, meaning you must keep track of these costs and price your products accordingly to boost your earning potential. An FBA fulfillment fees breakdown also varies based on the tier size and whether the product is a dangerous good. For instance, batteries and flammable products are dangerous goods that require special handling and attract different fulfillment fees.
Labeling, Prepping and Packaging Costs
Amazon charges unplanned service fees for merchandise that fails to meet the FBA label, prep and packaging requirements. For instance, missing labels and bubble wrap packaging will attract a fee per unit.
Returns Processing Fees
For products eligible for free returns, Amazon will charge FBA sellers a return processing fee equal to the original fulfillment cost. That means if you spent $4 to fulfill an order, you’ll spend another $4 to facilitate returns processing. Additional losses can also arise from damaged returns.
While Amazon’s refund or replacement policy addresses the issue of damaged goods, some cases may slip through the cracks, leaving you without a refund. Such scenarios may force you to hire a service provider to follow up on the reimbursement claim. The refund policy also applies to goods that go missing during returns.
Low Inventory or Overstocking Costs
FBA inventory costs will affect your margins when you understock or overstock. Your goods attract a low inventory fee if they fall below a one-month supply. In contrast, Amazon implements an inventory storage overage fee for goods exceeding the assigned storage capacity limit. These fees add up daily and could accumulate quickly. High inventory volumes also attract an extra monthly listing charge per qualifying item.
Disposal or Removal Fees
Amazon charges a cost to return unsold products from its fulfillment centers or to dispose of them. These costs generally arise when the goods stop attracting sales or when you need to avoid long-term storage fees.
Refund Administration Charges
Amazon refunds the referral fee for customer returns minus an administration fee. If you were unprepared for product returns, this cost may come as a surprise and will impact your earnings.
Tips for Managing FBA Costs and Alternatives to Amazon
Out of the frequent FBA cost changes Amazon implements annually, many are typically fee increases. These rising fees, on top of hidden costs, mean you must manage your expenses closely to protect your profit margins. Below are the strategies you can adopt.
1. Optimizing Inventory for FBA
Automate inventory management with a monitoring tool to prevent understocking, overstocking and long-term storage fees. This tool can help you maintain optimal stock levels at all times.
2. Using Amazon’s Fee Calculators to Estimate Costs
Use Amazon’s tools to calculate the estimated fee per unit sold and revenue. Amazon also has a feature that allows you to preview your FBA inventory costs.
3. Auditing and Adjusting Product Listings Regularly
Frequently audit your inventory and discount or remove slow-moving products. This practice frees up storage space for fast-selling goods while keeping costs low.
4. Staying up to Date With Amazon’s Fee Structure Changes
Keep track of FBA fee changes to avoid unexpected costs by subscribing to the Amazon seller newsletter and checking Amazon Seller Central often.
5. Embracing a Proactive FBA Strategy
Plan ahead for seasonal fee fluctuations by accounting for cost increases in your product pricing. Also, monitor upcoming trends and regularly analyze your sales strategies and fulfillment processes to eliminate cost surprises.
6. Optimizing Product Packaging
FBA’s fulfillment costs vary based on the size tier. Optimizing your packaging can reduce the weight and dimensions, saving you considerable fulfillment costs.
7. Bundling Complimentary Products
Selling complementary or similar products as a bundle enables you to pay fulfillment fees for one unit rather than multiple products, saving you money.
8. Selling Overstock on Amazon Outlet
Move low-demand goods or overstock fast using Amazon Outlet, a feature that offers buyers discounts.
9. Shipping Inventory to a Single Amazon Location
Ship your products to a single Amazon fulfillment center first and gradually distribute to other locations as needed.
10. Improving Product Descriptions
Write clear and detailed product descriptions to avoid customer returns and the associated costs.
11. Monitoring Reimbursements
Closely track Amazon reimbursements to get all your refunds.
12. Using Amazon’s Advertising Tools
Increase sales with Amazon pay-per-click (PPC) ads to eliminate long-term storage costs. Determine the amount you can afford to spend per click to optimize your ad spending.
13. Launching Clearance Sales
Run discounted clearance sales for old inventory to avoid long-term storage fees.
14. Leveraging Third-Party Logistics (3PL) Services
Use a 3PL company like Crown LSP Group as a cost-effective alternative to FBA. We will handle all your logistics needs without the hidden FBA fees.
Avoid Amazon Hidden FBA Fees With 3PL Solutions
While FBA streamlines inventory management and order fulfillment for sellers, it typically includes hidden costs that can affect profitability. With Crown LSP Group, you’ll enjoy transparent, hassle-free logistics solutions that ensure timely order fulfillment. We oversee storage, handling, order fulfillment and transportation to support your Amazon selling needs.
We’re a family-owned company in North Carolina serving businesses since 1987 and shipping goods throughout the nation. We provide cost-effective storage and customized solutions to maximize your earning potential. Our team also offers responsive and reliable customer service, supporting you every step of the way.
Partnering with us provides you with:
- Inventory management: Our experts track and restock your inventory as needed. Using Radio-frequency identification (RFID) technology, you can track where your goods are in the supply chain. We also fulfill orders, including packing and processing returns, and provide forecasting tools to help prepare for upcoming trends.
- Customized services: We tailor our services to your needs. Our team will learn about your goals and personalize logistic solutions that best fit your business and industry.
- Warehousing solutions: Our long-term and short-term warehousing solutions are ideal for different storage needs. If you need a temperature-controlled environment, count on Crown LSP Group to meet your expectations.
- Goods transportation: We’ll get your packages to customers on time anywhere in the United States. Our team accommodates night transportation, giving you the flexibility to shorten shipping periods.
Partner With a Reliable Distribution Solutions Company
At Crown LSP Group, we care about simplifying logistics for Amazon sellers. Contact us online today to request a quote. You can also reach out to our friendly customer support team if you have questions.
