You always want your Amazon FBA business to remain competitive, not just for your own sake, but so you can effectively sell your business if there comes a time for you to consider that. Intelligent FBA business owners know that they must keep an eye on all metrics within their own business, including those assessed by Amazon to remain competitive.
It can be difficult to stay a leader in the market with rising Amazon FBA fees. When these changes are implemented, this alters the typically low barrier to entry to sell on Amazon. One of the easiest ways to remain competitive despite the various costs in your business, including Amazon FBA fees, is to use location to your advantage.
A seller can be located anywhere across the country to use Amazon FBA and if you don’t have overhead, a warehouse or employees, the Amazon FBA fees don’t seem like a big deal. Advanced technology and warehouse management systems have also popped up in recent years to help sellers accomplish their goals more effectively. Investing in the right technology is also important.
Regularly reviewing opportunities to cut down on cost while still maintaining positive relationships with suppliers and your product base is extremely important. Another tool that you can leverage is your own website. While most of your business is managed through Amazon FBA because this is a simpler and more streamlined approach, having your own website to try out different ideas and establish yourself as a leader in the field with search engine optimization is strongly recommended.
Any Amazon merchant knows that selling on Amazon comes with various fees to manage. To maximize profits, those fees need to be factored into the cost of doing business on the popular platform.
There are strategies for coping with fee increases on Amazon, and tools that sellers can use to maintain their profitability, even as fees go up.
First, consider how Amazon has set up its fee structure. Individual and Professional sellers are offered different plans, and the fees are structured differently for each. That includes:
There is also Amazon’s inbound placement fee, rolled out on March 1, 2024 for Fulfillment By Amazon inventory to cover the cost of splitting and sending inbound inventory to multiple locations to ensure fast deliveries. It works out to $0.21–$0.68 per item fee for standard items, and $2.16–$6 fee for large bulky or extra-large ones.
This new fee angered many sellers and has proven controversial.
Sellers previously tried to respond by figuring out ways to create multiple inbound shipping plans automatically. That enables them to compare the costs and fees and select the option with the lowest price tag for them. However, that option ended on April 15 when Amazon began charging an additional “abandoned shipment” fee, meaning a fee applied to any shipping plan approved by the seller, then not used. For FBA, keeping costs low while absorbing those new fees hasn’t been easy. So, where does this leave them? Looking for ways to minimize their inbound placement fees.
Since the fees got implemented, sellers have found that certain tools, including Amazon’s internal marketing devices and wholesale sourcing to optimize sales, which offsets the cost of the new fees. Essentially, this is about adapting their business strategy to improve sales as a means of maintaining a competitive edge now that the fees are unavoidable.
The high competitiveness of the Amazon FBA space is a key reason why some Amazon sellers ultimately decide to sell their business, particularly if they’re concerned that other Amazon sellers in their vertical might capitalize on the same opportunities they’re using to offset those fees. It’s a challenge faced by all Amazon sellers.
Fulfillment By Amazon is a great option for a lot of Amazon merchants. It eliminates the need to worry about storage, shipping, or customer service, and it’s a service that is available anywhere at any time, and totally reliable.
The one thing that FBA is not, is free. Before any merchant signs up for FBA, it’s important to understand the fee structure for this service. Still, most merchants recognize the long-term benefit of using FBA and are not deterred by the cost involved.
The types of Amazon FBA costs include fees for:
If you’re new to Amazon or now considering setting up a shop on the platform, you may be looking at that list and wondering, why sell through Amazon FBA? The many benefits of using this service typically convince businesses that it’s worth it.
The bang for your buck at FBA includes the fact that customers know Amazon makes fast shipments and trust the site. Amazon has a reputation for Super-Fast Shipping, and a 2-day delivery is what customers have come to expect. If you’re an Amazon merchant and you’re taking longer than that, it can hurt your sales and reputation.
Besides, if your competitors are taking advantage of that expedited shipping, it could be a mistake in judgment not to do the same.
Using FBA also means you don’t have to manage a warehouse or 3PL, hire customer service representatives or a shipping team, and can assign those duties to FBA instead as a one-stop shop. That can definitely help offset some of the FBA fees.
Amazon unveiled its FBA fee increases in 2023, raising them by 20% to 30% across multiple categories, which tightened the profit margins for third-party sellers. The reason for the fee increases is that Amazon incurred significant financial losses in 2022 totaling $2.7 billion. The new FBA fees and hikes were introduced in 2023 to help balance the books, and to enable Amazon to cut costs related to fulfillment, storage, and shipping. That meant third-party sellers would be picking up much of the tab for Amazon’s anticipated recovery through incrementally higher fees.
As part of that, pricing for dimensional weight (DIM weight), which covers size and weight for shipping costs, got expanded to include apparel items, giving a higher priority to dimensional size in calculating FBA fees.
Additional fee hikes included:
This has forced third-party sellers to look for creative ways to reduce the impact of these fee hikes on their shop.
Experts say one way to mitigate the impact is by keeping your inventory levels low. Only send products that sell quickly to FBA warehouses, and regularly monitor your Inventory Performance Index (IPI) score to track your inventory performance and levels. That way you’re less likely to be overstocked on products that sell at a slower pace.
FBA storage fees can be reduced by avoiding overstocking SKUs, monitoring your inventory levels regularly, and maintaining just enough inventory to last about 60–90 days.
You can also take advantage of Amazon’s Removal Order service to remove slow-moving products from Amazon’s fulfillment centers before having to pay surcharges for these aged inventory products.
If you do have slow selling products, focus your advertising on them to get them sold.
While no business owners like absorbing the cost of new fees, there are ways to avoid incurring some of these new FBA charges.
It’s important to consider your options, because doing nothing isn’t an option. A lot of your competitors are already looking for and implementing ways to mitigate the new fees, and you should too.
Start by analyzing your sales data and use it to adjust your inventory. Identify the products that are among your top sellers, and which ones have the lowest sales. To avoid maintaining inventory of the slow sale items, maximize the ones that clearly increase sales and boost profit margins. This also prevents you from having too many slow-seller units in inventory, since they incur those new storage fees implemented for FBA in 2023.
Since Amazon charges FBA fees based on the dimensional weight pricing (DIM) of the product, it’s important for sellers to understand how that can impact your profit margins and find ways to lessen the effect of DIM pricing on your shop.
Consider using lightweight materials and streamlined packaging, and opt into Amazon’s Small and Light program to help achieve that goal.
Another option is to optimize your product pricing. Research the optimal price point for your products by looking at factors such as competition, demand, and the cost of goods. If your products are priced competitively, that’s likely to boost sales and help offset the hikes in fulfillment fees. Some sellers haven’t examined their pricing in years – and should! Analyzing and reassessing your product pricing is always crucial.
Finally, sellers can consider using Fulfilled by Merchant (FBM) rather than Fulfillment By Amazon (FBA) since it’s less expensive. Sellers using FBM are responsible for storing and shipping their own products rather than using Amazon’s fulfillment network. This may be more labor-intensive for your team, but if you have the workers available, there are significant savings possible on storage and fulfillment fees.
Another way that Amazon sellers can figure out coping methods for rising fees is to learn how to manage inventory efficiently. That can be critical for any business, but smart inventory management can help reduce the impact of new Amazon fees, while also boosting your profits.
Inventory management is an umbrella term that encompasses all the procedures for ordering, receiving, storing, tracking and accounting for the products your company sells. Inventory management is a bit different from Supply Chain Management, which covers how products are manufactured for you through sourcing to the final distribution.
What are some ways to improve your inventory management system?
The technology behind inventory management is getting more sophisticated by the day and can now report on inventory status and automatically generate replenishment orders. Today a simple cloud dashboard can provide a wealth of benefits to how your inventory is stocked and shipped. AI today is a way to drive cost savings and productivity.
A diverse product range can help an Amazon merchant attract new customers, boost upsells and increase their Repeat Customer Rate. It also makes it easier for you to weather any downturns that might occur around your original SKUs. More variety and choice has traditionally been a smart way to boost revenue.
Besides, it can be risky to concentrate your revenue on one vertical, unless you’re entirely certain there will continue to be high demand for those products.
Multiple products means multiple revenue streams and far more sustained success in the long run.
So, what are the best practices for Amazon sellers looking to diversify their product catalog?
They include:
There are huge benefits to having a diverse selection in your Amazon store. At the very least, you get improved visibility on Amazon’s platform with product diversification, and it can be a great way to get ahead of the competition. You can also stay on top of changing market trends with new products, opening yourself up to enhanced growth opportunities.
Amazon has several tools to help you do this. The Amazon Best Sellers list and Amazon’s Trend report enables you to quickly identify popular products and trends in specific categories, so you know which products are likely to sell.
You can also use your social media platforms to engage with customers and get a sense of what products they would like you to offer. The customer feedback you receive on prospective products lets you understand what buyers want and need.
Another strong tool to help your brand grow is Amazon Ads, which have a track record for a PPC conversion rate of 9.89%. Amazon PPC can help you connect with vast audiences on the platform, but those ads can also help you connect with the right audience. So, how can you best leverage Amazon Ads most effectively to improve your ROAS?
Amazon Ads, also known as Amazon PPC, enables brands to place their products where potential buyers are most likely to find them. As a merchant on Amazon, you can take advantage of three main ad categories, which include:
This is all about strategic targeting for a stronger Return on Advertising Spend (ROAS), which remains a key metric in eCommerce, measuring how much you earn from every dollar spent on advertising. This lets you determine the effectiveness of your ad campaigns and adjust accordingly.
To leverage Amazon Ads to get better ROAS, try:
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