Amazon’s FBA program is a great resource for third-party sellers. For many, it has been the key to growing its sales. As discussed in Three Steps to Amazon Profitability, there are different fees that need to be tracked for each product to ensure a healthy gross margin. One set of fees in particular is top of mind this time of year: Amazon’s long-term storage fees. In this post I’ll discuss what these fees are and give several options to help you avoid them.
What are Long-Term Storage Fees?
Long-term storage fees come around twice a year and are designed to prompt an inventory cleanup and free up space in Amazon fulfillment centers for faster-moving products. To do that, on February 15 and August 15, long-term storage fees are assessed on any inventory units older than 6 months.
There are two sets of fees, depending on how old your inventory is. For units that, as of the cleanup date, have been in the fulfillment centers from six to twelve months, Amazon charges sellers $11.25 per cubic foot. For units older than 12 months, the charge is $22.50 per cubic foot.
Identifying Long-Term Storage Fees
Amazon provides the Inventory Health Report to help sellers track their inventory age throughout the year. This report can be found at Reports > Fulfillment > Inventory > Inventory Health. This report will show you an estimated number of units and the fees that will be assessed at the next cleanup. This is just an estimate; any sales you have between now and the cleanup will drive that number down. Amazon does use first-in, first-out (FIFO) to track inventory. If all your inventory is older than six months for a particular ASIN, Amazon will exempt one unit of inventory.
How to Avoid Long-Term Storage Fees
The first step is to not wait until February or August to look for your slow-moving inventory. You should be checking the Inventory Health Report throughout the year. In addition to showing the estimated fees, the report includes all products with current inventory and shows the age of every unit. During the year you should be checking this report to find slow-moving products that have a large amount of units older than 90 days. For these slow moving units, put together a plan to increase your sales velocity and make the February and August cleanup more manageable.
[MOD Note: If you go to Inventory > Inventory Dashboard > Inventory AGE you will get the FBA Inventory Age report to show the actual LTS Fees of each item]
There are several tactics that can be used to move stuck inventory throughout the year:
If your inventory is not moving, have a hard look at your pricing. Are you holding the Buy Box? Are you competitive with other similar products? Don’t be afraid to lower your price if needed, and if your products are not part of a Minimum Advertised Price (MAP) policy. Be aware of your margins, but also be aware of the cost of keeping your cash tied up in inventory that is not moving.
This is an often underused option that can work especially well for MAP products. Found under Advertising > Promotions in Seller Central, you can set up a variety of promotions for your products including Money Off and Buy-One-Get-One-Free.
Sponsored Products is a pay-per-click ad campaign tool on the Amazon marketplace. Use this tool to give your products more visibility. It can be especially helpful for newer products and other products not ranking well in search.
Alternate Sales Channels
Take advantage of Amazon’s multi-channel fulfillment (MCF) service and fill orders from other sales channels directly from Amazon’s fulfillment centers. Amazon does not charge a referral fee on these orders. MCF does have its own set of order handling, pick & pack, and weight handling fees, which are likely very comparable to your own shipping costs.
[MOD Note: JoeLister is a great tool for this]
You may have used all of the above tactics and still have some stuck inventory at risk of being charged long-term storage fees. If that’s the case, you’ll want to consider removing the units from the fulfillment centers and having them shipped back to you. Amazon charges $0.50 per unit for standard size and $0.60 per unit for oversize to box up and ship back your inventory. Keep in mind it can take 2-4 weeks to ship.
Once you have your inventory back, what’s next? There are several options:
- Try selling on other channels. eBay, Groupon Goods, flash sale sites or any other outlet available to you.
- Create bundles and multi-packs. Group together similar products or products that customers may want to buy in bulk. This can be a great way to add extra value and beat the competition.
- Return to the supplier. Negotiate with your suppliers an option to return your inventory either for cash, credit or a different product.
- Liquidate your excess inventory. A jobber will pay you less than the cost of your product, but this still may be a better option than having your cash tied up in inventory that doesn’t sell.
- Donate old inventory to charity. From toys to clothing to other goods, there are charities out there who need and want your items. Plus you get to take a tax write-off.
By having a plan to manage slow-moving inventory both throughout the year and at the semi-annual cleanup, you can reduce the stress and costs associated with Amazon’s long-term storage fees. Use a combination of the tactics discussed here as well as some of your own to reduce your fees, maximize your profits and keep your inventory headaches to a minimum.
If you need help with these and more for your business, contact Bob Willey – SellerCoaching.com for coaching, and check out the Annual Coaching program with monthly SKYPE Video chats and unlimited e-mail support for only $2,500, and also has an Initial Interview for only $75