Gradually rising costs should factor into any business plan, but Amazon’s recent announcements regarding fee increases are putting quite a lot of pressure on their sellers. The fees were already fairly high to begin with, but some of them will more than double in 2022 – meaning many sellers may have to rethink their product strategies.
When it comes to figuring out how fees affect profit margins, Amazon already makes their sellers put in plenty of leg-work. Some sellers use services like Shopkeeper to stay on top of all the relevant data, while others do it themselves and try to keep up with all the changes. Given how many details there are for sellers to figure out, though, it pays to get started on it as soon as possible.
The first thing you need to know is how each fee category will be changing. The fee increases are anything but uniform, so each seller will be affected differently. After you’ve gotten the overview, a good next step would be to start doing the math and developing a new strategy if that’s necessary. As long as you aren’t simply waiting passively for the changes to go into effect, you’re on the right track.
Now it’s time to get into the details. How will Amazon be changing its fees in 2022 – and how will that affect you?
Aged Inventory Surcharge
This discussion usually revolves around fee increases, but there’s also an entirely new fee to consider: the one you’ll pay to store units that have been in an FBA (Fulfillment by Amazon) between 271 and 365 days. In addition to what sellers already pay in storage fees, this fee will cost an extra $1.50/cubic foot. It’ll take effect mid-May 2022, and the new fee will apply to units in storage that already meet the parameters for “aged inventory”.
What about stock that’s been in storage for longer than 365 days? Well, there was already a fee for that, and there hasn’t been any increase announced: it’s either $0.15/unit, or $6.90/cubic foot (whichever is greater).
This new fee effectively forces sellers to focus on fast-moving items. Unfortunately, it also discourages them from experimenting with new products in their stores, since there’ll be a greater cost if the product doesn’t end up selling as well as expected. Some sellers use FBAs for their more popular items, and send the rest of their inventory to other fulfillment centers. That way they can still be eligible for Amazon Prime, while still offering a wide variety of products in their Amazon stores.
FBA Fulfillment Fees
On paper, some of the increases here look pretty trivial; for the smaller packages it could amount to just a few cents. A more accurate way of looking at them, though, is to check the percentage increase in each category. The increases range from 2% to 12%, and a lot of them could seriously eat into an already narrow profit margin.
For example, say you’re selling an item for $10 on Amazon. Your gross margin is 20%, but then the fulfillment fee increase of 8% for Small Standard packages comes along and knocks 10% off your profits. Multiply that by however many units you’re selling, and it won’t feel good at all.
There’s plenty of variation in fee increases between the categories, but for most of them it’s the same story. Products that already offered skimpy profit margins might not even be worth selling anymore after the fee increases go into effect, and the more profitable items will be affected as well.
These new fees could lead to sellers restructuring their offerings on Amazon, especially in the categories with the biggest price hikes. Every business will have a certain minimum profit margin that they consider acceptable, so it could be a question of discontinuing certain products, or simply resigning themselves to lower profitability for select items.
Referral Fees
Looking at Amazon’s seller fees for 2022, this is the only bright spot. Not only are most referral fees staying the same, but they’re actually decreasing in some cases. Snow throwers and lawnmowers will have reduced referral fees, and items with total sales prices above $500 will have an 8% referral fee (down from 15%).
FBA Removal and Disposal Fees
Sometimes an item just can’t be sold in its current condition, so it has to leave the FBA one way or another. Amazon charges sellers for removal, in which they ship the item back to the seller, or for disposal, in which they destroy the product themselves. There are nine size tiers, and all but the smallest one has fee increases over 200% (effective January 18th, 2022). For example, the 1.0 to 2.0 lb. category used to cost $0.48 for removal or disposal, but it now costs $1.14. Granted, this won’t apply to every unit in storage – just to the ones that have to be destroyed. Even so, this is one of those fees that can easily mess up an otherwise decent profit margin, and the price hikes certainly don’t help.
FBA Storage Fees
Effective February 1st, 2022, Amazon will start charging more to store inventory at their warehouses. The fees for peak months (October through December) will stay the same: $2.40/cubic foot for standard-size packages, $1.20/cubic foot for oversize packages. For January through September, though, there’ll be a slight increase: $0.83/cubic foot for standard-size packages (up from $0.75/cubic foot), and $0.53/cubic foot for oversize packages (up from $0.48/cubic foot).
What’s the takeaway here?
Amazon will be (or already is) charging more to use their platform as a seller, but the extent to which the changes affect margins will depend on several different factors. You might get lucky with fulfillment fees…or you could end up rethinking which products you’re offering, after realizing that your profitability will take a nose-dive. Whatever the case, try not to let it get to you; if you can manage to roll with the punches, you can still have a successful business no matter what Amazon decides to do next!
