Fulfillment by Amazon (FBA) is a great way to outsource the fulfillment process and scale your business. To help you make informed decisions and maximize your profits, it’s important to understand the costs associated with FBA, including how they differ from Amazon’s standard selling fees.
In this article, you’ll learn:
- The difference between Amazon selling fees and FBA costs
- Strategies to minimize FBA costs
- Common mistakes and how to avoid them
Amazon selling fees and FBA costs
Here’s the distinction between Amazon’s standard selling fees and costs for optional services like FBA:
- Fees: Standard selling fees provide you with access to a package of Amazon tools and programs. They’re divided into two basic types: selling plan fees and referral fees.
- Costs: Costs for optional services refer to expenses you incur for using optional tools and programs like FBA or Amazon Ads.
Ultimately, you get to control the cost of selling in the Amazon store by choosing the programs, tools, and services that work best for your business.
Amazon FBA costs
Amazon FBA costs include fulfillment, storage, and other costs:
- FBA fulfillment costs: Fulfillment costs cover picking, packing, and shipping orders, as well as handling customer service and returns. These costs are based on the product’s weight and dimensions.
- FBA storage costs: Storage costs are charged monthly based on the cubic feet your inventory occupies in Amazon’s fulfillment network. These costs vary seasonally, with potentially higher rates during holiday months.
- Other FBA costs: Additional costs may include costs for aged inventory, returns processing, removal or disposal of inventory, and FBA inbound placement service.
For a breakdown of cost types, visit the FBA costs help page.
7 strategies Amazon sellers can use to lower FBA costs
Here are some ways to help you reduce your FBA costs and increase your profits as part of a comprehensive ecommerce growth strategy:
1. Optimize your inventory management
Regularly review sales data to maintain optimal stock levels, which can help avoid overstocking and incurring aged inventory costs. Use the FBA Dashboard to monitor your inventory levels. You can also use the Inventory Performance Dashboard to monitor metrics and adjust your strategy accordingly.
2. Watch seasonal storage rates
Track seasonal storage schedules and costs, and plan your inventory turnover to minimize charges during high-demand months. To reduce slow-moving inventory, consider offering discounts, selling inventory through Amazon Outlet, or submitting removal orders.
3. Choose the right products
Focus on high-demand products that sell quickly to reduce storage time and associated costs. Opting for small and lightweight products can also help keep fulfillment and storage costs low. Non-perishable goods are ideal as they avoid spoilage and long-term storage charges. And high-margin products can help provide a higher return on your investment.
4. Take advantage of Low-Price FBA rates
Using Low-Price FBA rates can help reduce your fulfillment costs for products under $10. This makes it a cost-effective solution for expanding your product line without compromising profitability. This strategy can help you stay competitive in price-sensitive niches while keeping your profit margins intact.
5. Consider cost-effective packaging solutions
Help lower your fulfillment and storage costs by using packaging that’s light and compact, but also meets Amazon’s guidelines. Examples include polybags instead of boxes and flat packaging for products that don’t require protection.
6. Use cost-saving programs
The Partner Carrier Program (PCP) can help you connect with trusted carriers and take advantage of pre-negotiated rates when you send inventory to FBA. For eligible products, cost-saving programs like Amazon Stickerless let you ship products using manufacturer barcodes, helping you save on labeling costs. And with Ships in Product Packaging, your Fulfillment by Amazon orders are delivered in your own custom packaging—without any Amazon-added material.
7. Compare costs and estimate profits with the FBA Revenue Calculator
Use the Revenue Calculator to compare FBA and your own fulfillment costs to estimate net profits and margins. Also, take a look at these free Amazon sales estimator tools.
You can preview selling fees and FBA costs for all the products you sell through FBA. Here’s how:
- In the Seller Central main menu, select Reports, then Fulfillment.
- Under Payments, select Fee Preview.
- Select a file type to download the report.
To review FBA costs you’ve already paid, use the Payments Dashboard.
Common pitfalls and how to avoid them
Here’s how you can steer clear of common pitfalls that could affect your profitability with FBA:
- Overstocking: Holding too much inventory could lead to increased storage and aged inventory costs. To avoid overstocking, analyze your sales trends regularly and adjust your reorder points as needed.
- Ignoring inventory performance metrics: Failing to monitor key metrics can result in inefficient inventory management. Stay informed about your Inventory Performance Index (IPI) score and other performance indicators. And regularly check these metrics to make timely adjustments to your strategy.
- Inadequate packaging practices: Using excessive or non-compliant packaging can increase your fulfillment costs. Ensure your packaging is both cost-effective and meets FBA packaging and prep requirements to minimize additional costs.
- Lack of seasonal planning: Failing to anticipate and plan for busier seasons, like Black Friday and Cyber Monday, could result in higher storage costs. Stay aware of seasonal storage schedules and rates to better prepare for high-demand periods.
If you stay proactive and make the most of Amazon’s resources, you can avoid common FBA mistakes and help boost your operations for better efficiency and profits.
