Amazon’s Fulfillment by Amazon (FBA) service has significantly transformed eCommerce, offering businesses a convenient solution for storing, packaging, and delivering their products. However, the rise in Amazon FBA fees directly impacts the profitability of businesses that rely on Amazon’s platform. This is especially true for those who sell low-cost products or operate with thin profit margins. The increased fees decrease sellers’ profit margins and may compel them to raise their product prices. As a result, this could affect their competitiveness compared to other platforms or retailers.
FBA fees and recent changes
Amazon has decided to raise its FBA fees in response to rising fuel prices and inflationary pressures. These new fees came into effect on January 17th, 2023, replacing the Fuel & Inflation Surcharge that Amazon introduced last year to account for inflation. The rates for FBA outbound fees have increased by an average of $0.22, which, interestingly enough, is lower than the fee increases announced by other fulfillment and logistics providers.
But that’s not all – more fee changes are on the horizon! Make a note of the following dates:
- Starting from February 1, 2023, the off-peak monthly storage fees for standard-size products will increase.
- From April 15, 2023, Amazon will modify the aged inventory surcharge for inventory stored between 271 and 365 days, resulting in higher charges.
A detailed breakdown of fee changes can be found here.
How can you strategize to maintain profitability?
1. Gain a comprehensive understanding of the modifications to FBA fees and how they will impact your products.
Gaining a comprehensive understanding of these charges’ influence on each item’s profitability is crucial. The FBA Calculator offered by Amazon proves to be a valuable resource in this regard. It takes care of the complex calculations, freeing up your precious time. If applicable, consider incorporating the updated weight tiering of the new FBA tiering system when conducting your analysis.
Enhancing your range of products is imperative to maintain profitable outcomes in the ever-evolving Amazon landscape. Discard those items that have underwhelming performance. To achieve optimal outcomes, carefully evaluate which products to retain in your portfolio, taking into consideration factors such as:
- Amazon FBA fees
- Product demand
- Size and weight of the items
Once this evaluation is complete, implement strategies to boost the average order value and prioritize sourcing high-margin products. It is also crucial to strategically determine the most cost-effective selling channels for specific products. For instance, you may fulfill heavy items through customer pickup at retail locations or handle shipping internally.
Valuable tip: Consider shifting popular yet low-margin products to be Fulfilled by Merchant or explore the option of selling them on your own website while utilizing external fulfillment services.
2. Seek assistance from an Amazon fulfillment service.
To overcome the increasing fees associated with selling on Amazon, one effective strategy is to manage your shipping process and collaborate with an experienced Amazon prep and pack service.
Your chosen fulfillment provider should assist you in:
- Efficiently organizing and dispatching products to Amazon
- Strategically distributing inventory in high-demand locations
- Affordably fulfilling customer orders
- Properly storing replenishment stock
Pro tip: To prevent disruptions in case your Amazon inventory runs out, ensure you have both FBM (Fulfilled by Merchant) and FBA (Fulfilled by Amazon) stock available for your top-selling listings.
3. Maintain a healthy IPI score.
Keeping your IPI score in excellent condition is crucial to maintain your selling privileges and enjoy the associated benefits, such as warehouse space and restock limits. There are several ways you can enhance your score, including:
- Removing surplus stock from the Amazon warehouse.
- Resolving any stranded inventory issues.
- Ensuring that your popular ASINs are always in stock.
- Conducting polls on social media to gather feedback on potential new products to launch.
- Clearing out any excess inventory stored in the Amazon warehouse.
- Promptly addressing customer inquiries and complaints.
- Implementing product upgrades based on reviews to drive more sales and increase your FBA sell-through rate.
- Negotiating product prices to pass on savings to customers.
4. Additional Key Tips
- Consider reducing your advertising expenditure or reallocating funds to different areas. You can enhance your organic ranking by driving customers who shop outside of Amazon (such as on Google) to your Amazon product listings. It may be worth investing in Meta and TikTok ads, where the cost per click is often lower than on Google, to fuel the Amazon flywheel.
- Experiment with various pricing strategies to understand what customers will pay for your products.
- Conduct a thorough analysis of your competition. If your profits are affected, your competitors are likely facing similar challenges. Keep a close watch on their reactions and make adjustments accordingly.
- Ensure that you have the basics covered. While getting caught up in data and financials is easy, do not overlook the essentials. Update your content regularly, review your keywords, and enhance visual content such as images and videos.
Are you seeking assistance in establishing a strategic plan that ensures consistent profitability?
Creating a successful and profitable strategy can be a daunting and time-consuming endeavor. It is difficult to keep track of all aspects of your Amazon business. However, at Bellavix, we have the solution. We are dedicated to achieving results that positively impact our partners’ profit margins. Contact our team of experts to discover how we can assist in scaling your business on Amazon.
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