Are you being smart with your Amazon FBA storage uses? If not, it could start costing you a lot more. In this episode, we talk about what you need to do to help manage these FBA storage fees wisely.
Today we talk about some of the changes that were recently made that was sent out by Amazon to an email, to all Amazon sellers about FBA storage fees that are increasing. This is something that if you've been selling on Amazon for a while, you are used to it. Like every year we are all waiting for this email to come out of what the new FBA storage fees are going to be. If FBA storage fees are changing, if they're going to change the Q4 season. The last couple of years it seemed like they will probably make some change to Q4 storage fees. So when this came out there was a lot of talk on the various Amazon Facebook groups about this changes and what they mean. It's not FBA Armageddon, I don't think. But it is something that we titled this podcast episode: "Why you need to be smart about your Amazon storage." And that's true, it's not that FBA doesn't work, it's not reasonable or something that we can use anymore, quite the opposite, it's still a very good service. You just got to be smart about it.
Nathan: Let's start off guys talking about this email, I have it here in front of me, that Amazon sent out, I'm just looking at the date it was March 1st of 2018 that this email went out. There's basically a couple of parts to it.
The first part was about monthly inventory storage fees. The second part was long-term storage fees and then a change to the minimum long-term storage fees and the way that they are addressed. It used to be only twice a year and now it's going to be on a monthly basis once they do incur. And then there is also talk about the inventory performance index score. Something that a lot of us had not been looking at, something that's new. Let's start off with the monthly storage fees. Andy, I'm going to read this and I'm going to get your reaction. I know you recently acquired your own warehouse so I think you are definitely probably thinking that that was a good decision even more than you already did.
But starting April 1st, 2018 - it says "monthly inventory storage fees will be increased by 5 cents per cubic foot for standard size and oversize and this will be reflected starting May 2018". Not a huge increase, but maybe you can just talk about what 5 cents per cubic foot means to you? I know you recently told me how many pallets you have in your warehouse right now and you just opened that basically to yourself and maybe you can touch on that for us.
Andy: As Amazon sellers who have been in this game now for 4-5 years, we know that the writing has been on the wall. Amazon has been sending out signals that they do not want us using their warehouse as our garage. Typically when you have a garage a lot of times that's where you are going to throw stuff that you don't have any other place to store in the house. And it will tend to build up.
When Amazon first started everybody sent everything in. Whether it sold or whether it would sit there for 1, 2 or even 3 years. In fact, some sellers have products, they call them long tail items - they send them to Amazon willingly knowing that it may not sell for 3 years. And when Amazon first started you could do that. You could send in a long-tailed item and you wouldn't be charged very much in storage fees. Part of the reason is Amazon wanted to attract sellers. They wanted to track all types of products and so they were okay with that. The unintended consequence of that was that now that they have their warehouses that are just overflowing. I visited a warehouse 2 years ago and no lie, you could barely walk through the aisles of that warehouse because of how much product was flowing out of it.
It was inevitable that Amazon would start raising their storage fees. As well as start tightening the screws and basically telling us as sellers, "you need to be smart about what you are going to send to our warehouse. And we only want you to send in what's going to sell within 2-3-4 months. We do not want you using our warehouse as your garage any longer". That's what they've done. And every year they come out their storage fees goes up a little bit higher and with this one, they dramatically changed it when it comes to long-term storage fees.
Nathan: Right, and Andy in your own warehouse right now, I think you mentioned you have something like 40 palettes at the moment. And you've only had your warehouse for a couple of months now. So for you even this monthly inventory FBA storage fees of 5 cents per cubic foot, not a ton to start off. Over time could really add up. And you are already paying a decent amount of storage last year just with FBA and other third-party warehouses. Is this something that you feel like, this monthly storage fee, 5 cents, can you put that in perspective for some of us?
Liran, I know you said before what you're paying per month with your place. You can chime in too what you feel like a 5 cent increase in FBA storage fees is for people. Liran: I think that fee is not as significant but that's if you look at the over-all fee that you're paying. The new fees are going to be January to September starting on April is going to go from 64 cents to 69 cents per cubic foot. So when I look at that I compare that to what I'm paying in the third-party warehouse that I'm using. And I'm paying 35 cents. So I'm paying significantly less money to keep product outside of Amazon than I am inside of Amazon (FBA). And now those savings increased for me at the same time the product that I do have at Amazon I'm going to be paying more fees on.
I think that 5 cents is kinda small but the more inventory you have the more of an impact that's going to make. And ultimately, if you're not increasing your pricing, and your competition is not increasing in pricing then it means it's eating into your margin.
The best choices are:
To get smarter about your supply chain and inventory management. At the same time whether or not you're going to make that decision; are you going to increase your price to pass this on to the consumers? But you need to also assess the market to see if you have the ability to do that.
Really getting smart on how you manage your inventory.
For me, last year - the entire year I basically shipped products directly from China to Amazon. And I would ship a container at a time. But I did see the increased cost of FBA storage fees, especially around Q4. The dilemma that anyone importing from China deals with is that you want to be responsible about making sure you put your orders in time and get your orders into Amazon. So, you start building up that inventory to Amazon maybe in October. Prior to when peak season kicks in, after Black Friday. But what Amazon is telling you, "We are penalizing you heavy for that". Because in October the fees go to 235-240 per cubic foot on standard size so the fees go up by 3-4 times.
You have the dilemma of "what do I do? If I wait to ship that product from China I might miss out on getting it into Amazon in time. But if I send it too early and get there in time, I'm now paying all this money for a product that's really just sitting there waiting for Q4. I think you do need to really think about what you're going to do. Which is something Andy and I have both done and prepared for. Andy's utilizing his own warehouse that he's leasing, I'm using a third-party warehouse. I think that is something you have to utilize especially for Q4. But the big change is on long-term fees, not yet but starting in September are going to be charged on a rolling monthly basis instead of once every 6 months.
Nathan: The 5 cents monthly charge, not the biggest deal, we kinda expect this every year. It's a little under 10% increase. Not the biggest deal, most of us can build that into our margins already. This next change in there that you just mentioned is a change to the way that long-term storage fees are addressed. Previously, it was twice a year - February 15 and August 15th where Amazon looked at your inventory. And it was just a snapshot and they said: "Have any of these units been here for over 6 months on this date?" And if they have been, then you're getting hit with a long-term storage fee. But if they were there for only 5 months and 29 days or whatever, you are okay. You aren't going to get charged that long-term storage fee.
Liran I know last year, for some of your units you were waiting until after Feb 15th to send them in just in case. But now it's going to be on a rolling monthly basis. Maybe you can talk about just the difference that is and what that means for people. It can be tough to sell your inventories before 6 months if you're placing a large private label order. And planning to have that all go to Amazon. How is that going to affect people? Liran: Yes, if I sent in inventory after February 15th then on August 15th that inventory is not there for 6 months. So I'm not going to hit that 6 month time when they look at a snapshot. So I really have a year if I send it in right after February to sell that inventory before it gets hit with long-term storage fee. Same thing if I send it in after August. I'm not going to get charged until February 15th. Now you can't do that anymore because it's a rolling 6 months.
So as soon as that month hits when your inventory is there for 6 months, you're now going to start getting not just charged the regular fees, but the long-term storage fees on top of that which are going to kill your margins. And probably more than it costs you to have a loss. The change is basically, you're going to be paying 3.45 per cubic foot every single month that that inventory is there. Prior it was 11.25, you got a one time charge now it's 3.45 additional every single month that your inventory is on Amazon over a 6 month period. Again, they're taking the typical fee of 69 cents it's a high multiple of that fee. What that means is that you can no longer send in 6-7 months of inventory into Amazon at one time.
If you're air shipping from China, it's probably a lot easier. But if you're importing by boat, if you're moving more product, then you really need to figure out whether it's going to your house and do prep and ship from your house. Most of us don't want to get containers in our house. So you want to have either a warehouse space or a third-party warehouse to be able to stage shipment. Right now, when I'm sending inventory to Amazon we are looking at sending in 30-35 days working inventory and just doing shipment more often from our third-party warehouse as opposed to before sending in 4-5 months of inventory at a time. Which I think is kinda risky at this point.
Nathan: Right, that makes sense. I think for a lot of people third-party warehouse and using this other warehouse other than Amazon just seems like an extra step and kind of nerve-racking to get set up. Andy did it up until he leased his new warehouse and Liran you're still doing it - utilizing third-party warehouse.
Andy, maybe you can talk about, is this difficult to get set up with third-party warehouses? I think you even utilized freight forwarders that basically that served storage for you in the past. Maybe you can just talk about how you got connected with this person and what the process is for someone who's wondering how they realized that they need to be smart about their FBA storage and the amount of inventory they are sending into Amazon? How do they get started connecting with the third-party warehouse? Andy: We can probably put a post on our group on Facebook about the different available options. Liran has a great one that he uses in California. It's really easy - it's press and play. The third-party warehouses, the good ones that you get connected with, they know what they are doing. They have very clear documentation on what they're going to charge you upfront. So if you're shipping from containers, sometimes your containers may not come on palettes, right? So sometimes they'll be floor-loaded. You need to know upfront what your third party warehouse is going to charge you to unload your containers. Because obviously when they're floor-loaded, it probably is going to take 3 -4 hours, depending on their manpower.
Whereas if it's palette-loaded, it's going to be easy to get a forklift in them and move them. So those are the types of fees that you want to be made aware of. So whatever third-party warehouse you're looking at, make sure you ask them what it is to unload if it's floor-loaded. Understand how much it’s going to cost if you're having them label your product.
Then like Liran said earlier, you need to find out what their FBA storage fees are going to per cubic square inches or square foot. I don't know how they do that. Then how much it's going to be when you're drip-feeding your inventory. The reason why Liran and I use this, the reason why I got my warehouse is that I know my products, I know the supply chain. So I know the right amount that I need in Amazon to be spread out, throughout their warehouse. Because that's another key piece of this, you don't want to shortchange your inventory. So you want to make sure you have the proper amount there because you want Amazon to be able to 2-day ship, right?
And then the third piece of this, and maybe we'll talk about this on a different podcast...
I'm looking to "Seller Fulfilled prime" my products. So that's one of the reasons again why I got a warehouse where we have in Pennsylvania. It's actually within a day's drive of 80% of the US population. So I will be able to "Seller Fulfilled prime" my products to 80% of the US population. It helps my margins go up. Amazon actually offers incentives during the 4th quarter to folks who Seller Fulfill prime. So they'll give me a lower referral fee. And so again that's just going to add more margin to my bottom line.
Liran: One thing I've just recently implemented is just a better supply chain management. So depending on how many products and SKUs you have. For me, I have a brand that has 150 SKUs maybe, and so with different variations. We just implemented using Restock Pro to be able to very quickly estimate how much of a product we need to order. What's our lead time and give us a little bit of a cushion? And how much inventory do we need to send to FBA based on the number of days that we setup inventory that we want to send them for? So I think what Amazon is doing is they're forcing all of us to, not utilize their warehouse as storage.
Liran: As the demand for space for FBA warehouse increases they need to figure out how to control that better.
Amazon is forcing all of us to manage our inventory supply chain and have to utilize warehousing space on our own to better stage our shipment into Amazon. Nathan: So let me read this, it says
"The Inventory Performance Index is our first step in setting a bar on inventory performance". And when they say, I think what they're saying is that there are going to be changes to this. They know that. That this is kind of a beta test of this performance index. And they probably don't know yet how they're exactly going to use it. but they do give us an outline of some of the ways that they're thinking and so if you're looking at that number, that should be right on the home screen of your Seller Central dashboard. it gives a number from a 0 to a thousand, I believe. And it says that if you have an inventory performance index below 350, it could negatively impact you.
Basically what they say is that they're going to look at that every quarter, I believe, and if it's below that 350 number, they may basically ding you. And tell you that they're going to lower your FBA storage limit amount that you can store at FBA. They don't give specifics on how it's going to work. But they do talk about some limits that could be put in place on your account. Then if you're over that limit, like they limit you and you already have more inventory there than you're allowed to have, they talk about an overage charge that is really, really high.
So Liran, maybe you can talk about what you can foresee for this index, and how it's going to impact people, and then talk about fees and overage costs, and what that would mean if that happened to you. Liran: So if you do have excess inventory over that limit that they've put on, it's $10 per cubic foot. Almost the same as the old charges every 6 months--which is about $11.25. So, they're also placing a minimum fee if you have inventory over a year, or 50 cents a unit. So there's a lot of additional little things to this. You should definitely go into in Seller Central and read this. And also check out your Inventory Performance.
So Inventory Performance seems to be made of top influencing factors:
Excess inventory, which is inventory that Amazon thinks you have too much of at the warehouse. Stock inventory, which is keeping your popular products in stock to avoid lost sales. Stranded inventory which is stranded inventory is very easy to manage and make sure your inventory is not stranded status. Stranded inventory is not something you should have frequently. The in-stock rate means that if your products are constantly going out of stock, and you're not staying in stock, that's going to hurt that metric.
And then excess inventory is inventory that Amazon views that you have too much of, and all that together creates your score.
Nathan: So Liran, the one out of this 3, the one to me that seems kind of subjective, and I'm not sure how they're going to really accurately track this for people, is the in-stock inventory. I can see how they can look to your excess inventory, and say that you're cluttering our warehouse by sending in these units. That we have too many of that's not selling fast. So I can see that but the in-stock inventory seems like it could be tough, especially for those arbitrage sellers that are basically selling all kinds of things and they don't really have a means to get more than necessary. How can they keep them in stock, if they can't get more?
Liran, what would be your take on that for someone who's getting inventory maybe even through a wholesale source, arbitrage, private label but they can't get it fast enough or they don't have the means to get of? Liran: Yes, so you might want to delete that SKU from your inventory and maybe even from your FBA inventory because you have your "Manage Inventory" page in your FBA. I'm looking at my "In Stock" and it shows me Out of stock SKUs: 812, I don't even have 812 SKUs so it must be looking at old inventory from years when I did maybe wholesale or arbitrage. I see my FBA inventory not deleted but now in my "Manage Inventory" page but then again it's showing estimated FBA loss sales in the last 30 days just like $1200 and it's giving me a 96% rate.
Nathan: And what would you say to someone whenever it comes to deleting, I never really liked to cuz I feel like it's disappearing from your inventory even though I know it's not necessarily. What would you say to someone that's concerned about maybe returns or reimbursements that they could potentially get later? Is that going to be affected by them deleting that listing?
Liran: Well, if you get a return and there's a delete listing, it will show up in your stranded inventory which at that point you can either just remove or relist an item. I think the factor that's going to be the biggest influence on people probably is the excess inventory. And that seems for me to have the biggest impact on my overall score. I would imagine that Amazon in their algorithm is also taking that into account more heavily than the other factors. Because you being in stock with more excess items is I think is a worst case scenario for Amazon. With you being out of stock of something, you're not taking up room in their warehouse. I think that's the area you really need to focus on.
Make sure that if you have excess items that Amazon watch your strategy on lowering prices, PPC, lightning deals things like that to sell through it. And also to make sure that you are shipping in product for whatever time frame you think is best in your scenario - 30 days, 60 days, 90 days but probably not more than that. Nathan: Yup, like Andy said earlier the writing has kind of been on the wall. it seems like the Amazon FBA storage team or whoever is in charge of their warehouse storage has been hard at work trying to think of new ways to help reduce this problem. And I think the score is just a way to help sellers be more aware of their excess inventory. But I know for me, myself I'm like "whatever" if it's not costing me too much in storage and the inventory is already there so I don't want to recall, I just leave it but if this new index is going affect you and what you can send in. I think for a lot of people it's going to make them take a second look. It's kind of human nature we like to be in the green first off. So if you see that you're in the yellow or the red for your excess inventory, you might try a little bit harder to hold back the inventory before you send it in. You might utilize your own warehouse space or a third-party warehouse space or just order less in order to avoid that.
FBA is still a huge opportunity for us. I think a really big upcoming opportunity that's been around now for a little while, but I think what will become more important is Seller Fulfilled Prime. Andy mentioned earlier and I'm sure we're going to devote a full episode of the podcast to Seller Fulfilled Prime. Andy's been having great success with it. Liran, I don't think you've done any Seller Fulfilled prime yet but I know that you've been looking into potential third-party solutions that could help you with this, right?
Liran: Definitely, I think like Andy said, you have to be smarter on how you do the Seller Fulfilled Prime. I haven't done it but just from talking to Andy I know what he currently does, I know he's got some products in California also with a partner. What they do there is Seller Fulfilled prime within the surrounding states. So you can set your regions where the shipping cost makes sense for you. And you're not paying to ship across the country a high rate. Having a location like Andy has on the east coast that's 80% within a day’s drive of the country's population is really a good advantage to be able to do Seller Fulfilled prime and at a cost that's probably not too bad since it takes one day to get there.
I haven't done that yet but now that I have a third-party warehouse in California, it's something that I could test or it's something that could be very useful during Q4. where it takes a longer period of time to get items checked in and if you have inventory that you're out of stock of. and you have it in a warehouse and it's going to take long to get to Amazon in time, having the ability to do Seller Fulfilled prime could be huge in terms of just the additional sales that you could capture.
Andy: And again, when we're talking about having products in warehouses, you and I have talked about this before.
Ultimately, we want to have products on the east coast, on the west coast and eventually as we continue to grow, we love to have a warehouse somewhere in the Midwest. and for me the reason for that, again it hinges around Seller Fulfilled prime and your ability now when you buy things from Amazon a lot of times it will show a little badge where it says "I can get that product shipped next day for free and Amazon now puts that on the listing". To me that's very enticing., if I could get a product next day and we all know if I try to mail something right now to you Nate - From Hershey, PA to where you are in Michigan, if I try to do that next day, it's going to cost $20-$30 depending on the size. that's how much it costs and so that is a huge value add that Amazon is putting into customers that if you're just a normal Prime member but you order a product that's near you in a warehouse they will send that next day to you and as Amazon sellers, we love that, right? that's why we have the amount of Amazon customers and shoppers that we do because fulfillment process is great and so if we can have products now in FBA and then if we have products in various warehouses that we could even do Seller Fulfilled prime where it's not going to cost us very much to get it next day, to me that is what separates Amazon from everybody else.
Make sure you check out these changes yourself. Read that email or go to Seller Central and see it. It's important. The opportunity is still there but what you might need to do is instead of working harder which is our mantra for a long time, you might just need to work smarter.
Check out our Amazing Freedom Facebook page at www.amazingfreedom.com/facebook, to stay up-to-date on the latest Amazon news.
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