If you’re selling on Amazon and plan to continue doing so next year, I advise you to stock up on aspirin. Amazon has announced changes to their fee structure, and it will become a lot more complicated to figure out your cost structures when selling on the marketplace.
Some fees will decrease, others will increase, and new fees will be introduced. While selling on Amazon in 2023 could be a little confusing for new entrepreneurs, I imagine that even veterans will need time to adjust to these new fee structures.
Let’s go over the December 5th statement from Amazon explaining what changes will be made, and see who will see their expenses increase the most (and maybe the lucky ones who may pay less than in 2023). I will summarize the fees and try to make them as easy to understand as I can.
Amazon Fees Changes in 2024 Explained
In the first half of 2024 (exact date varies), Amazon will implement several changes in their fee structure. Essentially, outbound fees and storage fees will decrease, while Amazon will charge more for inbound shipments. Let’s go over these fees first, then we’ll talk about what it really means for sellers.
Fees That Will Decrease
Let’s start with the good news. In addition to the referral fees decrease on low-cost items (see my previous article from this month), Amazon will reduce the non-peak (January-September) monthly storage fees for standard-size products by an average of $0.09 per cubic foot, from an average of $0.87 per cubic foot to $0.78 per cubic foot. There will be no change for oversized items. This change will apply starting on 4/1/24.
Amazon also states that they will decrease FBA fulfillment fees for standard-sized products by $0.20 per unit and for oversized products by $0.61 per unit. This change will apply starting 4/15/24. Amazon will also make changes in shipping tiers, adding more tiers to their pricing structure. They will also offer a discount on fulfillment fees in the range of $0.04 to $1.32 for items that can be shipped in their existing packaging. This seems fair, as it minimizes packing materials costs. It is also good for the environment; some sellers may be encouraged to make sure they can enroll in the Ships in Product Packaging (SIPP) program. Sellers can expect to benefit from this discount starting 2/5/2024.
Finally, while not affecting shipping directly, Amazon changes their Vine program fee structure, charging less for smaller quantities of units enrolled.
Fees That Will Increase:
Amazon will expand the returns processing fee to apply to products with high return rates compared to other products in their categories, with the exception of apparel and shoes. It will apply starting 6/1/24. This fee starts at $1.78 for the smallest items, up to $4.73 for items under 3lbs. For the largest and heaviest items, this fee sharply increases, for example, $157.35 for a 150 lbs item.
In addition to these changes to existing fees, Amazon will introduce new fees, mostly regarding storage and inbound shipments.
Inbound shipment fee
Customers love fast shipping, and to ship as fast as possible, Amazon dispatches inventory in their fulfillment centers (FCs) over multiple strategic locations. Shipping inventory to multiple FCs has a cost, and Amazon will pass part of that cost onto sellers using FBA. Sellers will now have the option to ship inventory to multiple FCs to avoid paying the new inbound placement service fee, or ship to one location and be charged an average of $0.27 per unit for standard-sized products and $1.58 per unit for Large Bulky-sized products. These fees will be effective starting March 1, 2024, and the fees will be charged 45 days after products are received.
Low inventory fee
Items with limited days of inventory are a challenge for Amazon, which claims it makes it difficult to manage to ensure fast shipping to customers. Amazon will introduce a new low-inventory-level fee for standard-sized products that have less than 28 days of inventory. The fee ranges from $0.32 to $1.11, depending on the product size and increases with days of inventory decrease. This will be, in my opinion, the most challenging new change for sellers. The full breakdown with examples is provided by Amazon on Seller Central.
The impact on sellers using FBA and on customers
For those of you selling on Amazon, you know that few things are more terrifying than a key ASIN appearing out of stock. Not only are you missing out on sales, but organic rankings are tanking and climbing back can be difficult when the product is back in stock. However, overstocking can be expensive in storage fees and opportunity costs.
Maintaining the optimal amount of inventory in Amazon FCs was already an important issue for sellers. With the new low-inventory fee, sellers will have to adapt and in many cases, change their standard for how much inventory they want to carry at Amazon. When demand is steady, that should not be too difficult. Problems may arise when a product is highly seasonal, with low demand during most of the year and one or multiple spikes in the right seasons. But that isn’t too bad, as experienced sellers know how to anticipate these variations in demand. The most difficult thing will be experimenting with product pricing or product creatives. If a price change experiment creates large variations in demand, sellers will have to adjust the quantities of inbound inventory to minimize these fees.
I can see some sellers benefiting from an overall decrease in storage fees, but many of them will start paying extra low-inventory fees. In my opinion, this change will be the most complex to navigate and companies will have a hard time estimating how much they will pay next year. I am hoping that measuring the cost of low inventory and tracking improvement will not be too difficult. That is certainly an opportunity for software companies designing tools for Amazon sellers, providing clear dashboards would be extremely helpful.
Inbound and Outbound Shipping Fees
The price changes for outbound shipping are pretty straightforward. However, I think the key information is the new shipping tiers introduced by Amazon. Amazon used to charge $5.40 for an item in the 1-1.5lbs range. Starting 4/15/24, they’ll charge $5.37 for an item in the 1.25-1.5 lbs range. That is only a $0.03 decrease. However, if the item weighs between 1 and 1.25lbs, the fee drops to $4.99, or $0.41 in savings. Sometimes, sellers will be able to find ways to lower the weights of their product (for example, using lighter or less packaging) to save a little more on shipping, by moving to the lower new tier.
For inbound shipping, time will tell how much more this will cost for sellers. Will it make sense to pay the surcharge rather than shipping to multiple warehouses? I do not have the data to tell you which way will be more cost-effective. What I can tell is that monitoring these costs will be important, as it contributes to decreasing overall profitability.
I feel like I’ve said it a million times this year: customers love free returns, but reverse logistics is a major expense for online retailers. Amazon has a very liberal return policy compared to other retailers but certainly understands that customer service and processing returns are expensive. I would not be surprised to see a new “customer service” fee in the next few years. But for now, Amazon has introduced a returns processing fee for high return rate products compared to other products in their category.
This should encourage sellers to improve their product and listing qualities to minimize customer returns. Misleading images will continue to generate negative reviews for those using them, but will now cut into these sellers’ bottom line.
The full explanation of this returns processing fee can be found on Seller Central, including how it will be calculated. Again, I am afraid that these fees will be difficult to measure and monitor by sellers, making the selling experience more confusing. However, it is generally important for sellers to maintain a low return rate and ensure customer satisfaction. The return rate threshold for each category will be announced by Amazon on May 1, 2024.
A good understanding of cost structures, revenue, and expenses is key for businesses to succeed. Selling on Amazon is no exception, and understanding how the platform changes can be challenging. I will personally analyze how the recently announced changes for 2024 will impact the e-commerce department I am managing, and I recommend other entrepreneurs do the same. The documentation on Seller Central may be intimidating, but it is a necessary read to figure out how to limit the cost increase as much as possible. I hope this article could help you understand the basics, and how your business will be impacted.