The sky is not falling: Why Amazon sellers panicked about FBA long term storage fees are wrong.
Amazon makes a new change or adds a new fee. Thousands of FBA sellers freak out on social media. Everyone screams that the sky is falling. And 3 months later, no FBA seller even remembers what the drama was about.
Sound familiar? It happens a couple times a year. And it’s happening again.
Another FBA-mageddon: Amazon announces new FBA long term storage fees
The new fees are very simple.
Every six months, Amazon charges a fee for every item that has been at a Fulfillment by Amazon warehouse for more than 6 months.
Until now, the fees have been waived for the first unit of every SKU. You can have any random copy of Mushroom Picking for Dummies in an FBA warehouse for a thousand years, and as long as you don’t have two of them, you wouldn’t get the long term storage fee.
Starting on February 15th, that will change. The FBA fees (which I’ll detail in a moment) will apply to all books (and everything else).
Breaking news for sellers: Freaking out is a choice
When there is any new FBA fee announced, I won’t even open the emails. Amazon is never going to make the platform it spent billions developing unprofitable for us, and alienate the third-party sellers (especially FBA sellers) who make up 40% of their revenue.
I’ll admit that this time, I raised an eyebrow. The new long term storage fees appeared more significant than FBA fee changes in the past.
I decided I had three options here:
- Outsource my brain to people declaring FBA doomday on the internet, who have only a cursory understanding of the new fees (or none at all), and make emotional, non-numbers-based declarations.
- Develop my own cursory and mostly emotional opinion, and make my own uninformed, public declaration.
- Actually run the numbers and let them speak for themselves.
I chose number three.
What I will prove in this article
- Why it’s wrong to panic about new FBA storage fees.
- What the results of the new fees will be in the Amazon selling world (mostly good, some bad).
- What FBA sellers should be doing differently from this point.
- What FBA sellers who don’t believe me and want to get out of the business should do next (Hint: Sell the rest of us your inventory)
So what are the new Amazon fees exactly?
Amazon charges items in FBA warehouses long term storage fees by the cubic foot. Here they are:
- Charge for items at Amazon longer than six months: $11.25 per cubic foot.
- Charge for items at Amazon longer than twelve months: $22.50 per cubic foot.
So how many books fit in a cubic foot?
About 36 average books.
About 11.6 large textbooks (really large ones).
“Just give me the numbers: How much will I get charged after 6 months?”
Average book: 31 cents
Large textbook: 97 cents
Remember this only applies to books in inventory longer than 6 months. This should be well under 50% of your books.
And what are new FBA fees after after 12 months?
Average book: 63 cents
Large textbook: 1.94 cents
Again this only applies to books in inventory longer than 12 months. This should be well under 20% of your books.
“This doesn’t sound too bad. Why is everyone freaking out?”
The answer is very simple:
Because FBA long term storage fees are imposed twice annually in one lump sum, everyone is focused on the lump sum.
“Amazon will charge me $1,734 in February.”
That sounds about 1000x worse than this:
“Amazon will charge me an extra 31 cents per book but only for the 30% of my books that don’t sell within six months.”
The entire freak out is based on bad math and poor framing
It can’t be stressed enough how much of an impact framing has on this discussion.
There are three ways to look at the new FBA long term storage fees:
- The lump sum.
- Added cost per book subject to long term storage fees.
- Added cost per book, when fees are diffused across your entire inventory.
I’ll explain what I mean…
Let’s say you have 5,000 books in your inventory, and 1,000 have been there for 6 months.
In February, Amazon will charge you (on average) $310. This shouldn’t be a dealbreaking number, but this big lump sum number is the one everyone is freaking out about.
These are the three ways to look at this number (the lump sum way, and two more), each of which dramatically change how your brain processes it:
- 31 cents for every book subject to long term storage fees.
- 6 cents for every book you ship in.
We’ll look at each of these individually and what they mean…
The number easily excitable sellers are freaking out about. For seller with larger inventories and lots of slow-selling books, long term storage fees can hit the four-figures and up.
2. Cost per slow-selling book
This is the amount charged for every book subject to Amazon’s long term storage fees. It’s infinitely less menacing than the previous number when you consider average long term storage fees are only 31 cents for the average book, and 97 cents for a larger textbook (double this amount for books stored longer than one year).
3. Cost diffused across all books
This is where you look at long term storage fees as a “per book tax” assigned to all books, based on the percentage of books that will be in inventory longer than 6 months (and subject to long term storage fees). This should amount to significantly less than 50% of you inventory, and hopefully less than 30%.
How is this calculated? I’m not a fan of math, so I don’t blame you if you skip this, but here’s how we’d calculate this:
Long term storage fees per book.
Number of books expected to not sell after 6 months.
Total number of books you ship to Amazon.
Average fee per book.
This way, we can factor long term storage fees into the profit calculation for every book, and buffer against the chance it might get hit with a fee.
Real world example: what FBA storage fees will actually cost you
Let’s use round numbers and assume you’re a new seller and you’ve shipped in the following:
Total: 1,000 books.
30% of inventory is subject to the 6 month fee.
10% is subject to the 12 month fee.
Average charge per book subject to six month FBA storage fee: 31 cents
Average charge per book subject to twelve month FBA storage fee: 63 cents
This means you will be charged $166.23 in February.
It still makes you wonder why everyone is freaking out, but that’s the number people are fixated on.
But what if instead we just said “Ok, I don’t know if any particular book will be subject to a fee, but I’ll diffuse the charges across my FBA inventory based on the percentage of books I expect will be subject to this fee.”
In other words, we just take that big number and divide it by the number of books in our FBA inventory.
Remember, this is the average impact new storage fees will have on our profit from each book. Personally, this is the only number I care about.
So using these (conservative) figures, what’s the average FBA fee per book?
17 cents per book.
All the drama, the panic, the people running for their lives, getting out of the Fulfillment by Amazon business, and screaming that the sky is almost literally falling is over 17 cents.
Tell me again why we should care about the “lump sum” figure when it translates to only 17 cents per book?
Anyone who is put out of business by a 17 cent decrease in profits has no business being in business.
What’s the fee increase in terms of percentages?
Now lets upset the “sky is falling” people even more by looking at this in terms of percentages.
What’s your average FBA payout per book? Mine is around $15.50.
What’s your average cost per book? Only you can answer that, but let’s aim high and say its $2.
Now let’s round down and say that leaves us with a $13 net profit per book.
So now we take that 17 cent figure, and divide it into $13. This brings us the exact percentage decrease new FBA long term storage fees will cause to our net profits.
And the number is…. <drum roll>
(That’s one point three percent).
There you go everybody.
All the doomsday hype is over 1.3%.
This isn’t the end of bookselling. Is it the end of low-demand books?
Hopefully I’ve made the case this barely puts a dent in your Amazon bookselling business.
But a lot of people are saying they won’t ship in books ranked worse than 1 million anymore. So is this the end of selling poorly ranked books via Fulfillment by Amazon?
Hopefully I’ve made this case as well, but I’ll repeat the math:
Average FBA fee per book in inventory longer than 6 months: 31 cents.
Average FBA fee per book in inventory longer than 12 months: 63 cents.
Bringing the total average per-year FBA long term storage fee to: 94 cents.
What percentage of your books are in inventory longer than one year? It should be a small percentage. Less than 20%, for sure. Hopefully closer to 10%.
So in the absolute worst case scenario of an average-sized book in inventory longer than one year, the additional cost to you with the new FBA long term storage fees is 94 cents a year.
94 cents should not be a dealbreaking amount for any book.
Remember my average payout is around $15.50. And I’d prefer to not give Amazon the extra dollar. However…
The point of this article is not to celebrate FBA long term storage fees, it’s to prove with hard math these new fees don’t matter that much.
How badly to you have to be pricing before an extra $1 puts you in the red? A $5 book gets you roughly a $1 FBA payout. If your average cost per book is $2, then you’re still breaking even around a $6.50 sale. (And remember we’re only talking about the small percentage of books that don’t sell after twelve months).
But you shouldn’t be listing your FBA books for $6 (at least not very often). If you are, you’re running your Fulfillment by Amazon business totally wrong and your problems are much bigger than long term storage fees.
And 94 cents a year is the worst case scenario. That shouldn’t even happen very often. Remember its only 31 cents for the February six month fee.
Remember, we’re talking about an average impact of 17 cents per book
If 17 cents is a dealbreaking amount that makes any book unprofitable, that’s a book you never should have shipped in to Amazon.
If 17 cents is a dealbreaker for you, you aren’t doing Amazon right.
How long before before FBA fees cause you to lose money?
If, after reading this far, you’re one of those booksellers still committed to freaking out, I have more bad news.
Remember our figure that an average book will incur a 31 cent fee after sitting in inventory for six months. Then 63 cents every six months after that ($1.26 per year).
Now consider you buy a book with such low demand, that it sits in your inventory for several years. This doesn’t happen very often, but let’s pretend.
Now let’s assume my average FBA payout of $15.50 is fairly normal, then round way down and assume an average $13 net profit per book.
Now the question is: How long will an average book have to sit in an FBA warehouse before you lose money?
Another drum roll please…
Over 10 years.
Your book will need to be at an FBA warehouse more than 10 years before you lose money.
Sorry doomsday people. Those are just the numbers.
So this should be our simple challenge to people spreading doomsday scenarios on the internet:
If an average 31 cent fee in February makes a book unprofitable, why did you ship that book to Amazon?
If an average 97 cent fee after a year makes a book unprofitable, why did you ship that book to Amazon?
If an across the board average of 17 cents a year for each book makes your bookselling business unprofitable, why are you in business at all?
How Fulfillment by Amazon sellers will respond
I predict three things:
1. Some skittish sellers will run for it and get out of the FBA business.
My take: Good. When its herd-thinning time, the weak are the first to go. More for us.
2. Some skittish sellers will stop sending in poorly ranked books.
My take: Also good. The numbers don’t support this move at all, but it will happen, and it will also mean prices of lower-demand titles may increase.
That’s one possibility. Another is…
3. Some skittish sellers who don’t know their numbers will drop prices on lower demand books.
My take: Shortsighted and not good for us, but hopefully their numbers will be small enough that our profits on long-tail books are not significantly impacted.
How to adapt for the future of FBA
- If you’re concerned, set aside 17 cents per book sold to cover new long term storage fees.
- Be more diligent about repricing.
With #1, set aside a little like you already do for taxes. Not a big deal.
With #2, if FBA long term storage fees mean anything at all, it means there are (small) penalties to not being diligent about repricing. Ignoring repricing used to be somewhat of a luxury. Now there are (small) consequences.
So give new emphasis to monitoring the prices of low-demand Fulfillment by Amazon inventory.
What you can do to correct misinformation among sellers
If you’re in a Facebook group or online forum where FBA sellers are upset about about these new fees (and I know you are), do something right now:
Post this article there. Then ask them to refute the numbers, and defend their position with numbers of their own.
- My prediction: In one year we’ll all wonder what we were freaking out about.
- If the new storage fees make bookselling unprofitable, you weren’t doing it right anyway.