Why Amazon FBA Long Term Storage Fees Don’t Matter

Amazon’s long term storage fees: The good, the bad, and why avoiding risks is more expensive than avoiding LTSF.

The premise of this article:

With Long Term Storage Fees, it’s more expensive to avoid risk (avoid slow-selling inventory) than to intelligently manage risk (buying slow selling inventory, but in a not-dumb way).

In this article, I set out to answer the questions:

1. How should you change what you ship in to Amazon?
2. Is this the end of long tail books (and more)?
3. What are some specific formulas you can use to mitigate against the impact of Amazon’s long term storage fees?

Here’s my novel-sized article on how to adjust for new Long Term Storage Fees…

The new era of FBA Long Term Storage Fees

Previous articles covered the specific numbers around long term storage fees. In this article, I’m covering something else: How to respond.

To recap the numbers, basically there’s two things to know about Amazon’s LTSFs:

• Fees for having items in your inventory for more than 6 months almost doubled.
• Fees for having items in your inventory for over a year have (usually) more than quadrupled.

Is this the end of low-demand books and other inventory?

If you’re declaring this the end of long-tail/low-demand books, there’s a big problem:

1. It is over simplistic (or let’s just admit it – lazy) to declare new fees are the end of slow-selling inventory. (Better idea: create a buying formula that reduces risk.)
2. Residual sales are the key to Amazon selling: If all you’re doing is “flipping,” you don’t have a business.

Residual sales are everything in an Amazon business

if you abandon residual, longer-term sales, you abandon Amazon. To put another way, if you only sell inventory that will sell quickly, you’re effectively out of business.

Let’s say you’ve decided that long term storage fees mean an end to long-tail inventory (or aren’t sure, and have decided to listen to people propagating this sentiment). Unfortunately I have really bad news: That’s the same as saying you’re getting out of the Amazon business.

Residual sales are your life raft. You sell half of a shipment in 60 days, sales from the other half trickle in over the next year (or more). That’s how selling used books & media on Amazon works.

(Any seller who disputes this has likely been in business less than 60 days).

If your new mission is to entirely avoid long term storage fees, you’re simply out of business.

“Flippers” fail.

What’s the solution to long term storage fees?

So if avoiding long term storage fees is out of the question, what do we do?

The answer is mitigating long term storage fees with superior buying criteria. You must allow room for risk in an Amazon business, or you are out of business.

Since the most ominous change applies to books in inventory for over a year, let’s address those first…

The big development: Monthly fees quadruple after 12 months.

Take an average hardcover book (slightly larger than the “average” book). Let’s assume it’s a few hundred pages and has dimensions of 6.5 x 1 x 9.5 inches. Pretty standard Hardcover.

After its been in your FBA inventory for one year (which hopefully won’t happen too often), the total amount you’ll pay in storage fees is around $1. Depending on the price of the book, that’s not an insignificant amount. It can put a serious dent in your margins. It can add up across a large inventory. But $1 isn’t a “call an ambulance” terrifying number.

However, to keep that book in your inventory for an additional year, it will cost you $6. (50 cents a month).

Recap:

• Hardcover at Amazon for 1 year: $1
• Hardcover at Amazon for 2 years: $7

That’s six times what it cost to keep it in your FBA inventory for the first year.

Before you panic, consider this:

How often you do you ship a book to Amazon and not expect to sell in a year?

This is not the same asking “how many of your books don’t sell in a year.” It happens a lot, but you rarely expect it to.

Personally, it’s pretty rare I’ll ship any one book in where, if you asked me, I would say “I won’t sell this for at least a year.” Those books exist, but they are the super speculative purchases,  the “high risk / high yield” part of my Amazon inventory. The weird 70s spiralbound biorythm guides I create product pages for, the architectural-history-of-some-weird-midwest-town books on University of Nebraska press ranked 8 million, etc.

You expect nearly all books to sell on Amazon within a year. Of course, a lot of them don’t. In this situation, it’s important to know:

When books don’t sell in a year, 80% of the time it’s your fault.

This is actually great news, because it means most Amazon long term storage fees are in your control.

Let’s examine every reason a book wouldn’t sell that is on our control…

The Four Causes Of Long Term Storage Fees

I’m calling myself out here more than anyone: When a book doesn’t sell after a year, it’s either one of four things…

1. A book I knew was in the “high risk” part of my inventory-portfolio.

2. A book that is in bad condition (that buyers are passing on despite my offer being the lowest price).

3. A book I was lazy about repricing.

4. A book whose price dropped, and I was too stubborn to cut my losses.

Let’s examine each of these and develop a plan to not get killed by LTSFs.

Going Deeper Into The Four Causes of LTSF

#1: Long Tail Investments: I do not advise you cut out this category above from your FBA inventory. Those are the high-priced books you sit on for 18 months and then sell for $99. One $99 sale offsets a dozen others that racked up another $6 in LTSFs. And if you’re on top of your repricing, it should never come down to only 1/12 of books selling in a year.

#2: Books In Bad Condition: For books in Acceptable condition, I add 50% to my price threshold before I ship in to Amazon. (My “long tail buying formula” is below). Being FBA gives my offer an advantage, and Acceptable condition isn’t a death sentence. It just means a book will take longer to sell. I price-buffer accordingly.

#3: Not Repricing: Not fun to correct, but easy to correct.

#4: Not Knowing When To Cut Your Losses: This is the big one. The one that’s hardest to remedy. Because you’re in a battle with yourself, and the justice mechanism inside of you that says “I’M GOING TO LOSE MONEY ON THIS BOOK AND IT’S NOT FAIR.”

So you rationalize. “Maybe the price will bounce back. It was $30 when I bought it, and gosh darn it, that’s the ‘right price.’ I’ll wait this out…”

This is myopic thinking, because it’s focused on a single unit of inventory. If you panic every time you have to purge a book but don’t also consider how much money you made from books you didn’t have to purge, consider the big picture. Looking at this big picture is much healthier (and more profitable).

When you fear the possibility of losing money on any item, it ignores the enormous (and real) costs of not shipping anything into Amazon that might incur a loss. Once you start playing it that safe, you’re basically out of business.

What about the 6-to-12 month storage fees?

I’ve spent most of this article discussing the 12+ month fees, and I don’t want to downplay the 6 to 12 month FBA storage fees. They sting. But with a basic attention to Amazon sales rank and repricing, it’s still pretty hard to lose money until you hit a year. Then it gets ugly.

My “Long Term Storage Fee Aversion Formula”

The idea with the formula that follows is to keep it simple, so you don’t have to chart everything out in Inventory Lab and track every book down to the exact moment you start incurring a loss.

If your inventory management requires spreadsheets and white boards, its too complicated.

Here’s the kind of Amazon business I like to run:

• Feed tons of inventory into the Amazon monster.
• Let the Amazon monster feed money into my bank account.
• Avoid any huge dumb mistakes.
• Don’t sweat the details.

By all means, keep an eye on what’s racking up long term storage fees. But personally, I don’t want to be in a constant game of whack-a-mole, wondering what books are about to get hit with what fees.

I want clear formulas that mitigate risk and simplify my business so I can shut off 80% of my brain and focus on what matters: Sourcing profitable inventory to sell on Amazon. That’s it.

So here is the “Long Term Storage Fee Aversion Formula”, in three parts….

Long Tail Buying Tier #1: Books with an average rank worse than 4 million

• Average Amazon sales rank: 4 million or worse.
• Minimum price: $25

These are books that have a realistic possibility of sitting in my FBA inventory for a year or more. As covered, I rarely buy anything I expect to sit for a year or more, but things happen. Prices change, books don’t sell, and a year can go by fast.

Even after 2 years of fees, I’m still doubling my money on most books.

I wouldn’t blame you if you kept it to $30. There’s no science to this. But those are my numbers.

Long Tail Buying Tier #2: Books with an average rank of 2 to 4 million

• Average Amazon sales rank: 2 to 4 million.
• Minimum listing price: $20

The average hardcover is still getting a $10 Amazon payout after a $20 sale. Then factor in a $1 average cost (rough numbers here). Then factor in $1 in FBA storage fees if the book sits for a year.

As long as a sale does come around eventually, I can still let that book sit for two years before I’m losing money. And I can relax a lot with books with a sales rank of 2 to 4 million (vs ranks like 6 or 8 million), because it’s going to be pretty rare you’re going to have them for two years.

Long Tail Buying Tier #3: Books with an average rank of 1 to 2 million

• Average Amazon sales rank: 1 to 2 million.
• Minimum listing price: $15

This is the strata more technically called  “I strongly expect this to sell before 6 months, but it often won’t.” Doesn’t mean that a book with an average rank of 2 million isn’t selling more often than 6 months, just a nod to the Amazon gods that things don’t always work out how we think they will.

To put it more loosely, these are books in that have entered the “long term storage fee danger zone.”

This is another one where it wouldn’t be unreasonable to set a $20 minimum, it just comes down to your tolerance for risk.

The “Long Term Storage Fee Aversion Framework”

Here they are: Eight truths, lessons, and mindsets for new Amazon long term storage fees, so you won’t be so afraid of them…

#1: Get comfortable breaking even on some books: If the thought of *only* breaking even on a book sends you into seizures, begin to consider that Amazon megasellers (and most smart businesspeople in most businesses) are comfortable breaking even (or even losing money) on much of their inventory. It’s okay to make a bet, have that bet not pan out, and walk away from that bet only out a few seconds of listing time.

Remember, its a lot more expensive to play it *too* safe, and to filter out any books that *might* incur a long term storage fee. If you know your numbers, there will always be more winners than break-even (or net-loss) losers, and profit from those winners will always offset losses from the losers.

#2: Get more vigilant about knowing what in your FBA inventory is approaching the 6 month mark: I’ve been the worst at this until the past year.

You’ll see from the math above, you’re still not likely to lose money on books after one year, even with new long term storage fees, as long as you adhere to basic buying guidelines. But after the six month mark, not only do you get charged monthly, you’ll get charged almost double.

You can see which inventory will get hit with fees (and exactly how much) in Amazon Seller Central at:

Reports > Fulfillment > Inventory reports column (left hand side) > Inventory Health

#3: Know what to do when a book is approaching the six or twelve month mark: A book getting close to incurring a LTSF is not a fire alarm for “purge that book immediately.” If you have the lowest price for that book, and it will still turn a decent profit after monthly LTSFs, then hold your ground.

Don’t go on purge-autopilot. Know when to hold, and when to… you know.

#4: Amazon’s long term storage fees don’t get really serious until after 12 months: You rarely bring a book into your inventory expecting it won’t sell: Even a book ranked 3 million should, in theory, sell on Amazon in less than six months. So in a perfect world, these long term storage fees don’t affect a huge percentage of books – if you reprice consistently and don’t fall victim to ego-battles that prevent you from disposing of losing inventory.

But when a book hits the 12-month mark, pay attention.

#5: Amazon sales rank doesn’t lie: If a book has an average sales rank of 3 million or better, it is almost definitely selling at least one copy every six months. If your copy isn’t selling, it doesn’t mean the book isn’t selling, it just means the sales aren’t going to you. Why would that be?

As covered, it could be condition. Could be a Buy Box thing. Could be your feedback score. But nothing comes close to the one variable that trumps all others: Pricing.

You’re probably not matched with (or below) the lowest priced offer. That is almost always the reason a book isn’t selling.

#6: New FBA fees means Amazon has revoked our being-lazy privileges: We’re not saying goodbye to selling long-tail books on Amazon, just to to shipping them in and forgetting about them without regard to whether they sell in 3 days or 3 years. (Those were good times and I’ll always remember them fondly.)

#7: This is not the end of long-tail stuff: The numbers don’t lie here. Even at a $15 selling price, you’re still making money on an average paperback book you paid $1 for – even after it sits at the FBA warehouse for 2 years.

The biggest lesson of all

Do you know what’s more expensive than Long Term Storage Fees?

Not taking risks.

-Peter Valley