How the New Fulfillment By Amazon Fees Affect SMBs
Posted: Sun Dec 15, 2024 8:42 am
Our expert explains the fees, their purpose and why they hurt small businesses.
Justin Floyd
Written by Justin Floyd
Published on Sep. 06, 2024
A delivery person is holding an Amazon package.
Image: Cineberg / Shutterstock / Built In
Brand Studio Logo
The close of 2023 saw Amazon introduce mobile phone number list sweeping changes to its FBA (Fulfillment by Amazon) fee structure. This sudden announcement surprised the millions of small and medium-sized businesses (SMBs) on the platform, prompting them to reassess their profit margins and re-evaluate their business models.
What Is Open Commerce?
Open commerce reduces entry barriers for new competitors, fostering innovation and increasing market competition. It also offers lower fee structures compared to traditional e-commerce platforms like Amazon, allowing SMBs to focus more on product development.
Amazon has emerged as the clear beneficiary of its fee restructuring. Revenue from its FBA services reached $34.6 billion by March 30, 2024, a 36.5 percent increase from two years earlier. The SMBs, in contrast, are faring considerably worse. With FBA sellers experiencing a 95 percent failure rate to begin with, the new fee adjustments threaten to be an extinction-level event for many.
Some SMBs are certainly attempting to adapt but in light of the tight constraints imposed by Amazon, many may be looking to migrate to a more permissible marketplace — one that espouses the open model of commerce.
Related Reading
How Tech Is Shaping the Future of E-Commerce
What Are Amazon’s New FBA Charges?
Amazon takes a cut for each unit sold on its platform, with sellers typically paying 50 percent of their sales in FBA fees. The late 2023 FBA fee overhaul adjusted existing fees and introduced new charges. A quick rundown of these changes:
Referral Fee
Amazon charges this commission to sellers for providing the platform.
FBA Fee
Sellers using Amazon’s FBA service pay Amazon a fee that covers the costs of storing, packing and shipping their products. Recently, Amazon has decreased these fees by an average of twenty cents per unit for standard-sized items and by 61 cents per unit for large and bulky items.
Inbound and Outbound Fee
This new fee shifts the burden of distributing inventory to fulfillment centers to sellers. Amazon is open to reducing or waiving this cost altogether if the seller sends their products to multiple Amazon inbound centers.
Low Inventory Level Fee
Sellers falling below a 28-day supply minimum inventory threshold could face per-unit fees that range from 32 cents to $1.11.
Returns Processing Fee
Sellers exceeding a specified threshold for product returns now pay a penalty fee for each additional returned item.
In summary, the FBA fee restructuring reduced two existing fees while adding three new separate fees. With the new costs in place, Amazon estimates that the average seller will pay an additional 15 cents per unit sold.
Of the five fees mentioned above, SMBs particularly take umbrage on two: the inbound and outbound fee and the low inventory level fee.
Effects of the Inbound and Outbound Fee
The inbound and outbound fee can pose a veritable catch-22 to sellers. Smaller businesses lacking the high sales volume to justify shipping their products to multiple inbound locations are stuck absorbing the added per-unit cost.
For example, if a product has a regional customer base, the seller may only distribute it to a single inbound location. Assuming that this product weighs 2.5 pounds and the seller moves 50,000 units a year, they will incur $20,000 in inbound and outbound fees. Factoring the 24-cent-per-unit reduction as stipulated by the adjusted FBA fee for a product of this size, the seller will face a net loss of $8,000. Given that Amazon already takes nearly 50 percent of sales revenue, an additional $8,000 in fees can be crippling.
Businesses opting to spread out their distribution streams in an effort to dodge these fees might not fare any better, as this approach simply leads to higher shipping costs. Only businesses profitable enough to have multiple inbound locations from the start are unaffected by the inbound and outbound fee.
Justin Floyd
Written by Justin Floyd
Published on Sep. 06, 2024
A delivery person is holding an Amazon package.
Image: Cineberg / Shutterstock / Built In
Brand Studio Logo
The close of 2023 saw Amazon introduce mobile phone number list sweeping changes to its FBA (Fulfillment by Amazon) fee structure. This sudden announcement surprised the millions of small and medium-sized businesses (SMBs) on the platform, prompting them to reassess their profit margins and re-evaluate their business models.
What Is Open Commerce?
Open commerce reduces entry barriers for new competitors, fostering innovation and increasing market competition. It also offers lower fee structures compared to traditional e-commerce platforms like Amazon, allowing SMBs to focus more on product development.
Amazon has emerged as the clear beneficiary of its fee restructuring. Revenue from its FBA services reached $34.6 billion by March 30, 2024, a 36.5 percent increase from two years earlier. The SMBs, in contrast, are faring considerably worse. With FBA sellers experiencing a 95 percent failure rate to begin with, the new fee adjustments threaten to be an extinction-level event for many.
Some SMBs are certainly attempting to adapt but in light of the tight constraints imposed by Amazon, many may be looking to migrate to a more permissible marketplace — one that espouses the open model of commerce.
Related Reading
How Tech Is Shaping the Future of E-Commerce
What Are Amazon’s New FBA Charges?
Amazon takes a cut for each unit sold on its platform, with sellers typically paying 50 percent of their sales in FBA fees. The late 2023 FBA fee overhaul adjusted existing fees and introduced new charges. A quick rundown of these changes:
Referral Fee
Amazon charges this commission to sellers for providing the platform.
FBA Fee
Sellers using Amazon’s FBA service pay Amazon a fee that covers the costs of storing, packing and shipping their products. Recently, Amazon has decreased these fees by an average of twenty cents per unit for standard-sized items and by 61 cents per unit for large and bulky items.
Inbound and Outbound Fee
This new fee shifts the burden of distributing inventory to fulfillment centers to sellers. Amazon is open to reducing or waiving this cost altogether if the seller sends their products to multiple Amazon inbound centers.
Low Inventory Level Fee
Sellers falling below a 28-day supply minimum inventory threshold could face per-unit fees that range from 32 cents to $1.11.
Returns Processing Fee
Sellers exceeding a specified threshold for product returns now pay a penalty fee for each additional returned item.
In summary, the FBA fee restructuring reduced two existing fees while adding three new separate fees. With the new costs in place, Amazon estimates that the average seller will pay an additional 15 cents per unit sold.
Of the five fees mentioned above, SMBs particularly take umbrage on two: the inbound and outbound fee and the low inventory level fee.
Effects of the Inbound and Outbound Fee
The inbound and outbound fee can pose a veritable catch-22 to sellers. Smaller businesses lacking the high sales volume to justify shipping their products to multiple inbound locations are stuck absorbing the added per-unit cost.
For example, if a product has a regional customer base, the seller may only distribute it to a single inbound location. Assuming that this product weighs 2.5 pounds and the seller moves 50,000 units a year, they will incur $20,000 in inbound and outbound fees. Factoring the 24-cent-per-unit reduction as stipulated by the adjusted FBA fee for a product of this size, the seller will face a net loss of $8,000. Given that Amazon already takes nearly 50 percent of sales revenue, an additional $8,000 in fees can be crippling.
Businesses opting to spread out their distribution streams in an effort to dodge these fees might not fare any better, as this approach simply leads to higher shipping costs. Only businesses profitable enough to have multiple inbound locations from the start are unaffected by the inbound and outbound fee.