The recent COVID pandemic opened a lot of opportunities for sellers to transition to eCommerce. As many brick-and-mortar stores closed down, sellers opted to sell their goods online so they can still do business. With that, Amazon has doubled its fulfillment capacity to accommodate more of the sellers’ goods in FBA.
As 2022 started, we expected to go business as usual with the COVID cases dwindling down. However, when Russia started a war in Ukraine, our hopes of returning to normalcy wavered. Gas prices markedly increased which caused a domino effect of increasing the cost of goods, shipping, and logistics.
Amazon FBA Fee Increase Announcement
In this article, Amazon announced that it will increase Amazon FBA fulfillment fees to 5% for apparel, non-apparel, dangerous goods, and small and light items this April 28th.
To look at one example from the table, take a look at the fee increase for a mobile device case. You will notice that the fee per unit increased to 0.15. If you have a hundred units, that means an increase of $15.
Why Amazon Needs to Increase FBA Fees
It seems that the war in Ukraine has greatly affected more people globally than the COVID pandemic. With the rise in gas prices, the charge of moving goods has also increased. Logistics and shipping companies are protesting because they are not earning enough since their earnings are consumed by fuel prices.
Thus, Amazon decided to charge the 5% FBA fees to sellers and subsidize the drivers who move the goods to and from the FBA warehouses. This move will at least even out the challenges that sellers face with delayed shipping and ensure that there will be available logistics.
This move is also an answer to the Amazon’s Flex drivers’ demands to increase their pay rates to compensate for the increasing gas prices that hit their earnings. Based on the article, Amazon addresses this issue by offering surge pricing to compensate for the lost earnings.
Increase of Amazon FBA Fees and Its Effects on Sellers
As a seller, these added fees will greatly affect your business. Some sellers have resorted to overbuying stocks so they wouldn’t have to worry about the cost of shipping. However, they would still have to pay additional storage fees. Plus, Amazon’s restock limits would also prevent sellers from having an excess in inventory.
Some sellers resort to drastic changes such as changing logistics, for example, from UPS to USPS. They even haggle with the suppliers to lower the cost of goods; which is close to impossible especially if the supplier is in China. Chinese suppliers would also have to shoulder the cost of transporting the raw materials and finished products.
What To Do
The only solution to this is to increase your product prices. As much as sellers want to keep their prices competitive and not charge the additional fees to consumers, your business will not profit if you don’t adjust your prices.
To compensate for increase in prices, sellers can create discounts for slow-moving inventory. Sellers can also bundle their products according to use. For example, if you sell baking pan and rack sets for $25 a set and silicone potholders for $8. You can bundle them and sell them for $30. You can also use the Amazon FBA calculator to calculate your profits based on the unit price and COGS.
Conclusion
With the cost of goods, fuel, and shipping skyrocketing, Amazon decided to increase FBA fulfillment fees to 5% to subsidize the Amazon drivers who deliver goods to and from the FBA fulfillment centers. This increase in fulfillment fees causes a domino effect which would in turn require sellers to increase product prices to stay in business.
If you have questions about inventory management, please do not hesitate to connect with us.
“The moment you make a mistake in pricing, you’re eating into your reputation or your profits.”
– Katharine Paine
3 Responses
This is very helpful. Thank you!
This is helpful. Thank you!
Thank you, Kristina! Glad that you found it helpful. Let us know if you have further questions about selling on Amazon.