What You Need to Know about Amazon’s Low Level Inventory Fee

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Amazon has yet to roll out new fees starting April 1st of 2024. No, this is not an April Fools’ Day joke. On top of the new FBA fees that will be implemented on April 1st, Amazon now introduces the low-level inventory fee for Amazon sellers. This recent announcement drew a lot of flack from sellers and adds to the never-ending fees that hurts most sellers’ profits. 

Low-Level Inventory Fee In a Nutshell

The low-level inventory fee is calculated based on the historical days of supply of a seller’s inventory based on actual historical sales. Sellers will only be charged if the historical days of supply fall below 28 days. This fee is only applied to standard-sized products, which also comprises the bulk of most items sold on Amazon.

The table below is an example of how the historical days of supply is calculated:

You can find your historical days of supply by accessing the menu on your Seller Central account then go to Inventory > FBA Inventory: 

Amazon reasoned out that this is a customer-centric approach. This allows them to make sure that customers’ orders will be shipped right away because there is enough stock. Amazon also justifies that this is to compensate for the additional cost of having understocked units shipped out to fulfillment centers so it will easily reach the customers. However, is this really fair on the sellers? 

What Goals Do Amazon Wish to Address?

Amazon’s business decisions are always focused towards customer satisfaction, even at the expense of sellers. What do they wish to achieve with these new set of fees?

Amazon convinces sellers that when they fulfill customer demands with faster delivery speed will experience a 15% increase in sales over a month. There is no evidence to suggest this as actual results may vary based on certain conditions such as the condition of the package. 

Having enough inventory also means fewer touches and shorter distances when it comes to transferring the products from one fulfillment center to another. 

Amazon also wishes to help sellers plan inventory levels more effectively by keeping their historical days of supply above 28 days. This will also lead to faster delivery speeds since there will always be available inventory.

However, Amazon’s main goal is to continue to slow down its fulfillment spend and reduce fulfillment complexity and cost. The solution is to pass on the fees to sellers. Amazon maintains that they are more focused on other ways to streamline its operations and boost delivery speed for Prime members.

Reactions from Sellers

Now that you have an idea of what Amazon aims to accomplish with these additional fees, it would be best to know if sellers are on the same page with Amazon. 

Based on research, it would be best to compile the sellers’ reactions to get a feel of how this will affect the majority of Amazon sellers. 

One seller pointed out that “Amazon charges sellers if you have too much stock, now they also charge you for too little stock.” It seems that there is a challenge to level the stocks to “in between.” Also, most of the inventory relies on how fast the suppliers can ship out the stocks to the warehouses or fulfillment centers.

By far, those who will be most affected by the low-level inventory fee are those who sell seasonal items, books, cosmetics, perishable or food items, among others. There are also sellers who don’t sell too many stocks all at once so it would be difficult to send out 28 days worth of inventory. 

 One seller made a good point when they mentioned the IPI or Inventory Performance Index as another metric that seems to be in contrast with the low-level inventory fee. Below is a screenshot of the feedback:

On a final note, this move by Amazon seems to force sellers to avail of their Supply Chain by Amazon which offers lower fulfillment costs when you sign up. 

Impact on Sellers

There are always two sides to a coin. In this scenario, let’s explore the potential pros and cons of implementing the low-level inventory fee: 

Cons: 

  • Reduced Profits: Sellers with tight margins and those who keep their inventory at a low (seasonal items, books, cosmetics, perishables) might find their profitability squeezed. For some, the fees could even push them out of business.
  • Inventory Management Burden: The pressure to maintain 28+ days of supply demands stricter inventory management, potentially requiring higher upfront costs and increased complexity.
  • Uncertainty and Frustration: The new fee adds another layer of complexity to navigating Amazon’s already intricate fee structure, causing confusion and frustration for some sellers.

Pros:

  • Improved Customer Experience: Increased product availability could theoretically lead to faster deliveries and happier customers.
  • Incentive for Efficiency: The fee might encourage sellers to optimize inventory management, potentially reducing waste and streamlining operations.
  • Leveling the Playing Field: By penalizing those who consistently understock, Amazon could make it harder for larger sellers to gain an unfair advantage through aggressive pricing and product saturation

The Final Word

Amazon sellers need to consistently stay updated and come up with new strategies to stay in business. Here are a few suggestions: 

  1. Inventory Forecasting: Invest in accurate demand forecasting tools and regularly analyze sales data to predict future requirements.
  2. Strategic Replenishment: Utilize auto-replenishment options and set reorder points to ensure timely stock updates.
  3. Consider Exemptions: New sellers and products enrolled in auto-replenishment are exempt, so leverage these options whenever possible.
  4. Communication and Adaptability: Stay informed about Amazon’s evolving fee structure and adapt your inventory management strategies accordingly.

While the full impact of the low-inventory-level fee remains to be seen, it undoubtedly adds another layer of complexity for sellers. Whether it translates into a net positive or negative depends on individual circumstances, inventory management strategies, and the broader market dynamics. One thing is for sure: adaptability and a keen understanding of Amazon’s policies will be crucial for sellers to navigate this evolving landscape and stay competitive.

What are your thoughts on the low-inventory-level fee? Share your experiences and concerns in the comments below!

Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. It is recommended that you consult with a qualified professional before making any financial decisions.

what sellers need to know about low level inventory fee

“You can do the math 15 different ways, and every time the math tells you that you shouldn’t lower prices because you’re going to make less money. That’s undoubtedly true in the current quarter, in the current year.

But it’s probably not true over a 10-year period, when the benefit is going to increase the frequency with which your customers shop with you, the fraction of their purchases they do with you as opposed to other places. Their overall satisfaction is going to go up.”

–Jeff Bezos, Amazon CEO and Founder

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