Mastering Amazon Storage Fees: all you need to know!

Mastering Amazon Storage Fees: Everything You Need to Know!

If you’re selling on Amazon, it’s likely that you’ve incurred Amazon’s “storage fees”. Amazon charges monthly inventory storage fees for the space your inventory occupies in fulfillment centers (FC). We’ll explain you all you need to know about those storage fees.

There are effectively two main types of Amazon storage costs:

1. Monthly storage costs: At the close of each month, Amazon assesses a monthly storage fee for merchandise stored in its warehouses. This fee is typically deducted from your account balance between the 7th and 15th of the following month.

2. Long-term storage costs: On the 15th of every month, Amazon conducts inventory clean-ups. During this process, items stored in Amazon's fulfillment facilities for 180 days or more are tracked. These items incur so called long-term storage fees.

Let’s dive into the specific of each storage cost type.

What are monthly Amazon storage fees and how are they calculated?

The bulk of Amazon storage fees comes from Amazon charging you to keep your inventory in their fulfillment centers. Your monthly storage cost is calculated by summing up the monthly storage fee for each of your SKUs stored in Amazon’s FCs. The monthly fee per product = Average daily volume per unit x applicable rate. Let’s break down how these 2 main variables impact your monthly storage fee:

1. Average daily volume per unit = average daily units x volume per unit. The daily average volume is the total volume in cubic feet (or cubic meters depending on your FC location) of the inventory you have stored in Amazon’s fulfillment centers. This is calculated every day by Amazon for each of your SKUs in all of their FCs. It is made up of two components:

2. Average Daily Units: Fees are based on the average number of units stored in FBA per month, minus the average number of units pending removal. The more units you have stored in Amazon’s FCs, the higher the monthly storage cost.

3. Volume per Unit: the more “space” your inventory occupies in Amazon’s FCs, the higher the monthly storage costs.

4. Applicable rate = monthly storage fee per cubic fee (or cubic meter). The applicable rate depends on 4 factors:

5. the product type (regular vs dangerous goods): Products that can be sold only through the FBA Dangerous Goods program require special handling and storage. As such, dangerous goods products stored in Amazon’s fulfillment centers incur a higher monthly storage cost than regular goods. Typically, the storage rate for dangerous goods products is between 10% and 50% more expensive than for regular goods.

6. the product size tier (standard vs oversize goods): Product size tiers are measurement categories based on the unit weight, product dimensions, and dimensional weight of a packaged item. Standard size goods (products for which the shipping weight is less than 20lb) have a lower monthly storage rate than oversized goods.

7. the time of year (peak vs non-peak): Storage fees vary by time of year based on shopping seasons. From January to September, the non-peak storage rate applies while from October to December, peak storage rates apply. Storage rates during peak season are on average 3x higher than during non-peak season.

8. the storage utilization ratio: The ratio of your average daily inventory volume stored divided by the average daily shipped volume during the past 13 weeks. Storage utilization ratio on the last day of a given month is used to determine the storage utilization surcharge rate for inventory stored during that month.

Let’s run through a quick example of how your monthly storage fee would be calculated for a typical SKU:

• Size tier: Standard size

• Storage utilization ratio for the size tier: 14 weeks

• Current month: July

• Volume per unit: 0.05 cubic feet

• Average daily units in storage: 100

• Dangerous goods classification: Not a dangerous good

Calculation: 100 average units per month x 0.05 cubic feet per unit x $0.87 per cubic foot (standard-size rate for storage utilization ratio below 26 weeks charged in July) = $4.35 total monthly storage fees

What are Amazon Aged Inventory Surcharge fees and how are they calculated?

The Aged Inventory Surcharges (formerly known as long-term storage fees) are applied on goods that have been in the Amazon fulfillment centers for more than 180 days. Aged inventory surcharges are assessed using an inventory snapshot on the 15th day of each month and is charged in addition to the monthly inventory storage fee.

Similarly to the monthly inventory storage fee, the aged inventory surcharge is calculated by multiplying the applicable cubic foot fee (or per unit fee) x the volume of your inventory subject to aged inventory surcharge (effectively all units stored at Amazon’s FCs for more than 180 days).

Aged Inventory Surcharges can significantly increase your monthly costs and reduce your profits. Learn how 3fin can help you avoid aged inventory surcharges.

How to keep storage costs as low as possible?

Keeping storage costs under control is crucial to remain profitable selling on Amazon. And luckily for you, it all boils down to two things:

1. Proactively managing and optimizing your inventory to lower your monthly inventory fee

2. Avoiding aged inventory surcharges at all costs

Easier said than done? Maybe. But always keep in mind the monthly storage fee equation:  

Monthly storage fee = Average daily volume per unit x applicable rate

As a seller, your need to optimize each component of the equation to minimize the monthly storage fee.

Let’s start with the average daily volume per unit. How do you minimize it?

Here are a few suggestions: make sure you only store products that will sell in the next 1-2 months, avoid overstocking products, be careful with seasonal products, avoid storing really large items (fancy way of saying: “prefer smaller products to bulkier products”) etc.

What about the applicable rate? Well, make sure you get the lowest rate possible by: storing regular goods rather than dangerous goods, being mindful of rate increases during peak-season, and making sure to have the lower storage utilization ratio as possible to avoid storage utilization surcharges.

If you want to learn more about how to decrease your storage costs, check our Top 10 Tricks to Decrease your Amazon Monthly Storage Fees

Having a detailed overview of your stock position in each market you are selling is essential to optimize your supply chain strategy and minimize storage costs. Check out how 3fin can help you visualise your days on hand for each SKU, what percentage of your storage is close to incurring long-term storage fees and the recommended reorder date based on your sales velocity. You can book a demo to see 3fin in action.

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