Editor’s Note: My dad (Jason Wilkey) sent me this blog post ever we had a long discussion about the impact of FBA storage fees on the average seller. After reading it, I knew I had to share it to make sure that everyone understood something that most people overlook. So take the time to read this and add this to your knowledge bank.
In this post, I want to show how not “knowing the numbers”, specifically the storage fees that Amazon charges, can impact the true profit that you make on products you source.
I will show how to calculate these charges and show a few case studies. I believe that after seeing the “true numbers”, you may be influenced to be more selective in your sourcing and timing of shipping products into the warehouses.
Let’s get started.
Right off the bat, we need to get set something straight:
Amazon doesn’t want to store your junk.
They have made that clear over the last few years as they have increased fee and tightened loop holes in the system to encourage Amazon FBA sellers to not send in slow moving products to their warehouses.
There are 2 sets of storage fees. The monthly storage fee and long term storage (LTS) fee. The monthly has historically been super cheap. They actually are super cheap except for the recent change of charging more during November and December (a lot more during these months)
From the Amazon website:
“Storage fees are charged for all units stored in an Amazon fulfillment center based on calendar month and your daily average volume (measured in cubic feet).”
The keyword here is “average daily volume”. In other words, you can’t store for 29 days, sell and avoid paying storage fees on the product. Basically you start paying storage fees on the product as soon as it hits the warehouse. Hence, the faster your sell stuff, the less you pay in storage fees.
While this seems obvious and it probably isn’t a big deal most months due to the low fees, it can make a big difference during Q4 when the fees increase drastically during November and December.
For example, I have a couple of FBA seller friends, that I wouldn’t consider them “big time sellers” that had storage fees of $1200 and $1600 for the month of December. When these showed up in January, it had a big impact on their accounts.
Calculating The Storage Fees
The formula for calculating storage fees on a single item is very simple despite doing all the math. The formula you use figures out the cubic feet of an item. You actually use inches, which 1 cubic foot is 1728 cubic inches ( 12” x 12” x 12” ). Then you are simply multiplying that by the rate charged per cubic foot.
On most product pages, the dimensions of the product is listed (in inches) which gives us a very good idea what Amazon is using to determine the cubic size of the product.
While I will go through how to figure all this, in the real world I am actually using a Chrome extension that I created to do this. At a click of the button, I have all these figure without the work (Note: The extension uses the fee increase (Mar 2017) so the numbers is shows are slightly different than the manually figured ones that you will see in this post).
You can find the extension here:
So for example, say we have a product that the dimensions listed on the product sales page is 8” x 9” x 12”. We would take 8 x 9 x 12 to get 864 (cubic inches). Then we would divide 864 by 1728, which .5 (cubic foot)
The formula looks like this: (length X width X height) / 1728 = Cubic foot measurement
Assuming this is a standard sized item, we would take .5 times the monthly rates to determine what we are paying per unit each month to store these items in the Amazon warehouse.
For the months of Jan-Oct, the current monthly fee is $.54 per cubic ft (super cheap). So we take .5 x $.54 to get $.27 per month to store this item. (like I said, super cheap).
So that formula is: Cubic foot measurement X monthly storage fee = Price per unit to store
Now for the months of Nov-Dec, the monthly storage fee is currently $2.25 per cubic foot ( basically 4 times as much as the normal monthly rates)
So if we take .5 x $2.25, we get $1.13 storage fee per month. Significantly more that the $.27.
Amazon actually has a page up explaining this math and it has a built in calculator that you can enter the dimensions and it will give you the fees.
So this is nice to have but how does this help us?
I am glad you asked.
Many times these fees can eat up your profit on low margin items that are large or slow moving. If you have these numbers and do some forecasting of possible sales, you may decided to not source a product, delay shipping in say all 100 units at one time or try to time the shipping in to hit during peak demand.
The best way to show this is in an example
Let’s pretend that we were able to source these basketballs in September for $2 each from Walmart. Super find we think at first.
We hope that they sell for the $17.99 list price closer to Christmas or when Amazon runs out (they are selling at $11.99)
This would give us a $4.54 profit. (this has very high fulfillment fees)
But things don’t go exactly our way. Amazon ordered a lot of these and keeps the price down at $11.99 until they run out just a few days before Christmas.
At $11.99, after fees the product loses $.56 a unit (not counting any inbound shipping)
But Amazon runs out and we sell it for $17.99 on Dec 22.
We just made $4.54 profit on a $2 investment. That is a massive ROI. We are killing it on Amazon.
Now let’s see what your really made.
So we sent these in at the first of September so we are charged the normal monthly storage fees.
So we pay $0.30 a month for both September and October which is $0.60.
Next we will have to pay $1.26 a month for both November and December (I know that we didn’t use the whole month and would be slightly less but remember this is just an example).
So we would pay $2.52 for November and December.
That brings us to $3.12 storage fee ($.60 + .$2.52) , which gives us a profit of only $1.42. Not near as much as we originally thought.
Now say Amazon never ran out and we decided to dump these on December. 22 at the $11.99 price. We feel pretty good because we only lost $.56 a unit.
We lost more than that. Remember we still have to pay storage fees.
So we add the $.56 loss to the $3.12 storage fee and we have lost $3.68 per unit.
So what could we have done different?
Say we studied the chart and saw the Amazon has ran out of stock the last week before Christmas for the last 3 years but has never ran out of stock from September until then.
We could hold the product and try to time the shipment to arrive a week before the last week before Christmas.
We would incur the lowest storage fees possible in this case.
But you said Amazon didn’t run out.
In this scenario, we know something changed. The buyer for Amazon got wise and ordered more. The chart is “broken” and we still need to dump.
Now we still have the $.54 loss per unit but we could expect about ½ the month storage fee for Dec. ($.63), so we would lose $1.17 per unit instead of the $3.68 we had by sending into the warehouse in September.
As you can see, the numbers are sort of hidden from what most people are figuring in general. There is a lot of work and a lot math going on here.
I don’t see anyone messing with this for a single unit or 2 of something. But what if you had 500 units? Then the numbers could really add up.
Next we will look at Long Term Storage fees.
Unlike the storage fees above, we all will worry about long term storage fees (and we will use the same example but change a few thing up).
Long Term Storage Fees
Man I hate to even type that word out (LTS).
LTS is serious business.
This is where Amazon takes you out behind the woodshed and shows you the error of your ways.
I have said it before but Amazon does not want to store your junk in their warehouses.
Amazon has 2 levels of LTS. The 6 month level and the 12 month level.
The current rate per cubic foot for the the 6 month level is $11.25 and the 12 month rate is $22.50. On top of this, you have already paid the monthly fees on these items.
This is Amazon way of telling you to get your slow moving stuff out of the warehouses.
Amazon recently made a big change to the LTS. Previously, you could have 1 unit of each ASIN in the warehouse and you would not have to pay LTS fees on that item. This was great for book sellers and people that had any products that have a super high sales rank but a high ROI. You could send it in and let it sit until it sold and not have to worry about LTS. Well that is gone now.
The one trick that does still is shipping items in just after the cut off dates (February 15 and August 16) . Theoretically you could ship something in on Aug 16 and not incur LTS fees on February 15 because it has not been in the warehouse for 6 months on February 15 (close, but not 6 months).
Figuring the LTS fees is basically the same process as figuring monthly storage fees. You calculate the cubic dimension and take that times the storage fee rate.
So let’s go back to my example of the basketball.
Say I sent them in in September. That is past the August 15 date, so come February 15, I don’t have to worry about LTS fees. (but come August 15 it would be subject to the 6 month LTS fee).
Now let’s pretend that I found these at the beginning of August and sent them in before August 15. Once again, Amazon never ran out like I expected and I just held on to these hoping Amazon would have to run out sometime.
February 15 comes and I haven’t sold these yet. I am now going to be charged LTS on these because they have been in the warehouse for 6 month or more.
Going back to our cubic dimension calculation, (8” x 9” x 12”), these are .5 cubic feet.
Then we take it time the $11.25 per cubic foot rate and we get $5.63 per unit!
Now let’s add up our total storage fees on this item.
We had $1.20 (4 months at $.30 per month) and $2.52 (November and December fees) and then the 6 month LTS fee of $5.63. This adds up to $9.35 ($1.20 + $2.52 + $5.63)!
If we add in the $2 we paid for it, we have $11.35 in it and it is selling for $11.99 on Amazon.
This is a total train wreck.
So now we are stubborn and don’t want to admit defeat. So we decide Amazon has to run out and we will sell it then and make it back if they run out and we can price it high.
So we hold more and no luck, Amazon hasn’t sold out and August 15 rolls around.
So now we have to add another 6 month of monthly fees $1.80 (6 x $.30) and now we will get hit with the 12 month LTS fees.
The cubic foot rate is $22.50, so we take it times the .5 cubic foot and we get $11.25.
Now let’s add all of this up.
We had $9.35 in storage fees on February 15 and now we have $9.35 + $1.80 + $11.25, which is $22.40 in accumulated storage fees.
Add in the $2 we paid for it and we have $24.40 in a product that sells for $11.99 on Amazon.
Sorry if this is shocking, but the numbers don’t lie.
Does this happen? Yep, all the time.
Well people don’t pay attention to the numbers.
In this example, we may have been in a Walmart, saw a shelf full of $2 basketballs that have a super low sales rank and can make 200% + ROI. In our minds, we just made bank and really don’t think about the numbers if the deal goes south.
Then when the “chart broke”, we refuse to admit that we made a bad buy. As you can see in the numbers, it just gets worse as we ignore it.
My Real World Example
I bought 2 of these wagons in the summer time for $40 each and they had very high sales rank but looking at the charts, I expected I could sell them easily around Christmas. I had plenty of wiggle room on the price because of the low COG (I believe the FBA price at the time I bought was around $229ish)
Editor’s note: I actually bought 6 of these and sold these within 1 month around the same time my dad purchased them.
I had these sitting in my basement (ie: free storage) and I believe sometime just after August 15th, I was cleaning the basement and sent these in (I shouldn’t have done that as we will see).
These ended up selling at the end of Nov. The price started to drop and I had to sell them for $129.99 each. (Nowhere near what I had hoped for).
I went against my own advice and sent these in too early. I had expected to sell these mid December and there was no reason to send in much earlier than late November.
I am going to just use my app to grab the numbers from instead of doing the calculations. (these are the new March 2017 storage fee rates but they are close enough)
As you can see that oversize storage is $3.08 a month for August-October, so I paid $9.24 to store it during that time frame (remember I wasn’t even planning on selling them at that time and the chart agreed with me).
Then November rolled in and I had to pay $8.24 for the month (it was close to the end so this is about right)
*** A side note, notice that oversize is actual cheaper during Nov-Dec than standard size $8.24 vs $16.84. Might be something to consider next Q4
So I paid $17.48 in storage fees each that I didn’t have to if I had sent them in in late November like I had planned.
After fees (not including inbound shipping) I got back $88.28. If you subtract the $40 COG, I made $48.28 on each of these.
I didn’t make that much. I have to subtract out the $17.48 in storage fees, so I only made $30.80 each.
I reduced my profit by 36% ( $17.48 / $48.28 )! I cost myself $35 on the 2 units I sent in early.
Many people that are selling fast turn are hoping to make a 36% profit and I am tossing it away because I timed my shipping wrong and had pay storage fees.
Luckily I sold these but let’s say I sent these in on August 1st and had them in stock come February 15th.
Here is how bad that would be
4 months @ $3.08
2 months @ $8.24
And, HOLD ON TO YOUR HAT
$80.62 for 6 month LTS
The total would be $109.42 each ($12.32 + $16.48 +$80.62). If I hadn’t sold these, on February 15th, my LTS bill for these 2 units would have totaled $218.84 (this didn’t happen)!
First, unlike in the past, Amazon says it is not offering free removals for the February 15th LTS , so if you are reading this before then, make the necessary removals if you need to.
Seller Central actually has a LTS fee estimation if you take the time to find it (you could just click on the extension to see what the fee would be).
Second, if you source seasonal items at are at a big discount but most likely won’t sell until the next time the season comes in, don’t ship these into the warehouse. You might actually eat away at the profit that the discount was giving you.
Example, last year a friend of mine bought a skid full of clearance Christmas lights shortly after Christmas and sent them in. I am not sure if he did before or after February 15th, but most likely they weren’t going to sell until sometime in November at this quantity (yes I know that they do sell in July too).
If he sent in before February 15th, he would have gotten hit with LTS on August 15th. If he waited until say March 1st, he would have avoided the LTS fee or he could have shipped them in somewhere after the start of November.
I know what you are thinking:
But some sell year round you say.
Well send in a handful. Don’t send in the whole skid. If they start selling, send some more in. There is no point of sending in 500 if you are only going to sell 10.
*Editor’s note: This might be the most important point of the entire post.
Third, know your numbers. Think about size before buying. Don’t pretend that it will be ok and Amazon will run out and you will make a ton of money when everything is telling you that they won’t. Non moving inventory is not a real asset (maybe in your books it is and to the tax man) but it is costly you money to store (and costing you opportunity)
Finally, realize that there are other sellers that are aware of these fees (especially LTS) and will be pricing products to move.
You may have just sent an ASIN in in January, but the seller that sent it in in July is going to be “tanking” the price come the first of February to avoid LTS. You could see the price dip and then raise just after February 15th. Don’t let your repricer chase these sellers.
Overall, you need to be aware of the effect of storage fees because most sellers are not doing the math and figuring that into their costs.
If you have actually made it this far and read all of this. I will let you in on a secret.
You can find the extension here:
– Jason Wilkey has more FBA based information on his website www.arbitrage411.com