As a third-party seller on Amazon, one of the critical factors in running a successful Fulfillment by Amazon (FBA) business is keeping your operational costs under control. While many sellers focus on the obvious expenses like product sourcing and advertising, long-term storage fees often go overlooked until they start eating into your profits.
In this post, we’ll dive deep into what Amazon’s long-term storage fees are, how they are calculated, and most importantly, how you can manage your inventory efficiently to avoid these fees. Whether you’re a new or experienced FBA seller, understanding long-term storage fees can make a significant difference in maintaining healthy profit margins.
What Are Amazon Long-Term Storage Fees?
Amazon’s long-term storage fees (LTSF) are additional charges that Amazon imposes on sellers who store products in their fulfillment centers for an extended period of time. These fees are designed to encourage sellers to move inventory quickly, preventing Amazon’s warehouses from being clogged with slow-moving or excess stock.
The longer your products sit in Amazon’s fulfillment centers without being sold, the more likely you are to incur these fees. Therefore, it’s important to manage your inventory effectively and ensure that you’re not leaving products to languish in storage for too long.
When Do Long-Term Storage Fees Apply?
Amazon charges long-term storage fees for inventory that has been in their fulfillment centers for over 365 days. Starting in 2020, Amazon introduced a tiered structure for LTSF, where they charge fees based on how long the products have been in storage:
- Inventory stored for more than 365 days: Any inventory that sits in Amazon’s warehouses for over a year is subject to long-term storage fees, charged on a monthly basis.
Fee Structure
Amazon calculates LTSF using the following structure:
- $6.90 per cubic foot, or
- $0.15 per unit, whichever is greater.
These fees are in addition to the regular monthly storage fees that all FBA sellers pay for products stored in Amazon’s fulfillment centers.
For example, if you have 100 units of a product that have been sitting in Amazon’s warehouse for over 365 days and the product takes up 10 cubic feet of space, Amazon will charge you based on the greater of the two amounts. If the total cubic footage fee is $69 (10 cubic feet * $6.90), but the per-unit fee is $15 (100 units * $0.15), Amazon will charge you $69.
How Long-Term Storage Fees Are Calculated
Amazon calculates LTSF based on the volume of the product (in cubic feet) or the number of units in storage, and the fee is applied monthly. This calculation ensures that oversized products that take up more space incur higher fees, encouraging sellers to maintain smaller, faster-moving inventories.
It’s also important to note that Amazon’s regular monthly storage fees differ from LTSF:
- Standard monthly storage fees are charged based on the size and weight of the item.
- LTSF is an additional charge for products stored for more than 365 days.
Example:
If you have 200 units of a product that has been in storage for over 365 days, occupying 15 cubic feet of space, the fee would be calculated as follows:
- Cubic footage fee: 15 cubic feet * $6.90 = $103.50
- Per-unit fee: 200 units * $0.15 = $30
In this case, the long-term storage fee would be $103.50 since it is the greater amount.
Why Long-Term Storage Fees Matter for FBA Sellers
For many sellers, long-term storage fees can come as an unwelcome surprise, especially if they’re not keeping a close eye on their inventory. These fees can significantly impact your bottom line, especially if you have a lot of slow-moving products or are not actively managing your stock levels.
Impact on Profit Margins
Long-term storage fees reduce your overall profit margin. If a product doesn’t sell within a year and you’re hit with these fees, the cost of storing that product can outweigh the potential profit from selling it.
Cash Flow Management
Keeping track of LTSF helps with cash flow management. You want to avoid locking up cash in inventory that’s incurring fees instead of generating revenue. It’s better to focus on products with higher turnover rates.
How to Avoid Long-Term Storage Fees
The good news is that with careful planning and inventory management, you can avoid paying long-term storage fees altogether. Here are several strategies to help you minimize or eliminate these fees:
1. Monitor Inventory Performance Regularly
Amazon provides tools to help sellers track the performance of their inventory. The Inventory Performance Index (IPI) score is a critical metric that shows how efficiently you manage your FBA inventory. Maintaining a high IPI score can help you avoid overstocking and incurring long-term storage fees.
- Track Inventory Age: Regularly check how long your products have been in storage using the Inventory Age Report in Seller Central. This report shows the age of each product in your inventory, so you can identify slow-moving stock before it incurs LTSF.
- Set Restock Alerts: Use Amazon’s Restock Inventory tool to avoid overstocking slow-moving items. Restock alerts can help you keep just the right amount of inventory on hand.
2. Increase Product Turnover with Marketing and Promotions
Slow-moving products are the biggest cause of long-term storage fees. To avoid these fees, it’s essential to move inventory faster through promotions, discounts, and marketing strategies.
- Run Sales and Discounts: Offering discounts or promotions, such as Coupons or Lightning Deals, can help you move older inventory faster. By boosting demand, you can sell through your stock before long-term storage fees kick in.
- Advertise on Amazon: Use Amazon’s advertising options, such as Sponsored Products or Sponsored Brands, to boost the visibility of slow-moving products. Paid ads can increase traffic to your listings, driving more sales and clearing out aging inventory.
3. Remove or Liquidate Slow-Moving Inventory
If a product isn’t selling and is approaching the 365-day mark, consider removing it from Amazon’s fulfillment centers to avoid long-term storage fees. Amazon offers two main options:
- Removal Orders: Create a removal order to have your inventory returned to you. While there’s a fee for removing products, it’s often less than the long-term storage fees.
- Amazon FBA Liquidations: Amazon offers an FBA Liquidation service, allowing you to sell your slow-moving inventory through wholesale channels. This can help you recover some of your investment rather than paying long-term storage fees.
4. Use Amazon’s Aged Inventory Dashboard
Amazon offers the Aged Inventory Dashboard, a valuable tool for monitoring slow-moving products. This dashboard provides insights into how long your products have been in storage and gives recommendations for improving your IPI score and avoiding long-term storage fees.
5. Optimize Inventory Levels
Striking the right balance between having enough stock to meet demand and avoiding overstocking is key to managing your FBA business effectively.
- Use Forecasting Tools: Tools like Helium 10, Jungle Scout, and Amazon’s own inventory management features can help you forecast demand and avoid over-ordering stock.
- Focus on High-Turnover Products: Prioritize products with a fast turnover rate, as they are less likely to sit in storage and accumulate fees.
Conclusion: Understanding and Avoiding Amazon’s Long-Term Storage Fees
For third-party sellers using Amazon FBA, long-term storage fees can add up quickly and impact your profitability. However, with proper inventory management, marketing strategies, and tools like the Inventory Age Report and IPI score, you can avoid these unnecessary fees.
By monitoring your inventory regularly, running promotions on slow-moving items, and optimizing your stock levels, you can keep your costs low and ensure that your FBA business remains profitable. Taking action early and staying proactive in managing your inventory is the key to success.
At Marketplace Valet, we specialize in helping Amazon sellers optimize their inventory and avoid costly fees like LTSF. Contact us today to learn how we can help you manage your FBA business more efficiently and maximize your profits.
FAQs
- What are long-term storage fees, and when do they apply? Long-term storage fees are additional charges Amazon imposes on inventory that has been stored in their fulfillment centers for over 365 days. These fees are applied monthly and are calculated based on the volume or number of units.
- How can I avoid Amazon’s long-term storage fees? You can avoid these fees by managing your inventory effectively, running promotions to move slow-moving products, and removing or liquidating inventory that’s approaching the 365-day mark.
- What is the Inventory Performance Index (IPI), and how does it help? The IPI is a metric that measures how well you manage your FBA inventory. A higher IPI score can help you avoid excess storage fees, including long-term storage fees, by encouraging better stock management.