Navigate Amazon’s 2024 Low Inventory Fee and Other Fee Changes Like a Pro Even if You’re a New Seller

As we move further into 2024, Amazon sellers are facing a new set of challenges in the form of various fee changes and updates. These changes, which include the inbound placement service fee, low inventory fees, returns processing fees, and the discontinuation of the Small and Light FBA program, have left many sellers concerned about impact on their profitability. In this comprehensive guide, we’ll take a deep dive into these fee changes, explore potential strategies to mitigate impact, and discuss how to effectively measure your profitability at the ASIN level.

Understanding New Fees and Changes:

1. Inbound Placement Service Fee

   Effective March 1st, 2024, Amazon introduced the inbound placement service fee to cover the cost of distributing your products across their fulfillment centers. For standard-size products, the fee ranges from 0.21to 0.68 per unit, while large, bulky-sized products will incur a fee of 2.16 to 6.00 per unit. This fee is charged 45 days after your shipment reaches Amazon. It’s important to note that placement fees do not apply to Amazon Global Logistics sellers.

2. Low Inventory Fees

   Starting April 1st, 2024, Amazon will impose a new fee for standard-size products to encourage sellers to maintain optimal inventory levels. This fee will apply to sellers who consistently carry low inventory levels relative to their unit sales. To avoid this fee, aim to maintain over four weeks of inventory relative to your sales. However, be cautious not carry excess inventory, as additional fees will also be levied in such cases. 

Calculate Amazon’s Low Inventory Fee – No more guess work and miscalculations. Get a close estimate of Amazon’s low inventory fee with SmartScout’s free calculator. This Calculator was created with inspiration from Marketplace Prep.

1. Returns Processing Fees

   Effective June 1st, 2024, Amazon will introduce returns processing fees for products with high return rates, excluding apparel and shoes. To minimize the impact of this fee, focus on maintaining a low return rate by regularly monitoring your reviews for product or packaging issues and ensuring your product pages are accurate and informative. 

2. Discontinuation of the Small and Light FBA Program

   On August 29, 2023, Amazon announced that its Small and Light program would be replaced by low-price Amazon FBA fees across the board. The Small and Light (S&L) program was specifically designed for low-priced products with small profit margins. It offered sellers with lightweight products reduced fulfillment costs on qualified items based on product weight and dimensions. 

The Top Benefits of Amazon Small and Light were:

• Free delivery for customers
• Reduced fulfillment fees
• Amazon-sponsored discounts for customers ordering two or more units\

These benefits made selling low-priced items profitable when they otherwise wouldn’t have been under Amazon’s standard FBA products pricing.

Amazon stated that the reasons for shutting down the Small and Light program were customer satisfaction and simplification. As Prime customers have gotten more accustomed to two-day shipping and receiving items the next day, they are no longer satisfied with slower shipping speeds offered under the S&L program. 

Meet the New Low-Price FBA Rates: Small and Light fulfillment rates will be replaced by lower standard FBA rates for all products priced below $10. These now apply to all low-price products, including many SKUs previously enrolled in Small and Light. 

What Does the End of FBA Small and Light Mean for You? 

Amazon summarizes how this change will impact sellers in a few different scenarios:

• If products were enrolled in S&L and are priced below 10,sellers will pay about 0.30 more per item
• If products were not enrolled in S&L and are priced below 10, sellers will pay about 0.77 less per item

Many sellers have voiced that Amazon’s announcement puts a positive spin on the news by focusing on lowered FBA rates for all low-price products. Much the confusion seems to be around what, exactly, qualifies as a “low-price product”. 

Maximum “Low-Price Product” Pricing: Amazon recently increased the maximum price to qualify for Small and Light from 10 to 12, expanding the range of qualified items and helping sellers increase profitability on items with lower price points.

With the end of Small and Light, Amazon has also decreased the maximum price back to 10. This means that the item priced between $10 and $12 that once qualified for lower Small and Light rates now don’t fall into the “low-price product” category.

For sellers previously enrolled in S&L, this is a massive shift. Several sellers also expressed confusion Amazon’s approach of basing low-price product qualification solely around a product’s price, rather than shipping costs.

Optimize Product Packaging:

To minimize the impact of fees based on product size and weight, consider optimizing your packaging. Avoid irregularly shaped packaging and opt for smaller, lighter, and more compact designs. Vacuum sealing can also help reduce product size during shipping.

Leverage the SIPP Program:

If your product does not require unique packaging, consider enrolling eligible ASINs in the Ships In Product Packaging (SIPP) program. Products in this program are delivered in their original manufacturer’s packaging without additional Amazon packaging, which can lead to fulfillment fee discounts ranging from 0.04 to 1.32 per unit.

Maintain Optimal Inventory Levels:

To avoid low inventory and excess inventory fees, closely monitor your inventory levels and aim to maintain around four weeks’ worth of stock relative to your sales. Tools like the Intentwise Ad Optimizer can help you keep track of your inventory and automatically pause ads when stock runs low.

Improve Product Listings and Quality: 

Minimize returns processing fees by ensuring your product meets safety requirements and Amazon’s code of conduct. Optimize your product listings with accurate, detailed information and high-quality images to reduce the likelihood of customers requesting refunds due to mismatched expectations.

Explore Alternative Fulfillment Options:

While Amazon’s inbound placement service offers convenience, the associated fees may significantly impact your profitability. Consider comparing the costs of using third-party logistics providers (3PLs) or managing your own freight forwarding. Obtain quotes from multiple providers and carefully analyze the costs and benefits of each option before making a decision.

Review Your Product Offerings:

For sellers offering small products priced under 12, the sunset of S&L will likely impact profitability. If you have been selling 10-12 products through S&L, it might be time to reconsider pricing or whether it makes sense to continue offering those products at all.

Check Inventory Status:

With faster delivery times in the immediate future, sellers could see order cycle times increase and sales accelerate. If Amazon’s fund reserve period is a bit too long for you, consider a line of credit, revenue advance, or invoice factoring solution to replenish inventory ASAP and ensure you’re able to stay in stock.

Expand Into New Markets:

One of the drawbacks of S&L was that it excluded major markets, like Mexico, Canada, and Australia. If selling through S&L has been limiting your global presence, this is your chance to reconsider those additional markets for your-border e-commerce strategy.

Enjoy Your Newfound Packaging Freedom:

Small and Light was notorious for its stringent packing and prepping requirements. Poly bags may have been an acceptable tradeoff for reduced FBA fees. However creative packaging tweaks like including inserts are a great way to get more Amazon reviews and increase your revenue.

Measuring Profitability at the ASIN Level:

It’s crucial to measure your profitability at the ASIN level. This involves gathering data from various reports, such as the advertised products report, settlement report, and customer returns report.

Compare the cost of using Amazon’s inbound placement service against sending multiple shipments to different locations for each ASIN. The impact of these fees may vary depending on the size, weight, and profitability of each product.

Conducting a thorough audit of your existing product portfolio will assist you in identifying which products these new fees may hit hardest and whether you need to explore workarounds or consider alternative fulfillment options.

Tools for Calculating Profitability:

1. The FBA Revenue Calculator is a tool provided by Amazon that allows sellers to estimate their potential profit and fees for a specific product. It takes into account various factors such as item price, shipping weight, dimensions, and category to provide an accurate estimate of profitability 1 .
2. The newly released SKU Economics Tool is a comprehensive tool that provides detailed insights into the profitability of each SKU. It takes into various factors such as sales, fees, returns, and inventory to provide a holistic view of each product’s performance. This tool can help sellers make data-driven decisions about pricing, inventory management, and product selection.

Amazon’s 2024 fee changes and the end of the Small and Light program pose challenges for sellers. But with a deep understanding of the new fees, effective mitigation strategies, and a clear view of your ASIN-level profitability, you can successfully navigate these changes and maintain a thriving business on the platform.