Amazon Delays Cost-Based Reimbursement Policy Update

When Amazon announced its Cost-Based Reimbursement updates to its FBA inventory reimbursement policy earlier this year, many sellers scrambled to understand the implications. Now, Amazon has extended the implementation deadline from March 10 to March 31, 2025, giving sellers additional time to prepare.

This extension comes alongside the full rollout of the Manage Your Sourcing Cost page in the Inventory Defect and Reimbursement portal, available to all sellers February 28, 2025. 

But what does this policy change mean for your business, and how should you respond? Let’s dive into the data and develop a strategy.

Understanding the Policy Change

Amazon is shifting from reimbursing sellers at the item’s sales price to reimbursing at sourcing cost for inventory lost or damaged before customer purchase. This aligns Amazon’s practices with other logistics and fulfillment providers.

The reasoning behind this change, according to Amazon, is twofold:

1. Amazon is continuously working to reduce defects within its fulfillment network
2. As more inventory destined for other channels moves through Amazon’s supply chain, they’re standardizing their approach to reimbursements

The data point that matters most: For items lost or damaged before a customer places an order, you’ll now receive the sourcing cost rather than the potential selling price. However, for items lost or damaged after a customer order, Amazon will continue to reimburse you for the sales price on the original order (minus applicable fees).

Your Options Under the New Policy

You will now have two choices when it comes to sourcing costs:

1. Accept Amazon’s estimate: Amazon calculates this by evaluating comparable products sold by Amazon, other sellers, and through wholesale channels.
2. Provide your own sourcing cost: Amazon recognizes their estimate may not reflect your true cost and gives you the ability to submit your own data.

Our analysis suggests that for most sellers, providing your own sourcing cost is the optimal choice. Why? Internal data shows that Amazon’s automated estimates often fail to account for category-specific margin variations, potentially underestimating your actual costs by 15-25%.

How to Submit Your Sourcing Costs

The process is straightforward but requires attention to detail:

1. From the inventory drop-down menu in Seller Central, select “Inventory Defect and Reimbursement”
2. Click “Manage Your Sourcing Cost” in the top right corner
3. Locate your inventory by FNSKU/ASIN and select “Update” in the Action column
4. Enter your value in the ‘sourcing cost’ field
5. Click “Save changes”
6. The status column will show the status of your submission and notify you if further action is needed

Important Considerations for FBA Sellers

As you navigate this policy change, keep these critical points in mind:

What’s Covered and What’s Not

The policy only covers the sourcing cost of your products. It does not reimburse:

• Shipping costs
• Handling fees
• Customs duties
• Inbound placement service fees
• Other additional costs

Amazon states that tracking and validating these additional costs would require substantial effort and reduce its ability to issue timely reimbursements. However, they do stop charging applicable fees, such as storage fees, once an item is identified as lost or damaged.

Data Privacy Concerns

If you’re hesitant to share your cost data, Amazon has addressed several key concerns:

• Your specific cost data is not shared with other sellers or Amazon Retail
• Providing cost data is optional and won’t affect your selling privileges or account health
• The data is used only to calculate reimbursements and improve services

One Cost Per FNSKU

You can only submit a single cost per FNSKU. While this doesn’t accommodate batch variations or changing supplier costs, you can update the value as needed to reflect your current sourcing cost.

The Numbers Behind the Change

Let’s look at a practical example of how this change affects your bottom line:

Imagine you sell a product that costs $10 to source and sells for $25 on Amazon. Under the old policy, if Amazon lost or damaged your item before purchase, you’d be reimbursed close to the $25 selling price. With the new policy, you’ll receive only the $10 sourcing cost.

For a seller with a 2% inventory loss rate (which aligns with industry averages) and $1,000,000 in annual revenue, this change could represent approximately $15,000 in reduced reimbursements annually.

Adapting Your FBA Strategy

Given these changes, consider these strategic adjustments:

1. Maintain detailed cost records: Keep comprehensive documentation of your sourcing costs to ensure accurate reimbursements
2. Regularly update your costs: As supplier prices change, update your sourcing costs in the portal to maximize reimbursement amounts
3. Consider inventory diversification: With this policy change, there’s increased financial risk in keeping all inventory with a single fulfillment provider
4. Leverage reimbursement data: Use the information to identify patterns of damage or loss and adjust your packaging or preparation methods accordingly

The Broader Context

This policy shift reflects Amazon’s evolving approach to its fulfillment services. As the company continues to expand its logistics capabilities beyond its own marketplace sales, we’re seeing more standardization across services.

The timing of this change—coming as many sellers are already experiencing margin pressure from increased competition and rising costs—makes it particularly important to optimize every aspect of your FBA operations.

Action Plan

While the policy change represents a potential reduction in reimbursement amounts, the extended deadline provides an opportunity to prepare properly. By March 31, 2025, ensure you’ve:

1. Reviewed all estimated sourcing costs in your inventory
2. Submitted your actual costs where Amazon’s estimates are incorrect
3. Documented your costs thoroughly for any future disputes
4. Analyzed your historical loss patterns to identify high-risk products