Amazon fee hikes are hardly a new obstacle to profitability, but in 2023, they are proving to be a much more potent challenge to FBA seller margins. Businesses of all sizes will be affected, that much is clear, but exactly how the changes will affect everyone - and how sellers can protect their profitability - requires a much more nuanced understanding.
That’s exactly what the Carbon6 team is offering, starting with our recent webinar, Protecting Your Profitability in 2023, where expert panelists Chelsea Cohen, Vanessa Hung, and Yael Cabilly unpacked Amazon’s “Fee Stack,” and how to overcome its squeeze on your business’s profitability. But we didn’t end there.
To go further into this issue at such a critical time, Carbon6 also released an in-depth white paper called “Attack of the Fee Stack,” authored by Hung and Cohen, which explores the fee increases affecting this year, and offers sellers ways to relieve or offset them.
We’re planning a follow-up white paper that will go deeper into solutions as Amazon rolls out its FBA changes throughout 2023. Until then, check out our online resources to help maximize profits during FBA fee hikes, as well as the following fee solution roundup. It’s just a little taste of the insight and proactive strategies you will find if you download our free white paper.
We initially shared Amazon’s fee increases and changes for 2023 back in November, but let’s recap the most important changes:
While this list of increases and how they will affect FBA sellers can seem deliberately confusing, they can be demystified. There are also actionable ways to avoid incurring more charges, and succeed in spite of them.
Some of these solutions are simple, while others may require company-wide process changes, but all of them are achievable. Regardless of the challenge, to do nothing could be catastrophic for the longevity of your business.
One of the first and most important things FBA sellers can do to protect profit margins is analyzing their sales data and adjusting inventory accordingly.
By closely monitoring sales patterns, sellers can identify which products sell well and which do not, and then pattern their orders based on the data. This can help sellers avoid overstocking products that are not selling, and identify those that will increase sales and boost profit margins.
As the co-founder and CEO of SoStocked, Chelsea Cohen is a champion of departments working together to achieve profitability. “Marketing tends to avoid promoting slow-sellers,” she says, “because that doesn’t drive revenue [and] leaves more units in inventory.”
These slow-sellers incur what Cohen refers to as the “silent killers” of profitability: storage fees, some of which are new in 2023. By practicing Cohen’s key strategy of inventory-minded marketing, and keeping an eye on how Amazon’s storage fees affect your business, you can mitigate fees or avoid them entirely.
As of 2022, Amazon calculates and charges FBA fees based on the dimensional weight pricing (DIM) of the product. As of 2023, DIM applies to apparel, but it’s much more impactful than that.
We go more into the frankly staggering effect DIM has on the calculation of fees in “Attack of the Fee Stack,” but in short, it’s absolutely vital for sellers to understand just how much it could threaten their margins this year. Luckily, there are ways to lessen the effect of DIM pricing on your business.
One thing sellers can do is use lightweight materials and streamlined packaging, and opt in to Amazon’s Small and Light program. We go into greater detail about both of these options in the paper.
Vanessa Hung, Community ambassador for Carbon6, also recommends speaking to your supplier directly to see if they can reduce the size and space of each unit to help your profit margins. This will also help you optimize your cartons and pallets.
Cohen notes that many sellers only use 70-80% of a carton, but if you can reduce the size per unit and maximize the use of space on each carton, it may increase your profitability per unit.
Check out SoStocked’s Master Carton Calculator to see how you can reduce shipping costs.
Another effective way to protect profit margins against Amazon fulfillment fee increases is to optimize product pricing.
Conducting market research is essential to identifying the optimal price point for your products, taking into account factors like competition, demand, and cost of goods. By pricing products competitively, sellers can ensure they maintain their profit margins despite increases in fulfillment fees.
Yael Cabilly, co-founder of Fortunet, says some sellers haven’t touched their pricing in years, and that needs to change. If you haven’t analyzed and reassessed your product pricing, Q1 of 2023 is a critical time to do so to help get ahead of the profitability squeeze.
Another way to protect profit margins is to use Fulfilled by Merchant (FBM) instead of Fulfillment by Amazon (FBA).
With FBM, sellers are responsible for storing and shipping their own products, rather than relying on Amazon's fulfillment network. While this can be more labor-intensive, it can also result in significant savings on storage and fulfillment fees, which can help protect profit margins.
The Multi-Channel Fulfillment (MCF) program allows FBA sellers to use Amazon's fulfillment network to fulfill orders placed on other platforms, such as their own website or another marketplace. This can help sellers save on fulfillment costs, as they can take advantage of the economies of scale offered by Amazon's fulfillment network, while also diversifying their sales channels.
However, in 2023, there’s a catch: DIM is hidden within MCF fees, which Amazon already increased by 37%. As we note in our white paper, this makes MCF fees “so cost-prohibitive that sellers are forced to stop selling on other channels, or to raise prices significantly outside Amazon.”
There are ways around these increased MCF fees, however, like using multi-unit orders, since rates drop significantly in larger orders. Vanessa Hung also suggests bundling or offering multi-item discounts to make each sale more cost effective.
Amazon’s fee increases might feel overwhelming, and for some, it may signal a time to close a business for good – but there is still hope.
Being a part of a community like Carbon6 allows you access to some of the industry’s top expert insights and opinions. Our focus for Q1 of 2023 is helping businesses make a profitability plan for the year. Resources like our white papers and webinars are designed to set you and your business up for success.
As Vanessa Hung said at the Protecting Your Profitability in 2023 webinar, Amazon fees aren’t new, and they aren’t going away. All we have to do is learn to adapt, whether that means changing your processes or using new tools to maximize profitability.
Check out the entire Carbon6 tool suite to find out how you can protect your profits in 2023 and beyond. Whether it’s using SoStocked to help with inventory management, or signing up with Seller Investigators to find every dollar Amazon owes you in reimbursements, there are ways to fight back against the fee stack – and we can help.