To be a successful Amazon seller, you have to have a smart FBA inventory management strategy. In addition to having a supply chain that runs like clockwork, winning brand owners and sellers think about keeping their IPI (Inventory Performance Index) in tip-top shape, diversifying their fulfillment approach, and more. Furthermore, if an Amazon seller does not have a great inventory management system, it can impact their ability to advertise. Let’s take a look at some tips on proper inventory management, and discuss how failing to follow them can impact your ability to effectively advertise your products. But first, let’s have an overview of the FBA program.
What is FBA (Fulfillment By Amazon)?
FBA is a service offered by Amazon that allows sellers and brand owners to store their items at Amazon fulfillment centers. Sellers who use this service are eligible for Prime status (usually resulting in a 2-day ship time) and their products receive the Prime badge, which is something a lot of consumers look for when shopping on Amazon’s marketplace.
When you ship something into a fulfillment center, it is placed in strategic places for easy picking and packing. It’s easy to get started with FBA. All that’s required is an active selling account, approval by Amazon to get started, and inventory. Of course, there are fees associated with participation in FBA, but many sellers think the benefits far outweigh the negatives.
But What About Those FBA Fees?
Some of the perks associated with FBA is that the seller or brand owner doesn’t have to worry about storing their products themselves, picking and packing their goods, shipping to consumers, and handling customer returns. Amazon does that all for them. However, to keep the program going, Amazon assesses fees for the service that can be a bit difficult to understand. It’s important for sellers and brand owners to understand their FBA fees, so that they can remain profitable.
One of the biggest of these fees is the FBA storage fee. What are FBA storage fees? They are simply the cost of the space your items claim on Amazon fulfillment center shelves. They are assessed by measuring the unit size of your packaged items, multiplied by the number of units you have in storage. Amazon charges by the cubic foot, so use the following formula to estimate the cubic feet you are using at FBA.
Item length x width x height
Total volume x number of items at FBA
Total volume/12 = cubic feet
But, the charge per cubic foot varies depending on the category of the product you’re selling, and the time of year.
Standard Size Products
Standard size products are assessed at:
$.69 per cubic foot (January – September)
$2.40 per cubic foot (October – December)
Oversized products are assessed at:
$.48 per cubic foot (January – September)
$1.20 per cubic foot (October – December)
Items considered to be “dangerous goods” require special handling, so the cost associated with storing them is more, at $.99 – $3.63 for standard goods (depending on the time of year) and $.78 – $2.43 for oversized items (again, depending on the time of year).
In addition to normal FBA storage fees, Amazon assesses long-term storage fees for items that are stored in an Amazon fulfillment center for longer than a year. These cost $6.90 per cubic foot, or $.15 per unit, whichever is greater. Avoiding long-term storage fees is part of a smart inventory management system. If the math is dizzying to you, it’s handy to use a tool to help you calculate the fees you’ll need to pay. Luckily, we created a list of the best Amazon FBA calculators for you to choose from.
Note: Amazon charges additional fees when a seller’s Inventory Performance Index (IPI) drops below a set score. Not only that, but a poor IPI score can limit a seller’s storage space at Amazon FBA. For more information about the IPI, read our guide.
Amazon Logistics Tracking
In addition to monitoring your fees and keeping track of your IPI scores, you have the most important piece of inventory management to worry about. That is, making sure your items stay in stock, making sure your items sell quickly (avoiding long-term storage fees), and tracking stranded inventory to remain as profitable as possible.
Part of that is making sure your ads are running effectively, and part of it is managing your supply chain to ensure that items are on FBA shelves, ready to pick and pack so that buyers get your goods on time. And remember, they get alerts via the Amazon Logistics Tracking service for consumers, so you don’t want to be caught with no inventory on in-demand items.
Launching and Selling on Amazon Prime
Selling your products on Amazon Prime leveraging the FBA fulfillment platform isn’t difficult. Launching products on Amazon FBA is as simple as having a product, being approved to use FBA, sending the product in, and getting people to buy it. And, learning how to sell on Amazon Prime has so many benefits. As of 2019, more than half of U.S. households had a Prime membership, and that number has grown. Again, you take a great product, send it into FBA, and advertise it to get it in front of the many Prime members on the platform. You will pay fees and incur the cost associated with shipping to FBA, but the benefits you can realize are well worth it.
Reducing Shipping Costs
It’s all about your bottom line, right? But knowing how to reduce Amazon shipping costs is a valuable thing – and can be tricky, especially if you’re not leveraging FBA or are a Vendor on Amazon, rather than a third-party seller. Luckily, Amazon has programs for brands like that. Sellers can leverage US premium shipping, which requires that they have sold on Amazon for 90 days, have an on-time delivery score of 97% or more, and a cancellation rate of less than .5%
For Vendors, Amazon has the Frustration-Free Packaging Program that helps reduce waste, as well as its “Ships in Own Container (SIOC)” Certification. For sellers, Amazon’s Small and Light program saves some money as well.
Amazon FBA Reimbursements
The Amazon FBA reimbursements process can be time-consuming, but well worth it. Amazon FBA is a well-run machine, but errors are made. The most common are:
- Returns aren’t placed back in inventory
- A refund has been issued, but the item hasn’t been returned to FBA
- Amazon or a partnered carrier damages an item, but it’s not reimbursed
- Items shipped into FBA are misplaced
You need to keep a close eye on your inventory to make sure you catch these errors and discrepancies in your inventory and file a claim appropriately. To do this, you must follow up with Amazon within a certain timeframe, with solid proof that an error has occurred and that you’re owed a reimbursement. You can do all this yourself, or you can choose a trusted partner from Amazon’s Appstore to help you.
Diversifying Your Fulfillment Methods
I mentioned Fulfillment by Merchant (FBM) earlier, but let’s take a closer look. What is FBM? Many sellers are choosing dual fulfillment to meet customer demand and mitigate any restrictions imposed by Amazon regarding shipping times from FBA. You don’t pay Amazon for shipping, obviously, but you do need to pay the carrier yourself. You also have to receive and store your inventory and pick and pack your buyers’ orders. Or, you can use a fulfillment partner or 3pl to manage all that for you.
Avoid Amazon Suspension
You can’t list, advertise and sell your products if you have a suspended seller account. That means you have to avoid Amazon account suspension by following all of Amazon’s policies and monitoring your account proactively to keep watch for bad actors who may be targeting your account to get you suspended. If you do get suspended, you have provided a POA (Plan of Action) to appeal for reinstatement. You can do it yourself, or you can hire an expert to help you.
Inventory and Advertising
Inventory stockouts have the biggest impact on Amazon advertising because your Sponsored Product campaigns instantly become ineligible. Your Best Seller Rank takes a big hit, and your sales can take a dive. On the flip side, in an excess inventory situation, ads can help you boost sales by getting your products in front of more consumers. You can keep an eye on your inventory levels in Seller Central, or you can take a peek inside your dashboard in Flywheel 2.0 to know what actions to take vis-a-vis advertising to maximize your profits.