As of April 28, 2022, Amazon has increased certain FBA fees. But what does this mean for the approximately 90% of Amazon sellers who sell FBA?
Today, I’m going to walk you through the newest addition to Amazon’s FBA fees and what it could mean for you.
When I first started selling in Amazon back in 2014, I sold products FBM—fulfilled by merchant (or, as I like to define it, fulfilled by me). I used to package, tape up, print shipping labels for, and ship my own products to customers.
When I discovered FBA—fulfilled by Amazon—it was a game changer, one that I am incredibly grateful for. In fact, I love paying FBA fees because they give me more time to do the things I love, with the people I love.
What the Surcharge Means
In other words, US Amazon sellers who sell products FBA will be charged an additional 5% on top of existing FBA fulfillment fees. The surcharge comes just a few months after Amazon reported $103 billion in fees from third party sellers in 2021, which made up 22% of the company’s overall revenue that year.
FBA fulfillment fees are the seller’s costs to store products in an Amazon fulfillment center and have orders fulfilled—packaged, labeled, and shipped—by Amazon.
FBA is an incredibly useful and efficient service. FBA is also the predominant type of fulfillment we teach in our Amazon FBA mastery membership.
Up until the April 28 increase, FBA fulfillment fees started at $2.92 for a small standard-sized item, such as a box of paperclips, and escalated up to $150.94+ for extra large items, such as refrigerators.
As with previous FBA fulfillment fees, the new fee is based on Amazon’s sizing tiers. In other words, your FBA fulfillment fees, both then and now, depend on how large and heavy your products are, as this affects storage space and shipping costs.
The price you charge to shoppers has zero effect on how much Amazon charges you in fulfillment fees.
If you were concerned that the surcharge was yet another fee you had to track, have no fear. Amazon is merely increasing the cost of an already-existing, common fee: The 5% surcharge is an addition to your current FBA fulfillment fees, paid per unit sold.
As an added bonus, grab your free copy of our FBA fees breakdown here.
Here’s how the new surcharge will work:
Let’s say you sell individual steel chef’s knives. In its retail packaging, your product measures 13” x 1.6” x 0.1” and weighs 9 oz. That knife falls into the small standard, 6 - 12 oz size category.
Before April 28, your FBA fulfillment fees would have been $3.07 per unit sold. After April 28, the FBA fulfillment fees are now $3.22 per unit sold.
Even though 5% of a singular fee isn’t a ton of added costs, it’s still easier to swallow when you know the why behind it.
What’s Causing the Surcharge
With the current state of the world, it’s not exactly a huge surprise that Amazon is updating their fees. But speculating can only get us so far.
Here are the three primary reasons Amazon says the surcharge is necessary:
It’s even in the name: “Fuel and inflation surcharge”.
Inflation around the globe is at a 40-year high. In March, US inflation had grown to 8.5%, the fastest 12 month pace seen since 1981.
Meanwhile gasoline prices are up 48% from 2021, with the national average over $4 per gallon.
The increased pump prices are partly because of Russia’s February 24 invasion of Ukraine and the subsequent start of the Russo-Ukrainian War. Learn about all the ways in which that war is affecting Amazon sellers here.
Like most other companies, Amazon must account for these increased costs.
In their email announcement on April 13th to affected sellers, Amazon stated that they had absorbed as much of the rising costs associated with spiked fuel prices and overall inflation as they could.
It seems Amazon views this additional 5% as a small price for sellers to pay considering the current state of the world. And they might be right.
In fact, Amazon claims that they are using part of that 5% surcharge to help the very people that actually fulfill FBA orders.
2. Increased fulfillment center wages
In order to truly keep up with rising prices brought about by inflation, Amazon is attempting to match employee wages to new national averages. In other words, Amazon is trying to match the increased cost of living brought about by inflation, increased gas prices, etc.
In recent years Amazon has been steadily increasing fulfillment center wages to match inflation and maintain a competitive edge against companies like Walmart. In 2018, Amazon raised their base hourly pay to $15. In May of 2021, the average hourly wage at Amazon was up to $17. And as of September, 2021, the company had plans to bounce that number up to $18.
In February of this year, over 60 fulfillment center employees in New York and Maryland staged a walkout demanding a $3 wage increase and a return to 20 minute breaks.
The break policy was implemented at the height of the pandemic but has since been reduced. The involved employees stated that wages at the three warehouses that staged walkouts ranged, at the time, from $15.75 to $17.25. Employees stated they desperately need the raise to match inflation-driven increased costs of living.
That said, it’s hard to argue against a small fee increase that could potentially alleviate some of these concerns regarding fulfillment center employees, especially as Amazon is set to hire even more.
3. New fulfillment center construction.
Presumably to keep up with their promised two and one day delivery to Prime customers, Amazon plans to construct more fulfillment centers across the US. The planned constructions are, at least part of the reason, Amazon says the 5% surcharge is necessary.
However, it might be difficult to blame the increase on fulfillment center construction.
Since 2015, Amazon has been expanding their distribution system rapidly. Between 2015 and 2019, Amazon set a new pace, opening 75 fulfillment centers per year.
During the start of the pandemic in 2020, Amazon accelerated that pace even more: Amazon opened almost 300 new fulfillment centers in 2020, alone. The overall number was up 30% as of 2021. In fact, as of March, 2022, Amazon boasted a whopping 375,952,365 square feet of fulfillment center space in the US with plans to add another 109,833,571.
However, for all their recent growth, there are some murmurings that Amazon may actually be moderating their fulfillment center expansion, which would contradict part of their reasoning behind the surcharge. Current estimations project only 22% growth in fulfillment centers through 2022.
Amazon CFO Brian Olsavsky said in February that, while the company will still grow its fulfillment center footprint, Amazon is now looking to expand their reach through other aspects of the business. Namely, Amazon may be seeking to invest in further transportation to reduce their reliance on current partners UPS and USPS.
More vehicles and transportation options would allow Amazon to return to pre-pandemic one day shipping rates and enable them to more quickly access rural areas.
With these new developments in play, it remains to be seen whether or not Amazon will make the 5% surcharge a permanent addition to FBA fees.
Now 5% is not a ton if you sell smaller-sized products. That said, if you sell larger items, such as refrigerators, that FBA fulfillment fee can amount to quite a lot.
What You Can Do
On top of drastically increased shipping costs brought about by the pandemic and the war in Ukraine, the FBA fulfillment fee 5% raise could be problematic for some sellers. Fortunately, there are ways to offset the increased costs.
New sellers will best be able to manage the situation. Current sellers with existing inventory have already tested the market and know how much they can charge customers for their products.
New sellers, on the other hand, have an opportunity to conduct in-depth research, find a high price point product to build and eventually create a product that can sell for enough money to offset the increased FBA fulfillment fee rate. The key is research.
You can often find high profit margin products by selecting a market niche with a higher overall price tag.
And keep in mind that with inflation, prices across the board have gone up for shoppers, too. This means that as a seller you can most likely charge more for a product than you could have even last year.
Once you’ve found a higher-priced niche, you can make your product different from, and in fact better than, your competitors, which will allow you to charge more for your version. In doing so, you have the opportunity to create a new product that sells for enough money so that you still see high profit margins when all is said and done.
For existing sellers, your best bet may be to look for smaller ways to improve your already listed products.
When it comes time to reorder inventory, consider small, perceived value changes you could make to your existing product. For example, you might change the retail packaging or include a small accessory as part of the overall package. This way, you may be able to charge a premium.
Alternatively, you might choose to launch an entirely new product that compliments your existing brand if that’s within your means.
You might also move to FBM and fulfill products on your own or with the help of a third party logistics provider (3PL). 3PLs can help you with fulfillment in similar ways to Amazon.
Amazon fees do not have to be a four letter word…at least not metaphorically. If you can understand Amazon fees, and how they might affect your business, you can be successful in spite of them, as long as you have the right knowhow.
To get all the actionable information you need to launch and grow a successful first product and store on Amazon—in spite of the surcharge—visit JOD.com/freedom.
What are your thoughts on the new surcharge? Let me know in the comments.