Why you need to drip feed inventory to Amazon, more than ever

Amazon sellers are feeling the pinch of rising storage and fulfillment fees. Without exaggeration, it’s a fact that Amazon keeps on increasing referral, fulfillment and storage fees.

There is one game-changing solution to consider, it’s called drip-feeding inventory. This article reveals how drip feeding and better inventory management can help you retain control over your margins and safeguard your business. Don’t let sinking profits dampen your spirits; read the full article below.

First things first: How do Amazon storage fees work?

Amazon storage fees are specific fees that Amazon imposes on sellers who store their inventory in Amazon fulfillment centers. Usually, storage fees are calculated based on the size of your inventory and how long it remains in the fulfillment center. Amazon calculates the charges per cubic foot. The more space your inventory occupies in the warehouse and the longer it stays there, the higher the storage fees you will pay.

Amazon categorizes storage fees in 2 ways–monthly inventory storage fees and aged inventory surcharges:

• Monthly storage fees depend on how much volume your inventory occupies each month.
• The aged inventory surcharge is applied to unsold items occupying space in Amazon warehouses for long periods. The fees vary depending on product size, time of the year, and whether your inventory is classified as standard size or oversized.

Why are Amazon fees so high? 

It’s a question virtually every Amazon seller is asking, and rightfully so. The truth is right in front of us and has a lot to do with the state of the global economy. To cover the escalating expenses due to increasing transport costs, fuel, fulfillment handling and inflation, Amazon revised its fee structure to offset its operational expenditure. Amazon does not do fee analysis just once, however. It constantly evaluates fees and looks for ways to save and make more money

Amazon charges sellers various fees to sell on the platform. These include referral fees, FBA fees, monthly subscriptions, advertising fees, return processing fees, monthly storage fees, and long-term storage costs. How to reduce such costs starts with Inventory management and operational efficiency.

How much does Amazon charge for warehouse storage? 

You must pay Amazon monthly storage fees to process, store and ship your inventory using FBA (Fulfillment by Amazon). Since not all inventory sells immediately, Amazon charges for short- and long-term storage options. Also, Amazon charges per cubic foot depending on whether your item is standard or oversized, and changes based on the time of the year.

• Between January and September, Amazon sellers must pay $0.87 per cubic foot for standard-size items and $0.56 per cubic foot for oversized items.
• Fees increase during peak season, which falls between October and December. For standard-size items, you will pay $2.40 per cubic foot and $1.40 per cubic foot for oversized items.

Every year, these fees can increase.

When it comes to aged inventory surcharges, Amazon conducts monthly inventory cleanups. If inventory sits in the warehouse for over 180 days, you can be charged an aged inventory surcharge. Inventory costs are as follows:

• Aged 181 to 210 days costs $0.50 per cubic foot, a fee that is calculated monthly until you remove or sell your inventory.
• Aged 211 to 240 days is a $1 per cubic foot charge.
• Aged 241 to 270 days cost $1.50 per cubic foot.
• Aged 271 to 300 days cost $3.80 per cubic foot.
• Aged 301 to 330 days is $4 per cubic foot.
• Aged 331 days to 365 days is $4.20.

If inventory stays in the Amazon fulfillment center for more than 365 days, there’s another hefty charge—a monthly charge of $6.90 per cubic foot or $0.15 per unit. Removing aged inventory is vital to avoid aged inventory surcharges.

You can calculate store fees yourself. This helps you manage costs, conduct a profit analysis, optimize inventory and adjust your pricing strategy to avoid overstock. To determine storage fee costs, examine your inventory volume, and multiply that by the fee Amazon charges per cubic foot. If your inventory is eligible for an aged inventory surcharge, you will pay this fee in addition to the monthly charges Amazon has set.

Be sure to regularly check Seller Central for Amazon’s latest fee schedule to avoid costly fees

Considered a drip-feed approach to inventory management?

Drip-feeding inventory to Amazon involves releasing products gradually, optimizing sales, and avoiding storage issues/fees. This strategic approach allows you to adapt to demand fluctuations, prevent stockouts and align with Amazon’s fulfillment network for efficient operations. The benefits of drip feeding include:

• It provides more control over your inventory, helping you make shipments based on demand.
• It allows you to send small shipments, which helps ensure you don’t have surplus stock in warehouses that incur aged inventory surcharges.
• It offers flexibility. By shipping smaller inventory, you are able to adapt to market fluctuations and adjust your products accordingly by season or throughout the year.
• It helps you better manage your business finances by removing the need to spend on large batches of inventory sitting in fulfillment centers. This allows you to direct that money to improve other operational and financial aspects of your e-commerce business.

How to drip feed inventory to Amazon

Understanding drip feeding and how to implement it correctly is vital. Here are the steps.

Step 1, evaluate demand patterns: Analyze historical sales data to identify patterns and fluctuations in demand for your products. This helps determine the optimal release schedule for drip-feeding.

Step 2, set inventory thresholds: Establish minimum and maximum inventory levels that align with your sales strategy. This ensures you send in new stock when needed and prevents excess storage costs.

Step 3, use Amazon’s restock alerts: Leverage Amazon’s restock alerts and recommendations to stay informed about when to replenish your inventory. These alerts are based on your historical sales and current stock levels.

Step 4, implement a replenishment schedule: Create a regular schedule for sending in new inventory, considering lead times, shipping, and processing times. This systematic approach helps maintain a consistent presence on the platform. Lean on your suppliers to glean insights based on experience.

Step 5, monitor performance metrics: Keep a close eye on key performance indicators (KPIs) such as inventory turnover rate, on-time delivery and order fulfillment. Adjust your replenishment schedule based on these metrics to optimize your operations.

Step 6, adapt to seasonal trends: Adjust your drip-feeding strategy according to seasonal variations and trends in the market. This ensures ample stock during peak times and minimizes overstock during slower periods.

Step 7, optimize marketing strategies: Coordinate product launches, promotions or marketing campaigns with your drip-feeding schedule. This maximizes visibility and capitalizes on strategic opportunities in the marketplace.

Step 8, record your data and create standard operating procedures (SOPs): Keeping good records is the best way to improve. Review what worked and what didn’t to optimize in the future.

Are there options for trickle-feeding inventory?

It’s always best to learn about inventory management before purchasing software or services, but you may come to a point when doing it all yourself isn’t realistic. Here are a few main trickle-feeding options:

#1 Inventory management software: Employing advanced inventory management tools enables you to automate the drip-feeding process. These tools integrate with Amazon Seller Central, syncing real-time sales data and inventory levels. You can set parameters, such as minimum and maximum stock thresholds, allowing the tool to automatically place orders for restocking when inventory reaches specified levels. These tools help streamline the entire inventory replenishment process, saving time and minimizing the risk of stockouts or overstock situations.

#2 Scheduled manual replenishment: You can manually schedule regular inventory replenishment by setting up a calendar-based system. You can establish specific days or intervals for reviewing and restocking your inventory based on your demand analysis and historical sales data. While this method lacks the automation efficiency of dedicated tools, it provides a hands-on approach, allowing sellers to adapt more flexibly to unique circumstances or sudden changes in demand. It will also enable you to learn about demand levels and your market before advancing to automation.

#3 Collaborate with your suppliers: In a Vendor-Managed Inventory (VMI) arrangement, you can collaborate closely with your supplier. Your supplier will monitor your inventory levels and take responsibility for initiating restocking when necessary. This approach shifts some of the inventory management burden to your supplier, ensuring a seamless and timely replenishment process. While effective, it requires high trust and coordination between you and your supplier. The goal is to optimize stock levels and consistently meet customer demand.  Do not take this route if you don’t have a trusted relationship with your supplier or if they haven’t proven service excellence.

#4 3PL services: When it comes to drip feeding, third-party logistics (3PL) providers are a popular and reliable option. 3PL centers help you manage your inventory and shipments to Amazon fulfillment centers. These providers store and drip-feed your inventory to Amazon when necessary. They do the hard work for you. Of course, like any service or software, there are costs associated with this option.

The good news is that there is no minimum inventory that Amazon expects you to send to their fulfillment centers (FCs). Ensure that there is always enough inventory in Amazon warehouses to fulfill orders as they come in. If you sell a high-demand product or run a promotional event, you’ll want to be on the ball with inventory replenishment. Remember, the goal is to reduce your storage fees to maximize profits. Preparedness is everything to your success.

 

What are the pros and cons of 3PL when doing drip feed?

There are many reputable 3PL providers available to help you drip-feed and manage your inventory. Here are some of the pros and cons.

PROS	CONS
Never run out of inventory, which can negatively affect your seller account rating when orders can’t be fulfilled due to stockouts.	There is less control of inventory  management and logistics. It’s imperative to know and trust your 3PL to provide quality, consistent, Amazon-friendly service.
Increased flexibility when scaling your operations, which ensures you make changes based on demand fluctuations.	Reduced quality control is a factor. You have less visibility and ability to respond to issues. Make sure your 3PL maintains high standards.
Inventory is sure to be in good condition before it is sent to the Amazon warehouses for packing and shipping.	Mistakes may have a higher impact on your selling. Issues like service disruptions and changes to the business strategy can end up directly affecting your drip-feeding strategy.
Saving money by sending your products in bulk to a 3PL provider, who then drip-feeds them to Amazon.
Less stress and attention since you are delegating inventory management and logistics. Having a 3PL provider do the work helps you focus on other aspects of your business.

How you can reduce fees in 2024

There are ways to reduce costs and storage fees that extend beyond the drip-feeding method. Here are a few:

• Consolidate shipments: Rather than sending multiple small shipments to Amazon warehouses, consider consolidating all your shipments into larger ones. Consolidating can help reduce both the handling and storage fees. This approach also gives you an edge when negotiating better deals with carriers.
• Source smaller and lighter products to save on fees: Amazon charges fulfillment and storage fees based on the weight and size of your products. Try to source small, more lightweight products, ensuring you don’t compromise quality.
• Always have a backup plan: Having alternative logistics plans where you know you can store some of your inventory in a pinch can save you money, stress, and time. Review your options every quarter and have a backup option in motion.
• Stay on top of your FBA reimbursements: Staying on top of FBA reimbursements for things like storage fees can help ensure that you get your money back should it turn out that Amazon owes you. FBA reimbursements can be filed for various reasons like lost and damaged inventory, inventory that was measured incorrectly, and customer returns past the 30-day window Amazon allows. When these errors occur, you can file an FBA reimbursement. Amazon provides merchants with up to 180 days to file for reimbursement, but staying on top of claims is always best.
• Optimize your inventory planning: When new sellers start, the assumption is to send as much inventory as possible to Amazon warehouses for fear of being unable to fulfill orders. Inventory forecasting based on sales trends, historical data, and market demand can save you money by ensuring you only send enough inventory to Amazon to meet current demand. 

 

What’s all this really mean?

An inventory management strategy is critical, as is being poised for unexpected Amazon changes – like fees. Drip-feeding inventory can help you maintain your margins while reducing stress if you get it right. Inventory forecasting and backup plans are good ideas to ensure you have enough inventory at Amazon warehouses while the rest is at other safe sites.

What can we do for you? We’re here to help. Contact us.

By Lesley Hensell

ABOUT THE AUTHOR

Lesley is co-founder and co-owner of Riverbend Consulting, where she oversees the firm’s client services team. She has personally helped thousands of third-party sellers get their accounts and ASINs back up and running. Lesley leverages two decades as a small business consultant to advise clients on profitability and operational performance. She has been an Amazon seller for almost a decade, thanks to her boys (21 and 16) who do most of the heavy lifting.