Lets face it Long Term Storage Fees suck. You had a great idea for a product to sell, you did your research, ordered inventory, sent it to Amazon, and it just sat there. For a long time. Now amazon wants to charge you for it. Long Term Storage Fees (LTSF) just eat away at your margins. Read below to find out how we mitigate our LTSF with removal orders.
What is a Removal Order?
When you have items stored in the FBA warehouses you can initiate a “Removal Order” through Seller Central (Inventory > Manage FBA Inventory.)
It currently costs $0.50 per standard size items ($0.60 per oversize item) for Amazon to pick, pack and ship the items back to you. It costs $0.15 per standard size item ($0.30 per oversize item) for the to dispose of the item.
There are multiple reasons why you would want to do this:
- Avoid Long Term Storage Fees for slow-moving inventory.
- You have “Unfillable” inventory from a customer return or warehouse damage.
- Reduce Warehouse Storage Fees for slow-moving items.
One of the most common reasons around August 15th and February 15th is to remove your inventory to avoid any Long Term Storage Fees (LTSF).
Below is how to calculate your long-term storage fee, however, you can get your projected fees from the last two columns of the Inventory Health Report
Units in a fulfillment center for six to 12 months: (long-term-storage-fee) = (qty-charged-long-term-storage-fee) x (per-unit-volume) x $11.25
Units in a fulfillment center for 12 months or more: (long-term-storage-fee) = (qty-charged-long-term-storage-fee) x (per-unit-volume) x $22.50
How Can It Reduce Our Long Term Storage Fees – To Remove or Not to Remove?
We consider 3 things when deciding whether or not to remove an item to save the long-term storage fee:
- LTSF Cost
- Shipping Cost to/from Amazon FBA
1. Long Term Storage Fee Cost
From the last two columns of the Inventory Health Report we can see the two column headers “qty-to-be-charged-ltsf-6-mo” and “projected-ltsf-6-mo”
These tell you the total number of units to be charged the 6 month storage fee” and the total dollar amount that is projected to be charged.
These will obviously change as you sell through some of the units, but it will give you a good idea of how many items you may need to remove.
To get the information we need we insert a simple calculation into the adjacent cells to calculate the fee per item:
(projected-ltsf-6-mo / qty-to-be-charged-ltsf-6-mo) -or- Cell AU/AT
We then format the cells to give us the amount is whole dollars
As you can see each “Product 1” will get charged $0.64 on August 15th if it is not removed.
2. Shipping Cost to/from Amazon FBA
We know it normally costs around $0.15/item on average for postage to ship our Inventory TO Amazon. Note this price does not include the time or money it takes to prep the item (staffing, cost for boxes, tape, etc.)
It generally costs $0.50 for the removal order to have it shipped FROM Amazon.
Total cost to have each item sent back to us and then restock it in the Amazon warehouses is $0.65 ($0.15 + $0.50)
So any item with a per item LTSF of $0.65 or more it makes monetary sense to have the items removed and then restock.
In our screen shot above it only makes sense to issue a removal order for Product 7 since it will get charged $0.69 per unit.
With that said Amazon just announced today that they are waiving fees for their removal orders until August 14th!
(After that the normal fees (and long-term storage fees) will apply.)
Note that if you take advantage of this promotion you won’t be able to restock inventory until January 1, 2017!
This means that the $0.50 charge is eliminated making it so only costs us the $0.15 shipping fee to restock the items.
With this fee eliminated it makes sense to remove all the excess items (that we don;t think we can sell before the end of the year) and restock them later, essentially reducing the LTSF to the same price as the shipping ($0.15 per item.)
Making money is the name of the game. Margins play a huge role in that game. Some companies can run sales and promote to move through inventory.
We don’t have that luxury because of our Minimum Advertised Pricing Policy (MAP.) So we use the above methods to mitigate our losses. But because we are the manufacturer of our products we also have the margins to do so.
If you are doing wholesale or some form of arbitration model, you have to take into account your margins in whole dollars as well when making these types of decisions.
If you only have $1.00 total margin then a LTSF of $0.65 cuts into that pretty significantly. At some point after LTSF and monthly storage fees you will be selling your items at a loss, or you can cut your losses completely and have Amazon dispose of your inventory.
It’s not ideal, but sometimes you have to take the emotion out of these types of decisions and just go with the numbers. Learn from them and make better business decisions in the future.
Do you utilize any tricks for reducing your losses? Comment below!