Have you been selling on Amazon for a while? Then, you’re probably familiar with their ever-evolving list of fees, from shipping to selling to storage and beyond. In December 2023, Amazon released a list of the anticipated updates to fees for all of 2024, and ever since the Seller Forums have been swarming with threads about the new fees and changes and how business will be impacted. At AO2, we’re committed to keeping our clients informed of the changes in the eCommerce industry and aware of the reasons for those changes so that we can help you operate from a place of knowledge rather than fear.
Undoubtedly, some of the new fees may appear daunting. However, it's crucial to remember that there are strategies you can implement to adjust your business operations, mitigating the impact and even enhancing your profits. In this blog, we’ll walk you through the changes to expect in June along with tips for preparing your business so that you can approach these updates with a proactive mindset.
New returns processing fee
One of the most talked-about updates for this year is going into effect June 1st: the new Returns Processing Fee. This surcharge will apply to high-return rate products in all categories, excluding apparel and shoes. What is a “high return rate”?
According to Amazon, Your product’s return rate will be the percent of your product’s shipped units in a given month that’s returned by customers over that month and the subsequent two calendar months.
For example, for units shipped in June 2024, the return rate is the percent of those units returned over June, July, and August 2024. For a given month’s shipped units, the returns processing fee will be charged for each returned unit above the product category’s return rate threshold.
You will see return fees charged to your account between the 7th to 15th day of the third subsequent month. For example, for June 2024’s shipped units that are returned and are charged the fee, the charge will be made between the 7 to 15th of September, 2024.”
To break that down even further, Amazon has issued a chart of return rate thresholds by category. What’s important to note here is that they are taking into account category-specific return rates to ensure that sellers of items that typically have higher returns, such as electronics, aren’t penalized by comparing performance to a low-return category of items, such as beauty. Your products will only be compared to similar products, and then only those that exceed the standard rate of returns will be impacted.
The financial impacts of the Returns Processing Fee are not negligible, so sellers must educate themselves on the potential impact on their bottom line. The current rate chart reflects charges between $1.65-$5.00 per unit for most small and large standard-size items and more for oversized/large/bulk items. See the chart below to assess the exact fees by product tier:
Why is Amazon implementing this fee?
Amazon’s official announcement states that this new charge is being implemented to manage the operational costs of returns and reduce waste. While it may often feel like the retail giant is nickel-and-diming sellers in every instance they can dream up, the fact is these are important initiatives, and brands win when return rates are reduced, so an emphasis on business improvement in this area can be a win-win.
Take action
- Pull a Category Listings Report from Seller Central and audit your product categories! It isn’t uncommon for items to get recategorized on Amazon. If that happens, and your product is being assessed for an inaccurate return rate, that could result in unnecessary fees. Take some time now to audit your listings for a smoother process as this fee rolls out.
- Spend time reading your product reviews and analyzing the Voice of the Customer dashboard to identify the biggest reasons for your product returns, then find solutions to remedy that problem. Returns are inevitable in e-commerce, but there are always actions you can take to reduce the frequency.
Reduced fees for sellers enrolled in AWD
It’s not all bad news! Starting in June, sellers who utilize Amazon Warehousing and Distribution (AWD) and its auto-replenishment feature will get waivers for several FBA fees including the low inventory fee, storage utilization surcharge, and the inventory overage fee. In addition, these sellers will be exempt from the newly implemented inbound inventory placement fee.
That’s not all! On average, storing products via AWD for upstream to FBA fulfillment centers as needed can save you on storage fees. Per cubic foot storage in AWD is 59% cheaper than FBA on average, up to 80% cheaper depending on the time of year.
Why is Amazon extending these discounts?
AWD is part of the Supply Chain by Amazon program. With this program, Amazon is branching out to service sellers beyond the virtual walls of its e-commerce platform and become an integral part of your full supply chain operations.
Space at fulfillment centers has long been an issue for Amazon. With many individual sellers managing inventory levels poorly Amazon has had to implement a number of systems and fees to maximize space. Over the years we’ve seen management via IPI Score, through restock limits, then capacity limits, and more recently through negative reinforcement of fees and surcharges for not turning inventory fast enough.
Through AWD, Amazon is offering sellers another solution: using Amazon as a 3PL and letting them manage your FBA inventory for you. It’s another win-win, Amazon has more control over inventory levels and placement and sellers can minimize the impact of many of the recently introduced fees and control their profit margins.
Take action
- Decide if AWD is right for your business. This solution is not one size fits all and sellers should consider the following:
- Learn more - if this sounds interesting to you, we encourage you to educate yourself further on the program details before enrolling and shipping in products Some good resources include the Amazon Warehousing and Distribution (AWD) product eligibility help page and the Supply Chain by Amazon overview.
If you’re selling on Amazon, then you already know how important it is to follow Amazon's rules, even if you don't always agree with them. We're here to assist you by providing comprehensive, digestible information to help you understand these rules and make the best-informed decisions for your business. Are you looking for more tips on optimizing your seller account to reduce fees and boost profits? In that case, explore our other blogs, check out our YouTube channel, or contact us directly to chat with one of our team members about your specific needs.
