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The Amazon Low-Inventory Fee (and How Not to Pay It)

Threecolts
Dave Eagle
Published
March 28, 2024
Modified
May 7, 2024
Coins spilling from a glass vase

Back in December, Amazon published an announcement on its Selling Partners microsite detailing changes to existing fees, as well as the implementation of a few new ones. Using language that would make George Orwell proud, Amazon stated that it was “excited to provide sellers with more transparency and more control over their fulfillment costs.” The company also reassured its sellers that “[o]n average, this year’s fee changes are significantly less than those announced by other major fulfillment services.” While this is true, as is their claim that many existing sellers will see their fees decrease, it doesn’t tell the whole story. 

One major plot point missing from that story is the addition of the new low-inventory fee. Beyond feeling like they’re being nickeled and dimed by the tech and retail giant, sellers are also experiencing what has become a very common sensation when trying to understand the fee structure: confusion. With the intricate web of conditions and events that trigger their being charged, Amazon fees have long felt like a puzzle you had to figure out (and then pay for upon solving it). 

Interviewed for a Fortune magazine article, an Amazon seller named Judah Bergman said, “I’m very experienced on Amazon and I’ve spent so much time on this, [but] for many items, I still don’t have clarity on how exactly I’m going to sell profitably yet. It’s crazy.”

We’re here to help, Judah. The conditions that need to be met in order to trigger the fee take some explaining, but understanding how it’s levied—as well as to which sellers and items it applies—is the first step toward not having to pay it. 

How the Inventory Level Fee Is Calculated

Businesswomen performing painful calculations and cross-referencing between a book, a laptop and a calculator

If you’re a glass-half-full type of person, then you’ll see this fee as a way of forcing you to be more thoughtful and precise about your inventory. That’s because it’s within your control to avoid this fee with good planning. It’s not like it’s applied based on your inventory levels at any one point in time. Rather, it’s based on how many “days of cover” you have—that is, how long before you run out of a thing if you don’t restock it. Let’s say you have 10 items on hand: if you sell an average of 2 per day, your days of cover is 10 divided by 2, or 5 days of cover.

Amazon’s calculations aren’t based on a single point in time, though. Instead, it’s a metric that measures days of cover as an average over both short- and long-term periods. In Seller Central, they call the metric “historical days of supply,” and it’s calculated for each ASIN in your store using the formula:

Days of Cover = Average daily inventory / Average daily units shipped

The calculation is run twice, once using the averages of the past 30 days, and then again for the averages of the last 90 days.

In both cases—30- and 90-day periods—doing the math should leave you with 28 or more historical days of supply to avoid the fee. If you meet that minimum in both instances, you’re golden. And it’s not all or nothing: as long as you had 28 days of cover in just one of those time periods, you’re not charged the fee. You only get charged if both your short- and long-term totals fall below 28.

The charge happens on a per-item basis, at the time any item is shipped. If your historical days of supply for that item—for 30- and 90- day periods—are both south of the magic number (28) at the time of shipment, the fee applies.

Who (and What) Will Be Subject to the Fee

It might not need saying, but just in case: this new fee is only applicable to Fulfillment by Amazon (FBA) sellers. If you’re doing your own fulfillment, you’ve got plenty of other things to worry about—but this isn’t one of them. 

That said, this doesn’t apply to all FBA sellers. You’re off the hook if you meet any of the following criteria:

  • You’re selling non-standard-sized products
  • You’re a new professional seller (for the first 365 days after Amazon first receives your inventory)
  • You’re launching new-to-FBA parent products (must be enrolled in FBA New Selection)
  • You’re using Amazon Warehousing and Distribution (AWD)

There are a few other situations that aren’t called out specifically, but logic would dictate that you don’t have to worry about this. A used book seller, for example, would never meet all the conditions where the fee gets applied. If you’re doing retail arbitrage on single units of single items—that is, you won’t have rolling stock of these items—you’re also free and clear. Non-replenishing online arbitrage sellers likely won’t be charged, for the same reasons (no rolling stock). That said, the best way to guarantee you won’t be charged the fee in this case is to make sure all that inventory is gone within 90 days—since the fee is assessed on units sold, you can’t be charged if you have no stock.

Bulk book sellers, multi-unit retail arbitrageurs, replenishing online arbitrageurs, wholesalers, and multi-ASIN private-label sellers are the groups that will need to pay closer attention to stock levels if they want to avoid the low-inventory fee. If you meet all the criteria covered in this and the previous section, you can use the table below to figure out what you’ll be charged. Though the fee only applies to standard-sized products, the rates vary by weight:

Amazon low-inventory-level fee table screenshot
Above: Screenshot from Amazon’s article on the low-inventory-level fee.

Two Final Things: Advice and a Warning

Now that you know everything involved in getting this fee tacked on to your sales, recognize that it’s within your power to avoid it ever being charged in the first place. It will take a mix of planning, capital, and inventory management software to make sure your stock levels stay outside of the danger zone. At the very least, you should be monitoring your historical days of supply from Seller Central’s FBA Inventory dashboard and periodically doing your own math against the daily sales to figure out your days of cover. If you are running low, you’ll want to order quantities that keep your short- and long-term stock level averages where they need to be. It won’t be easy to avoid the fee, but it is possible.

There is one unspoken peril in the new fee that third-party sellers should be aware of: the time your seasonal products spend in Amazon’s warehouse. Whether it’s a seasonally specific item, like Christmas ornaments, or just a new product you’re buying once to increase revenue for something like Prime Day, these items run the risk of costing you a ton of money in low-inventory fees if you haven’t sold out of them by season’s end. You don’t want to get caught holding a bunch of unsold merchandise that you have no intent on replenishing. You’ll get hit with fee after fee for not meeting the minimum days of cover once the season or sale is over for as long as at least one of those products remains in an Amazon warehouse.

If all this is too much to deal with, another option is to use SmartRepricer. SmartRepricer takes the burden off your shoulders by adjusting for the low-inventory-level fee with AI. Whether you want to clear out your stock before the fee kicks in or adjust your pricing to protect your margins, SmartRepricer can handle all the calculations and busywork for you.

Again, these charges aren’t inevitable—a little planning can go a long way. Add some Amazon accounting software to the mix, which can help you understand what you’ll be charged before you’re ever charged it, and most Amazon sellers have nothing to fear.

Browse through and read our other blog posts that are data-driven insights with our very own proprietary data and learn more on Mother's Day trends and best practices, Easter sales, price elasticity of demand, Amazon FBA fee changes, Amazon product title optimization, winter seasonal products, Amazon end of year sales, Valentine’s Day trends and best Amazon fulfillment centers by location and throughput.

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