Another year, another Amazon FBA fee increase!
As you will have most likely heard by now, from May 12th 2022, Amazon are adding a 4.3% fuel and inflation surcharge to FBA fulfilment fees for the UK, Germany, France, Italy, and Spain.
What has caused the fee increase?
This has mainly come about as a result of increasing oil and fuel costs:
I’ve seen a lot of reactions to this most recent fee increase announcement and they are understandably negative… after all nobody wants to pay more in fees! Especially considering that it’s on top of the small increase to fulfilment fees which already came into place on March 31st 2022.
But I’m going to go against the grain here and say that this fee increase was 100% expected and very reasonable when you consider the amount of money Amazon spent increasing their fulfilment capacity over the last few years of COVID and supply chain bottlenecks.
In fact they actually overspent here in an attempt to deal with the pandemic demand, leading to a first quarter loss for Amazon of $3.8 billion. This is the first time since 2015 that Amazon hasn’t made a profit and the news led to a 14% drop in their share price in a single day:
Overall, Amazon claim to have “more than doubled” their fulfilment capacity across Europe, which us FBA sellers noticed first hand towards the end of 2021 where we saw Amazon fulfilment centre check in times drop severely and the inventory and storage limits, which had plagued many FBA sellers, start to be lifted.
And it’s for exactly that reason that I’m more than happy to pay slightly more in fees, rather than have to deal with inventory constraints.
Now I know what many of you are thinking right now – “but Andrew 4.3% isn’t slightly more!”
But my answer is that it really is.
How much is this fee increase actually going to cost you?
Firstly let’s point out that it’s a 4.3% increase to the current fees, not a 4.3% increase in total.
So let’s say you currently pay £2.21 in fulfilment fees for an item that you sell for £20. That means that your FBA fees works out at 11% of your sale price.
From May 13th that fee isn’t going to increase to 15.3%! No, it’s going to increase from 11% to 11.47%.
And suddenly the fee surcharge seems much more reasonable when you consider it as a 0.5% loss of margin.
I know this is obvious for most of you, but you’ll be surprised at the number of people who see the headline of 4.3% fuel and inflation surcharge and immediately think they’re losing that much margin!
So as I said, I think it’s a very reasonable increase. Especially when you consider how cheap Amazon’s FBA fulfilment fees are to start with!
I showed this in black and white in our Fuflilment Centre Showdown post last year where I tested 4 different UK based fulfilment centres and compared their costs to Amazon for a theoretical product.
And the closest any of them could get was 61% MORE EXPENSIVE than Amazon (with the highest being 255% more).
I hope now you can see why I consider 4.3% to be a very small increase!
What’s the best way to deal with the fee increase?
So rather than get hysterical and start bashing greedy Amazon, let’s see what we can do, if anything, to offset this fee increase.
And really you only have two options here:
- Accept a lower margin
This is really the do nothing choice, where you simply absorb the additional costs and keep your prices the same.
- Increase prices to maintain your margin
The other option is to increase your prices to keep your gross margin the same.
If you’re using a sales and P/L dashboard, such as Shopkeeper, which is what I myself use and recommend, then you’ll be able to see exactly what affect this fee increase will have on your margins as they include a full fee breakdown for each product.
Should you increase your prices on Amazon?
Which option to choose really depends on your specific business and product and it’s impossible to give one blanket recommendation.
You have to consider your competitors (have they increased their prices?), where you’re positioned in terms of pricing vs other products, if you’ve already increased your prices recently (due to increased shipping costs for example) etc!
Generally speaking I would try to increase prices rather than sacrifice margin, especially if you haven’t done so recently and are presumably already absorbing recent supply cost increases. Sadly it’s the year of inflation so customers will be used to rising prices and it shouldn’t negatively affect your conversion rate and sales.
So that’s all there is to it for now! For most of us these fee increases won’t have made a significant difference.
If however you’re one of the unlucky sellers whose product has now fallen into a different size and weight tier then you may be looking at a much bigger increase in your fulfilment fees.
In that case stay tuned as I have a future blog post planned that could potentially save you a lot of money!
Until next time.
All the best,