As an Amazon FBA seller, you reap the benefits of Amazon’s vast fulfillment network which grants perks such as Prime shipping eligibility. However, ever-increasing storage fees, limits on restocking inventory, and lengthy wait times to receive shipments can sometimes hinder your success on the platform. Issues with inventory management are highlighted during peak seasons like the holidays with high levels of customer demand for items that are already restricted by warehouse capacity limits.
In response, Amazon announced its new FBA capacity management system designed to give sellers more control over their FBA inventory capacity.
Restock limits and storage limits will be combined into a single monthly metric known as the FBA capacity limit. Amazon will also allow professional sellers to offer bids for additional storage capacity.
What are FBA Capacity Limits?
Monthly FBA capacity limits replace weekly restock limits and quarterly storage volume limits.
Amazon sets capacity limits during the third week of each month. Amazon includes sellers’ limits for the upcoming month and an estimate for the two months following, which allows for planning inventory in advance.
How are FBA Capacity Limits Determined?
FBA capacity limits are influenced by the seller’s IPI score (Inventory Performance Index Score), as well as other factors such as historical sales volume, seasonal and peak selling periods for your products, forecasts for your ASINs, the new selection that you carry, deals that you’ve scheduled, fulfillment center capacity, and shipment lead time.
Capacity limits are measured by volume in cubic feet, and your capacity is based on your account type. You’ll receive one capacity limit for each type of storage you use.
Individual Selling Accounts
If you have an individual selling account, the capacity limit is 15 cubic feet, which will remain the same.
New Professional Selling Accounts (Active Under 39 Weeks)
You have no capacity limits if you have a new Professional selling account that has been active in FBA for less than 39 weeks (nine months). This means that as a new seller, you have nine months to establish your sales record so that Amazon can determine how much capacity to grant you moving forward.
Established Professional Selling Accounts (Active Over 39 Weeks)
If you’ve been an active Professional seller with FBA for more than 39 weeks, you’ll receive capacity limits based on your Inventory Performance Index, or IPI score and sales performance.
Note that consistently high IPI scores will result in higher capacity limits. If you have a Professional selling account, you can request additional capacity based on a reservation fee that you specify through the Capacity Manager (more on this later).
How to See Your FBA Capacity Limits
Capacity limits and storage usage are available to view in the FBA Capacity Monitor tool, which appears on two separate pages in Seller Central. You can view your FBA Capacity Limits and capacity usage in the Capacity Monitor at the bottom of the Inventory Performance dashboard and Send To Amazon.
Open the main menu in Seller Central, hover over ‘Inventory,’ then click ‘Dashboard,’ ‘FBA Inventory,’ or ‘Inventory Planning.’ Then, go to the top menu of the FBA dashboard, hover over ‘Inventory’ and click ‘Inventory performance.’
To view more details and expand the tool, click ‘FBA CAPACITY MONITOR.’
Here, you’ll have access to different storage types, current capacity usage, and estimated limits for the next three months.
- The tool offers seven storage options, which you can access with the tabs at the top of the tool: Standard-size, Oversize, Extra-Large, Apparel, Footwear, Aerosol, and Flammable.
- In the lower-left corner of the tool, you’ll find a chart that shows your current capacity usage. This chart indicates how many shipments are open and how many are on hand.
- In the table to the right, you’ll see limits for the next three months, including the total capacity limit, initial FBA capacity limit, and any additional capacity granted by the Capacity Manager.
- Multi-Channel Fulfilment, or MCF, capacity will show if applicable.
FBA Capacity Manager Overage Fees
You’ll be charged overage fees for the upcoming month if your on-hand inventory exceeds your capacity limit. Overage fees are $10 per cubic foot per month for the amount your inventory exceeds. For current rates, go to FBA inventory storage overage fees.
In addition to exceeding your on-hand inventory, if your open shipments exceed your capacity,
you’ll be blocked from creating inbound shipments.
Requesting Additional FBA Capacity with Reservation Fees
If you have a Professional selling account, you can request additional capacity based on a reservation fee that you specify through the Capacity Manager. Some experts have compared the reservation system to PPC bidding, but for space in FBA fulfillment centers.
Amazon states “The reservation fee is offset by performance credits earned from the sales you generate using the extra capacity. Performance credits are designed to offset up to 100% of your reservation fee. This means you don’t have to pay for the capacity as long as your products sell through.”
In other words, Amazon is giving you credit back if you are selling through and correctly estimating the amount of extra capacity you needed.
If you’re not confident that you can sell through the inventory and offset the reservation fee, it’s recommended not to request your capacity increase as you’ll be responsible for the remaining balance that you bid (your reservation fee minus the performance credits).
Envizion Horizons’ Supply Chain Manager, Henry Polanco, shares his thoughts on the changes…
“The new storage limit or capacity manager is a new tool where we are able to request up to 20% more of our initial restock limit or 2,000 cubic feet (whichever is greater) by being willing to pay a reservation fee for the extra capacity if it’s granted by Amazon. For this tool, Amazon is measuring total capacity by cubic feet and not by individual product units like we usually see in our standard/oversize/apparel/footwear restock limit.
We previously had to go through a seller support agent or an Amazon rep and build our case to possibly get a storage limit increase. This is super useful considering that at times the restock limit tends to be a little tight, especially in Q4 of every year due to the holiday sales season.
We’ll get performance credits ($0.15 per qualified dollar in sales) which will reduce or even completely offset the reservation fee amount.
We’d have to see how soon they take care of requests since they do it from the highest reservation fee bid to the lowest. We are going to have to be strategic about it and do some forecasting to bid the maximum reservation fee possible.”
– Henry Polano, Envizion Horizons’ Supply Chain Manager
Capacity Reservation Fee
The reservation fee is the amount per cubic foot of capacity requested that you would pay at the end of the specified period if your request is granted and you generate no sales during the period.
When you submit your request for more capacity, you specify the maximum reservation fee that you’d be willing to pay to reserve the additional capacity. Your request may be granted at the amount that you specify or at a lower amount.
If your request is granted, Amazon may reduce the reservation fee further at a later date in accordance with the “lowest reservation fee guarantee”. The fee can be partially or fully offset by the number of performance credits that you earn.
Reservation fees are charged after the end of the specified period. For example, if you were granted additional capacity for October 1 through October 31, reservation fees, if any, would be charged in early November.
Lowest Reservation Fee Guarantee
If your request for additional capacity is granted, your reservation fee will always be less than or equal to the maximum reservation fee that you specified in your request. In addition, it will be the same reservation fee, per cubic foot, as for other sellers whose requests are granted that week. If other requests are granted at a lower reservation fee for the same period at a later date, your already-granted request will adjust downward to match the lower fee.
Performance Credits
All sellers who are granted additional capacity and who generate sales using that capacity will get performance credits. Performance credits are earned at a rate of $0.15 for every dollar of sales that you generate using the additional capacity.
To calculate sales that were generated using additional capacity, Amazon considers sales on units that were shipped between the start and end date of the period for ASINs in the storage type for the limit increase (for example, US standard-size storage), prorated by the percentage of your total limit that the additional capacity represents. Granted requests for additional capacity that you have early access to are excluded from this calculation.
With enough sales, your performance credits can offset up to 100% of your reservation fee, meaning that you would pay no additional fees for the extra capacity.
Amazon’s Example: Suppose that you receive an initial FBA capacity limit of 1,000 cubic feet for the US standard-size storage type and you’re approved for an additional 500 cubic feet, for a total limit of 1,500 cubic feet. This means that one-third of your total US standard-size capacity comes from your request (500/1,500). Therefore, one-third of your sales of US standard-size ASINs will qualify for performance credits.
How to Request Additional FBA Capacity
- Tell Amazon how much additional capacity you want, and when. Limit increases can be requested in monthly increments for any future period in which you have a capacity limit or estimated capacity limit. You can request up to 20% of your initial capacity limit or 2,000 cubic feet, whichever is greater.
- Set the maximum reservation fee that you’re willing to pay for the extra capacity, if it’s available. The fee can be offset with performance credits earned from sales generated using the additional space. No upfront payment is required.
** Important: The reservation fee that you set should reflect your confidence in your ability to sell the inventory and offset the reservation fee with performance credits. If you’re not confident that you can sell the inventory and offset the fee, Amazon recommends that you don’t request the capacity as you’ll be responsible for the remaining balance (your reservation fee minus performance credits).
- Amazon will assess fulfillment center capacity regularly (typically twice per week) and grant requests as capacity is available. Amazon will grant requests with the highest reservation fee per cubic foot first and continue in this order until all available capacity has been allocated. If your request is granted, the capacity will be available to you for the entire period that you specified.
- If your request is granted, its status will change to granted in the Capacity Manager, and you’ll be notified via email. Your new, higher limit will be used to determine how much inventory you can send to fulfillment centers and whether FBA inventory overage fees will be charged to your account. When the specified period starts, you’ll earn a $0.15 performance credit for every dollar of sales that you generate using additional capacity.
** No reservation fee charges will be applied to your account at the time your request is granted. At the end of the specified period, your account will be charged the difference, if any, between your total reservation fee and performance credits earned.
FBA Capacity Limits Based on Volume (Cubic Feet) vs Units
Capacity limits will be set based on VOLUME, not units. Amazon will set the capacity limits and measure your inventory usage based on VOLUME (cubic feet), not units.
Since many sellers prefer to plan in units, Amazon will also continue to display inventory usage in units along with an estimate of how many units you can store at FBA based on specific cubic volume capacity limits.
This change will especially have an impact on oversized products – bigger bulkier items that get put into fulfillment centers may cost more since measurement is now in cubic feet instead of units.
Amazon’s Recommendations for Maximizing Your Capacity Limits
- Cancel open shipments that you don’t intend to send Open shipments count towards your total capacity usage, so close them if you no longer plan to send in those items. To view and cancel a shipment, go to Shipping Queue. Click the shipment name and then View shipment or Track shipment to see the shipment details. Then click Cancel shipment or Delete shipment.
- Improve sell-through of your FBA inventory When you increase your sell-through rate you can free up space for new products. Amazon offers recommendations to increase sales on the FBA Inventory page, such as markdowns, outlet deals, advertisements, or updates to product pages.
- Use Multi-Channel Fulfillment to sell your inventory on other sales channels. Multi-Channel Fulfillment lets you use Amazon’s network to fulfill orders from non-Amazon sources, such as your own website. For more information, go to Multi-Channel Fulfillment.
- Remove inventory Create a removal order to reduce the amount of inventory that’s stored in Amazon’s fulfillment centers. To create a removal order, go to FBA Inventory, select the items that you’d like to remove, and click Create removal order from the bulk action drop-down menu. When you create a removal order, you can take advantage of Amazon’s value recovery options like liquidations or donations. You can also have items returned directly to you. Additionally, you can set up automatic removals for aging items or unsellable units. To adjust these options, go to settings, then select Fulfillment by Amazon. Scroll down to Automated unfulfillable settings and Automated fulfillable inventory settings. Use these options to choose how items are sent back to you and to help you keep your inventory fresh for customers and balance your capacity limits.
Important: Removal orders will be reflected in your capacity usage within 24 hours of the order being created, even if the order is still in Pending status. Customer returns will be added back into your capacity usage when the returns are received. - Follow restock recommendations Make sure you don’t send more inventory than suggested by following the restock recommendations on the Restock Inventory page.
Amazon Inventory Management Software
If you don’t have an agency with a team of account analysts to make inventory recommendations, we suggest subscribing to software with Amazon inventory management tools. Our Amazon analytics and diagnostic platform, myHorizons, provides multiple tools to support you in taking control of your Amazon inventory strategy.
Working with an Amazon Agency
Consider teaming up with an agency like Envision Horizons which can help you navigate the continuously changing eCommerce and Amazon space.
For more e-commerce tips and industry insight, sign up for our monthly newsletter at the bottom of the page where we provide a recap of our content, update you on industry trends, and link the most important Amazon news articles we read throughout the month.
Sources:
https://sellercentral.amazon.com/help/hub/reference/GM6SJGQDA625AUCJ
