For the first time, Amazon is issuing a 5% fuel and inflation surcharge that will be applied to US FBA sellers. Contrary to circulating misinformation, this 5% increase is not on all Seller Fees but applies only to the Amazon Fulfillment Fee. As explained in this article, profit margins will not be affected by a full 5%. Continue reading for more information and examples of how profit margins will be affected by FBA fee increase.
We recommend calculating the costs of these increases before they go into effect, so you can start considering what adjustments you can make to offset additional fees.
April 2022 FBA Fee Increase
Amazon has announced that starting on April 28, 2022, a 5% fuel and inflation surcharge will be applied to FBA fulfillment fees. The surcharge is subject to change. You can check out this announcement directly from Amazon here.
The increased core FBA fulfillment fees will take effect on April 28. The greater of unit weight or dimensional weight will be used to calculate the shipping weight for all large standard-size and oversize units, except for special oversize.
For example, a small standard item of 12oz will go from having an FBA fee of $3.07 to an FBA fee of $3.22.
Core FBA Fulfillment Fee Changes
Understand How Your Margins are Impacted with FBA Fee Increase
The first step in preparing for the FBA fee increase is understanding how your margins will be impacted. Adjust your profit margin analysis with the new FBA fees to calculate your new net profit margin.
Check out the calculations below for an example of how you might see your profit margins change for an individual ASIN…
In this example, a large standard 1lb item went from having a net profit margin of 16.17%, to a net profit margin of 15.43%.
A small decrease in profit margins on every individual ASIN can have a big impact on your overall profitability on Amazon.
Decide How to Maintain Profitability
After you’ve gained an understanding of how the FBA fee increase will affect your profit margins, start considering your options for offsetting the difference. You may consider changes such as…
1. Increasing Product Price
Oftentimes, increased fees might simply have to pass through to your retail price. Consider strategically increasing some of your product prices to offset the additional costs of shipping through FBA.
2. Adjust Advertising Goals (tACOS)
Lower profit margins may mean temporarily pulling back on advertising and tACOS goals.
Additionally, you might consider taking a look at your catalog and individual item profitability to adjust your advertising strategy. Your top sellers may not be top contributors to your overall profit. It’s important to give attention to your products that sell well, but also consider focusing on items that bring you profit. Highly profitable items that are underperforming may need more attention.
3. Increasing Average Order Value (AOV)
Increasing your average order value is one of the most effective ways to surge your profits on Amazon.
Average Order Value (AOV) = Total Revenue ÷ Number of Orders
Ways to improve your AOV include…
- Bundling products – physical bundles or virtual bundles
- Cross-selling & Upselling
- Offering discount coupons
4. Reducing Supply Chain Costs
Cutting costs in the supply chain is easier said than done! However, with FBA fees increasing now is a good time to reevaluate the efficiency of your supply chain.
Reducing transportation costs in the supply chain requires a deep analysis of how you’re sending orders currently. Some options for reducing costs might include consolidating shipments into larger orders, cutting down on shipping frequency, or outsourcing to dedicated transportation companies.
Automating processes can also be a good way to reduce supply chain costs. Tasks such as inventory monitoring, order prep, and data interpretation can save you time and resources when properly automated.
Conclusion
Every time Amazon increases fees, it’s time for Amazon sellers to take stock of ASIN profitability, product pricing, and target margins.
Taking stock of your performance on Amazon and implementing strategies to increase profitability can be overwhelming for any Amazon seller. For sellers looking for additional support, Envision Horizons offers a solution. myHorizons is making selling on Amazon less stressful and more profitable by automating Amazon brand management. For more information on myHorizons, visit our site. Or schedule your own personal demo here.
