Supply chain management, Amazon fees, and you
As you’re probably already aware, Amazon’s FBA program can really help streamline your business and boost sales. Fulfillment by Amazon can be a lot like you imagine it to be: ship your merchandise to their warehouse, Amazon does all the work, yadda yadda yadda, cash rolls in.
But it’s not like that for most people. Why? Honestly, it’s because they don’t really understand the platform or how to use it properly and they end up paying too much in fees.
Yes, FBA can be an AMAZING addition to your supply chain. It can be an extremely valuable tool. But you have to know how to use the platform, make it work for you.
Much as credit card companies make tons of cash on fees associated with their customers’ APRs and late payments… so too does Amazon make a good chunk of money from fees that are chargeable to sellers. Fees that are valid because sellers weren’t paying attention or they didn’t play the game right.
Long term storage fees are annoying
One thing we see a lot of here at Cascadia is questions and problems surrounding long term storage fees. Sellers don’t like them, which is fair enough, but it seems in our experience that they don’t really understand them. The fees always could have been avoided.
Similar again to our old nemesis the credit card companies, it’s not Amazon’s fault or problem if you don’t read the terms thoroughly and understand them completely before signing on the dotted line. And they make the program easy because they want you to sign on the dotted line, they want you to be lured by the ease.
That doesn’t make them horrible, that makes them savvy.
They’ve done their part to streamline their own processes, thereby being able to provide such a valuable and comprehensive service as FBA. Seriously, they do everything for you. There is a ton of value in it for many sellers. But it is uber important that you do your part too.
So, you be savvy too.
As a business owner it is crucial that you understand how the process works and can benefit you, where the fee structure can cost you, and how Amazon fits into your supply chain. As a business owner it’s your responsibility to manage your supply chain and make sure you aren’t losing your shirt in the fees department.
Why do they charge these fees?
Think of an Amazon warehouse like retail space. In a retail setting, every square inch of floor space represents potential income/sales. So products must be merchandised in such a way as to turn over fast; that one square foot of floor space being taken up by the cute table full of cute things to buy, has to pay its way… earn its keep.
If it doesn’t, that space must be relinquished to something that will sell well and earn its keep. With an Amazon warehouse it’s a similar idea.
Every inch of space in an Amazon warehouse has potential for sales, for turnover. If your merchandise is just sitting there not moving, it’s in the way. It’s taking up space that could be occupied by merchandise that is selling well. So if it’s just going to sit there, they’re going to charge you fees. As well they should!
How can I avoid the fees?
Get serious about your supply chain, and what each piece of it means. You really can use FBA, pay minimal fees, and have it be a win/win for everyone, but you do need to know what you’re doing.
Remember, they are banking on you not reading the fine print and having to pay fees if you’re being an “amateur” player. Yes, it is very true that Amazon wants to make it easy for people to sell their goods, but they also want to make it easy for people to buy goods through Amazon’s channel. And if you’re hanging around clogging their channel because you don’t really know what you’re doing and your stuff’s in the way, you’re going to pay fees.
Look at it this way: Amazon put a lot of time and effort and resources into a really awesome platform where they will take on the lion’s share of the work for you in exchange for a reasonable cut. This is a business arrangement. They aren’t working for free, they’re never working for free, and honestly neither should you!
So you should put a lot of time and effort and resources into your own processes and systems so that things run smoothly, you aren’t reinventing the wheel every other day, and you’re also not losing a bunch of cash to fees you don’t understand.
Amazon does make it easy but you need to do your homework or you’ll get burned. Amazon takes their business seriously and they want you to as well.
Why Amazon is not a storage space
What it comes down to, really, is that being a storage facility just doesn’t fit into their business plan.
It goes back to what we discussed about how retail spaces are set up. Though an Amazon warehouse space absolutely does look the part of a storage space, the business model itself is more like a retail model. The stuff that takes up space needs to pay its way.
If you’re the proprietor of a brick and mortar establishment, and you’ve got something that’s not selling, you’ve still got to pay rent on the space it occupies. It’s not your landlord’s fault that the product displayed in that corner of your store hasn’t been selling! The landlord wants all the rent, for all the space.
As the business owner it’s your job to make sure all your products are earning their keep, and that’s what Amazon is doing by charging long term storage fees on the stuff that sellers just leave there: they’re making it work for them.
They have every right to charge long term storage fees because that stuff is taking up space in their warehouse but they’ve still got to pay their bills.
Managing your supply chain more effectively is how you save money
Hopefully all of this doesn’t sound too harsh, and it makes some sense to you. Because Amazon is not alone in this practice of charging fees, and you should assume that everyone (rightfully) wants to charge you if your stuff stays too long in their space.
Don’t leave it too long in any one place, and plan your re-orders based on historical data. It takes some practice, and of course there is a learning curve, but the better you can get about placing your re-orders on time, and moving them through your supply chain with as much swiftness as humanly possible, the more money you’ll keep in your pocket.
Generally speaking, you’ll want to try to order full containers from your supplier, take them to a warehouse to be palletized on the coast, then ship 2-3 months of cover at most to Amazon, and store the rest. If you’re selling container loads a month, aim for 3-4 weeks of cover because if you have a listing get shut down or an investigation, etc., the storage fees can ruin your profitability for months.
Recommended by Cascadia
If you’re in the market for some logistics help, we recommend both of these 3rd party logistics companies as great options for your business:
South East World Wide Ltd – https://southeastworldwide.com/
Contact – Leo Hsu Tel: 310-419-6082 Fax: 888-883-1169
Bridgeway – http://www.bwaybusiness.com/
Work smarter, not harder
Recently there was a comment on a forum stating something to the effect that one must be an expert in order to sell successfully on Amazon. It’s great that they included the “successfully” part… you don’t really need to be an expert and you certainly can learn on the fly. But it does help to have prior understanding of how the business works, independent of the online piece.
Amazon has made online sales accessible to everyone, that is absolutely true. But you’ve got to be professional, organized, proactive and informed in order to achieve your goal: profits.
Take the time to get up close and personal with your supply chain and all its pieces. Know the potential bottlenecks and plan contingencies for them.
From fast-tracked factory re-orders to advertising, you have a ton of control over how swiftly your product moves. Figure out how to make every piece of your supply chain work for you, and Amazon’s long term storage fees will be a thing of the past.