It should be no secret that Amazon “Fulfilled By Amazon” (FBA) is a convenient and common service when businesses decide to begin on a journey to an e-commerce model of selling and distributing products. Although the FBA model is convenient, it comes with a price tag. In addition to fulfillment fees, shipping fees, and product classification fees, storage of inventory is charged at a premium.
This makes sense for Amazon – they are in the business of moving products quickly, so they “incentivize” customers to not take up storage space in their warehouse. As many businesses have found, it does not align with internal inventory turn expectations, seasonal cycles, or end customer buying patterns.
How to Combat Amazon FBA’s peak season price hikes
Many of our customers are finding out another aspect of the Amazon storage fee model – “Peak Season”. Clearly stated on Amazon’s FBA site is the increase which can be expected from October and December (just in time for the holiday season!).
One strategy of combating this seasonal storage source is the Pre-FBA model. Companies that deploy this model use another warehousing partner or distributor, preferably with a location close to the destination Amazon fulfillment center, to store goods until Amazon inventory needs to be replenished. Using a Pre-FBA model can make an incredible impact on-bottom line. The example below walks through a real-world example of this model.
The Surprising Storage Costs in the Amazon FBA Model
As of September 2020, the Amazon FBA Inventory Storage Fees are the following for a standard size pallet (48 in. x 40 in.) :
- January – September: $0.75 per cubic foot
- October – September: $2.40 per cubic foot
Yes, the peak season for Amazon is a 220% increase per cubic foot.
Running the Numbers: What this Means for You
For the sake of our use case, we will walk through the calculation and comparison of a standard pallet that is 72 inches high (the maximum accepted per Amazon). Calculating the cubic feet for this pallet as the product (in inches) L x W x H divided by 123 , we arrive at 80 cubic feet:
- (48 * 40 * 72)/(123)) = 138,240 / 1,728 = 80 ft3
Using this volume as the basis for the storage cost estimate, we arrive at the following costs per pallet per month for each period and a weighted cost for average annual estimates:
- January – September: $60
- October – December: $192
- Annual Weighted Cost = (.25) * $192 + (.75) * $60 = $93
The Final Verdict: Amazon Pre-FBA vs Amazon FBA
To provide context to our scenario, the following is assumed:
- 1 floor-loaded container of product Inbound per month, with 1000 cartons/cases
- Cartons need to be labeled and palletized
- Pallets in each scenario are 48x40x72 or 80 ft3
- Warehousing costs are estimated based on WarehouseQuote national averages per transaction.
In each scenario, we recognize there are additional costs which are typical to the pre-FBA model, including:
- Devanning/unloading the cargo
- Amazon compliance – labeling and shrink wrapping
- Pallet purchase costs
- Processing fees
- Transportation to the Amazon Fulfillment Center
Amazon pre-FBA Model – Peak Season
When comparing the peak season storage rates against the average warehousing storage rates (constant year-round), the figures point to $3,747, or 36% of the Amazon equivalent, per month savings opposed to storing the same volume in Amazon during the same period.
Amazon pre-FBA Model – Year Round
When comparing the peak season storage rates against the average warehousing storage rates (constant year-round), the figures point to $900,87, or 70% of the Amazon equivalent, per month savings opposed to storing the same volume in Amazon during the same period.
What’s the Cost?
Even deploying the pre-FBA Model year-round can show significant savings. In addition to savings and depending on your provider, this very well could be a more versatile option for you. Inventory is not locked up in Amazon, so direct to customer fulfillment through the warehouse and/or B2B fulfillment for larger orders is still on the table.
What would you do with your savings?
Want to learn more about growing your business with Amazon? Read our latest blog on the Advantages of Amazon Fulfilled By Merchant (FBM).