When Amazon announced their new fee structure for 2024, they introduced a new “low-inventory” fee. This fee penalizes sellers if they don’t keep enough inventory in stock for their FBA SKUs.
Unfortunately, Amazon kinda sucks at explaining things. So here’s how this fee works and how to avoid it.
What is the Low-Inventory Fee?
The Low-Inventory fee acts as an increase in the FBA fee for any given SKU. If the FBA fee is $5.00, and the Low-Inventory fee is $0.36, Amazon will charge you $5.36 each time a customer orders that product.
The fee only applies to FBA product. If you fulfill your own products, or you’re part of the Seller-Fulfilled Prime program, you’ll never see this fee.
How Much is the Low-Inventory Fee?
The Low-Inventory fee is based on how much inventory you have in stock on average. Amazon uses a metric called “days of supply” which uses your sales history to determine how long your inventory will last.
If you sell about 10 units per day of a given SKU, and you have 100 units in stock, Amazon will likely say you have “10 days of supply”. And that metric, is what Amazon will use when assessing Low-Inventory fees.
Amazon’s minimum benchmark for days of supply is 28. So if you always keep your inventory above 28 days of supply, you’ll never see a low inventory fee. Once you’re below that level, the fee will vary based on how many days of supply you have, and what your product’s shipping weight is.
You’ll note that it says “historical days of supply”. That’s important because remember, Amazon’s using your average days of supply. So here’s how that works.
How is the Low-Inventory Fee Calculated?
Amazon will look at the last 30 days and the last 90 days, and use your average days of supply for those periods to determine your historical days of supply levels.
Then, your days of supply average will have to be lower than 28 for both the last 30 days and the last 90 days in order to incur low inventory costs. If your days of supply is low for just one of those time periods, you won’t get hit with a fee. It’s important to understand that both criteria have to be met to incur the fee.
If your days of supply is only low for one of those time periods, then you won’t incur the fee. And remember, it’s looking at the daily average, so a couple of weeks of low inventory isn’t going to ruin things. It’s only if you’re averaging below 28 days of supplies for both the last 30 days and the last 90 days that you start to run into trouble.
Otherwise, you’re in the clear.
NOTE: The Low-Inventory Fee is calculated at the Parent-ASIN level. Meaning that the days of supply metric is calculated by using the average daily sales for all of the Child-ASINs inside a parent group.
Avoiding Low-Inventory Fees
Generally, at BLAZON we recommend keeping at least 90 days worth of inventory in Amazon fulfillment centers at all times. If you stick to this guideline, you’ll be all set. However, sometimes things don’t go as planned, so here are some pointers.
It’s Better to Overstock Than Understock
Amazon also changed their long-term storage fee structure as part of their fee changes. Instead of of tracking the age of individual units, Amazon now also uses historical days of supply for long-term storage fees.
Since this change, they’ve started calling these fees “storage utilizations surcharge.” Essentially, if your historical days of supply is below 180 days, you won’t incur long-term storage fees. So if your logistics don’t allow you to consistently send in inventory, it’s better to err on the side of sending in too much inventory.
Leveraging Amazon’s AWD Program
The concern with sending in too much inventory is often storage fees. Storage fees can add up, especially in Q4. And that’s where the AWD program comes in.
Amazon Warehousing and Distribution (AWD) is a bulk storage program for Amazon Sellers. By sending in large amounts of palletized inventory, you can cut your storage costs by more than half of normal FBA storage costs. This allows sellers to send in months and months worth of inventory without having to worry about storage fees.
Then, Amazon will automatically replenish your inventory from AWD to FBA warehouses. And here’s where that gets cool:
By using AWD, you can actually request that Amazon waive any Low-Inventory fees your might incur. By using the AWD program, you can avoid all sorts of fees.
What About Sales Spikes and Out of Stock?
What happens when you have a really awesome Prime Day? Or when your product runs out of stock?
Fortunately, the historical days of supply metric accounts for that. A really good sales day might decrease your average days of supply for the last 30 days. However, it likely won’t ruin your 90 day average.
And then if you run out of inventory completely, it’s likely that only the last 30 days will be below 28 days of supply. The 90 day average should ensure that you don’t get hit with a fee as you’re running out of inventory. Once you’re out of inventory, you can’t get hit with a low-inventory fee.
And Then There’s Seasonal Products
Unfortunately, this is a tough one. Because Amazon’s not looking at the last 30 days vs. same time period last year, seasonal product can get hit with this fee.
Amazon tries to make this fuzzy, probably because they know it’s dumb. But as you hit your off-season, you’re likely to see some fees. As sales slow down, it’ll take some time for the “days of supply” metric to catch up to your lower sales.
In theory, since the fee is a per-unit-sold fee, your cost won’t be super high. But it’s still something that affects seasonal product.
Straight from the Horse’s Mouth
All of the info for this article was taken from Amazon’s info page about about Low-Inventory fees. It’s boring and dry, but it is accurate, since it’s Amazon.
There’s also a lot of info on specific scenarios, rates, how things are calculated, etc. It can be really useful to look at and check back on, in case Amazon makes updates.
If you’re still not sure what your SKUs specific fees might be, we built a calculator for that. You can find that on our article about all of Amazon’s fee changes in 2024. If you’re finding you’re having a hard time with Amazon logistics in 2024, we’ve created a resource for that, too.
Get the Help You Need
Unfortunately, understanding Amazon’s fees is just one piece of the puzzle. Amazon’s a whole world that can be extremely difficult to manage. If you find that you’re having issues on Amazon, or you don’t know where to start, reach out. Our whole thing is knowing as much about Amazon as there is to know.