A couple of days ago, Amazon announced that for third-party sellers that kept a certain amount of inventory in stock at all times but also sold enough units in a month, the monthly storage fees for those SKUs would be dramatically reduced.
Sellers will get discounted monthly storage fees when they maintain target inventory levels of eligible, popular products. Supplying sufficient inventory is critical to offering faster delivery speeds on fast-moving products because it allows Amazon to place them close to customers.
This comes as Amazon starts rolling out one-day free Prime shipping in places where the previous Prime delivery window was two days.
A product becomes eligible for this heavily discounted storage fee rate when it meets specific volume and inventory quantity criteria. Both of these measurements relate to the storage fees for the current month being evaluated (qualifying in July means a discount for July’s storage fees):
- The SKU sells greater than or equal to 60 units in the month
- The inventory count for the SKU meets the minimum Weeks of Coverthreshold for at least 21 days in a calendar month ormaintain inventory levels that match the target range listed on your Restock report for at least 21 days in a calendar month.
That second bullet requires a bit of math, so let’s break this down further.
Weeks of Cover
Weeks of Coverdescribes how many weeks an item would be in stock and saleable for based on the current number of units sold in a given week. Amazon requires that the item maintains between 4-8 weeks of cover. (WoC is rear-facing, meaning it’s calculating based on past sales/week, not predicted sales.
The maximum threshold for four and eight weeks of cover can be calculated using (replacing
Nwith 4 or 8):
This will give a range of the acceptable number of units to keep in stock to meet the coverage requirement. Using real numbers (average 2 units per day is the minimum to hit 60/month):
The minimum number of units to keep in stock at two/day is 56 and the max is 112.
- Item A sells 100 units per week, and 400 units are in stock. That’s 4 Weeks of Cover. ✅
- Item B sells 40 units per week and 320 units are in stock. That’s 8 Weeks of Cover. ✅
- Item C sells 430 units per week and 4,300 units are in stock. That’s 10 Weeks of Cover. ❌
The Target Rangeis simply the number of units Amazon finds to be ideal for quick turnover while still maintaining stock levels at all times using Amazon’s forecasting data with seasonality factored into the equation. The Restock Report will describe what the target range is for a given SKU.
So now we’ve established how to qualify for storage discounts, now it’s time to review what they actually look like.
The biggest gains will be had in cases where inventory is kept at a pretty consistent level but stock is also constantly flowing in and out of Amazon’s fulfillment centers. The longer and more frequently a SKU can maintain the targets required to have discounted storage fees, the more value and higher margins you as a seller will see, especiallyduring the holiday season.
One of the biggest red flags I see here are cases, especially in the Retail Arbitrage and Online Arbitrage world where one may be selling 60 units a month, but doesn’t have 4-8 weeks worth of inventory. It’s a pretty small window of potential people though, since to get 60 a month, one would need at least 60 units of inventory which would meet the 4-week Weeks of Cover minimum, as well. Those that do RA/OA and are sending in more than 8 weeks worth of inventory at once won’t see this discount applied to them, even if the 60/month requirement is met.
If all this seems a bit much to comprehend, it’s understandable. Here’s the short version:
- Sell at least 60 units a month
- Keep no less than four and no more than eight weeks of inventory in stock at least 21 days out of a month.
- 1 + 2 equals seeing a 50% decrease in storage fees for that SKU during the holiday season and 75% off-season.
Over the last few months, Amazon has worked to decrease fees in some areas and we can add storage fees for regularly selling, regularly replenishable items to the list. With third-party sellers making up a significant majority of Amazon’s marketplace revenue and the number of sellers growing at a pretty substantial pace, it’s not surprising that Amazon wants to promote a just-in-time style inventory management practice where there’s literally only enough in stock to handle those buying right now. Additional units fill in the empty spots as needed but nothing sits around for longer than it has to.