As FBA booksellers, we’ve been pretty spoiled for the past few years. We were granted LTSF exemptions to sell one of each unique book that we had in stock, which meant we could pay roughly two cents each month for Amazon to store the book for us for an indefinite period of time. Even on a long-tail book where we could expect to net $2.00 of profit, that meant we could let it sit for 100 months at $0.02/month in storage fees and still break even. That’s considerably cheaper than renting a local storage unit, and also means you’re much more likely to actually find that exact book if someone buys it from you five years from now! Or at the very least, if Amazon lost the book, you’d receive a small reimbursement for the book.
These extremely cheap storage fees led to the “set it and forget it” pricing mantra that ultimately filled Amazon’s warehouses to the brim with slow-moving inventory. Amazon attempted to rectify the situation by offering free removals of old inventory, but that ultimately proved to be unsuccessful. Instead, Amazon decided to levy a Long-Term Storage Fee (LTSF) against all books in a seller’s inventory, revoking the single-unit exemption that had been in place for so long. The removal of the single-unit exemption applies to all products, but hurts media sellers the most since they typically sell only one or two units of each individual SKU.
If you look in the Facebook groups, you’ll see many sellers panicking about the upcoming LTSF: “How can I survive if my fees are going to be $800 on August 15??” “Should I dump all my older inventory?” “I’m going to convert to 100% Merchant Fulfilled, then I don’t have to worry about any fees.”
Before you decide for yourself, let’s take a closer look at what LTSF are, when you’ll be charged, and what you can do about them. Spoiler alert: I’m going to remain 100% FBA, and I’m not concerned much about the storage fees. Read on for my explanation!
What are LTSF?
As I mentioned above, LTSF are Amazon’s way of ensuring their warehouses don’t get bogged down with long-tail inventory. Twice a year – on February 15 and August 15 – Amazon will charge FBA sellers a fee for inventory that is in stock on those days that has been in inventory for at least 6 months or at least 12 months. If you send in a high-ranked book on February 16 and it doesn’t sell for 10 months, you will actually avoid paying LTSF on August 15, since it won’t have been in storage for at least 6 months. One strategy to reduce LTSF would be to hold your inventory from mid-January through mid-February and then send it in on February 16. Then do the same holding-and-listing pattern prior to August 16. Personally, I send in shipments as planned since inventory in my house is 100% guaranteed to not sell! If you have a rather large shipment ready to go out on August 13, however, it may make sense to wait a few additional days to save some coin come February 15. (Note: technically the timer on your inventory starts from the day your inventory is checked in to an Amazon FBA center, but Murphy’s Law states that if you ship it on August 13, UPS will deliver it in record time and your master plan will fail – better to wait to ship on August 15 or 16!)
How much are LTSF?
LTSF are calculated by how many cubic feet of storage your items are displacing in Amazon’s warehouses. You can read all about the math involved here, if you’d like. For a typical mix of books, including textbooks and small paperbacks, each book in storage will cost roughly $0.40 apiece for the 6-month fees, and about $0.85 apiece for the 12-month fees. If those fees will kill your margins on those particular books, you should probably rethink your FBA sourcing (and pricing) parameters. In general, these LTSF should be charged in proportion to the size of your inventory. If you have 500 books in inventory, your fees should be much smaller than a seller with 5,000 books in inventory. If they aren’t, it’s time for some serious spring (or fall) cleaning!
How can I manage or minimize my fees?
You can actually set up your FBA account to automatically remove items that are going to be charged LTSF, and have them destroyed (15 cents apiece) or shipped back to your home (50 cents apiece) to give them out as gifts to all your relatives come Christmas time (sorry, relatives!). If you’re removing duds, there’s not much point in shipping them back to yourself. Simply destroy them and move on. I wouldn’t recommend signing up for either automated option, and here’s why: you would be dumping some of your valuable long-tail inventory. A small percentage of the books I purchase have a very high rank (north of 6-7 million), but their potential profit if they sell is at least $50. Buyers on some of these titles only come along once or twice a year, so I’m happy to pay an extra $0.35 to keep the book in storage for more than 6 months in hopes of selling it eventually at a high profit. If competitive offers have jumped on the listing and tanked the price significantly, then it may make sense to dispose of the inventory. But if you make the disposal decision entirely based on the length of time your inventory has been in storage, you may be missing out on greater sales (opportunity cost) than if you had just paid the LTSF in their entirety.
Here are your options:
- Do nothing – ignore the fees completely and just pay them in full
- Panic and dispose/destroy all your old inventory – avoid the fees completely by paying $0.15 per book to destroy them
- Adopt a hybrid approach – calmly take a close look at your inventory and make a calculated business decision to minimize fees and eliminate duds
I bet you’ll never guess which option I’d recommend! Let’s take a closer look at my fees and my strategies to deal with them.
My personal case study:
On July 15, I took a closer look at my Inventory Health Report to see what my LTSF situation looked like. Here’s an overview of my inventory:
For my estimated Long-Term Storage Fees, here’s how they broke down:
Total fees: $1,707
Yes, $1,707 is a lot of money to throw away on storage fees. Alternatively, I could pay $0.15 per book to dispose of everything and my bill would drop to $469. Ultimately, either fee is just a cost of doing business. But there are a few ways to minimize those fees between now and August 15, through some careful repricing. Here’s my repricing strategies:
- Immediately reprice all inventory that is going to be hit with LTSF.
- Books that are 6 months old – reprice based on the lowest used FBA offer, while staying at least 10% under Amazon’s price.
- Books that are 12 months old – reprice based on the lowest MF offer. As much as I’d like to get a premium price for my Prime books, if they haven’t sold in over a year it’s time to liquidate if at all possible.
- For 6-month books, I set a target profit of $2.00 as my minimum payout from Amazon (ignoring my costs – just looking at the amount Amazon would deposit into my bank account after taking into account all the FBA fees).
- For 12-month books, I set a target profit of $0.50 as my minimum payout. You can see that it worked by looking at a few results below:
In just two weeks, I’ve sold off 175 books from the 6-month list, and 116 books from the 12-month list. This not only is putting more cash in my bank due to the sales, but is saving me $172.67 in LTSF. Not a bad one-two punch! Over the next two weeks, I’ll continue to aggressively reprice those books down to move more of them out of Amazon’s warehouses. Theoretically, if I can sell some of the lower-priced inventory at a $0.14 loss, it’ll still be cheaper than paying Amazon the $0.15 to dispose of them. Something to ponder…
Repricing can do wonders for your business, if implemented correctly. If you learn to use the Inventory Health Report well, it can help give some of your books the nudge they need to finally sell.
On August 14, I’ll make a final decision on which books to keep in inventory and pay the fees, and which to have Amazon throw into the nearest dumpster. The math is fairly simple here:
- 6-month books – if the lowest MF price is under $10, and then rank is over 250k, I’m likely dumping the book. Even if I were to sell it, there isn’t much meat left on the bone.
- 12-month books – if the lowest MF price is under $25, regardless of rank, I’m likely dumping the book. I don’t mind paying storage fees, but there had better be a hefty profit potential if I’m keeping the book in inventory for more than a year.
While I don’t enjoy these new(er) storage fees, I’m glad that they encourage me maintain a lean, efficient inventory. Cleaning out duds will open up room for new, fresh inventory, and will also help to boost my inventory turn rates. The timing of the August LTSF charges is a bit inconvenient, since it’s right before the massive textbook surge hits. The February timing isn’t a big deal since most of the spring semester textbook purchases wind down by mid-February.
One last comment/goal – our monthly inventory turn rates are typically around 10-14% per month, but I’ve been hearing from lots of FBA sellers with turn rates (defined as total units sold in a month divided by average number of units in stock during the month) that are quite often north of 20-30%. What are your turn rates? And how many books do you have in stock? Report your numbers below! We’re going to try to be more efficient, both in terms of weeding out old books and in buying better books up front, and attempt to raise our monthly turn rates into the 15-20% range. Textbook season is usually 25% for us, so no complaints there! And speaking of which, it’s August. Time for the real fun to begin. I wish you all a tremendous fall semester!