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The Truth about LTSF (Long-Term Storage Fees)

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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:

Screen Shot 2017-07-31 at 4.33.52 PM

For my estimated Long-Term Storage Fees, here’s how they broke down:

6-month fees:

Units: 2,214

Dollars: $916

($0.41/book)

 

12-month fees:

Units: 913

Dollars: $791

($0.87/book)

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:

Screen Shot 2017-07-31 at 6.37.50 PM

The results:

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.

Last steps:

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!

 

21 Comments

  1. The single unit exemption on LTSF applied to all categories not just media items. Very good write up overall, though.

  2. Very Informative, thanks for that breakdown!

  3. Going to use your guidelines. Thanks. I am doing more merchant filled as many of my books that are valuable don’t sell for up to five years.

    • If you have the room and patience for MF, it can make sense. I prefer freedom and flexibility in my business, so MF is not in my foreseeable future! It does make sense on long-tail items and fast-moving books without much of an FBA price gap.

  4. I am pulling my inventory back to MF. Surprisingly, I am actually selling more than on FBA. This tells me that possibly the FBA pricing is driving away buyers. Maybe I am wrong. I have the space for my 700 or so books and carefully add a few every week mostly from yard sales. The only books left on FBA will be Textbooks. I don’t like surprises.

    • I’ve heard similar reports from other MF sellers regarding higher turn rates. Price is obviously the most important factor for many customers, although many customers only buy Prime. There’s profit in both models if applied correctly. Interesting insight though!

  5. Thank you for the blog! It came just in time as I was setting the day aside to work on my aged inventory. I have about 200 books that will incur 6 month fees and will sell as many as possible before the 15th and then dispose of the rest as they are major duds from when I first started. I started pricing those pretty aggressively a couple months ago and I can’t wait until they are no longer part of my inventory!

    My average sales for the last 3 months were 270 and I have between 1100-1200 books in my FBA inventory. So my sell through rate seems to be about 23%. I use a repricer (although it really doesn’t reprice that much of my inventory, I need to continue to work out the kinks) and also have started to price very competitively from the beginning.

    My inventory is going to be bare bones by the time September comes along! Thank goodness that’s when book sale season starts around here. BTW…when will Android get ScoutIQ beta??? 😉

    • 23% turn rate is quite solid for books! Your repricer can’t “see” prime prices all the time, so it can’t make decisions for you. Continue to tweak the settings until you find ones that work for you.

      Beta for Android with ScoutIQ is alive and well – check out the Google Play Store 🙂

  6. Thanks for this excellent advice Caleb. There’s one factor which you haven’t discussed which could be worth taking into account and that is the variation in LTSFs depending on the size of book. My projected LTSFs range from 0.05 to over 3.00 per book. I think Amazon calculate the fee according to the item’s cubic volume. I’ve been working on the basis that the higher the fee, the higher the sale price you need to make a book worth keeping in FBA. Conversely, books with low fees need a smaller projected sale price to be worth keeping. I think this is useful to factor in, along with rank and price.

    • It most certainly is. The averages are helpful in understanding the basic guidelines, but there are certainly books on both end of the spectrum (you’re spot on with regards to the cubic volume of the book). The Inventory Health report will spell out estimated fees and help you determine which books to remove and which ones to keep.

  7. I liked this blog post very much,your contributions have compounded my bookselling success and efforts as a new Amazon seller since reading this blog. I was literally praying for LTSF philosophy to pop up soon because it can be a little daunting to navigate the meaning of all those reports in such a super new beginner phase. Besides that your videos have helped me too. Your video contributions always get me me to places and have been thoroughly easy for me to understand. Albeit a different topic, for example your video on removing large amounts of inventory is a serious walkthrough for me. “Dis stuff ain’t nuttin to mess around wit when you gits your bank accounts hooked up!” Thanks for your hardwork.

    • Thanks for the kind words – I’m glad the blog and videos have been helpful for you! You’re welcome to request topics as well – always looking for more interesting topics to share!

  8. Excellent guidelines to use or modify for each seller’s goals. Thank You!

  9. Hey Caleb,

    Always good info. What are your thoughts on the liquidation option. I am using that this year on all my LTSF items.

    Thanks!

    Jim

    • I haven’t used the liquidation option – theoretically you get about 10% of the item’s expected sales price (or profit, I forget which), so most of my low-priced books just get the boot via disposals. I’m curious if anyone has had success with liquidating their books and/or media inventory? Share your experience!

  10. Our turn rates are very different. Your states are impressive, Caleb, but it also reflects the kind of books you probably sell: textbooks and new/popular books? I sell mostly antiquarian and oop books, and my model was always longtail. So the LTSF exemption hit me hard. Most people in my shoes are FBM sellers, but I hate that model. When FBA bookselling worked for me (2010-2015), it worked GREAT, and the crotchety FBM booksellers hated me for it (“How can you send a valuable rare book into FBA?”) … but now my whole model has to change. At any given time, 50-60% of my books were over a year old. I’ve had books 3-4 years old in inventory. While I’ll still keep the really valuable ones there (some of which i’ve already paid $4-6 in storage fees over the years), I have to change my model and therefore my business.

    I can’t send in thousands of OOP books that are ranked at over 5 million and that take 2-5 years to sell anymore, especially when many of those books end up selling at anywhere from $9 to $19. Before the last year or so, the $9-15 book was my bread and butter. Now those books are not worth selling on here. I’m sure that sellers of newer books still FBA books with a price of $9, $10, or $11, but if it’s a book that isn’t guaranteed to sell in its first months, it quickly becomes a liability. Since I’ve shut down my store, I will not have local storage for 10,000 old books. I still love the idea of an FBA book business, but this is going to take some thinking and planning…

    • Interesting take – thanks for sharing! My basic rule of thumb is, the higher the rank, the higher the required list price. I don’t list $15 books with a rank of 5 million. The numbers (or portfolio theory) don’t add up. I sell ~30% textbooks, and the rest are mostly niche nonfiction or popular fiction titles that I can sell for $10-$15. You have an interesting conundrum here – you may be able to open a local B&M store, but that would cost a lot and suck your time. The FBA model for slow-moving books isn’t likely to pay out over time. Good luck with your future ventures!

  11. Whoops, typo, I meant “stats” not “states”!

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