E564: 3 Ways to Reduce Inbound Placement Fees

In this episode, Dave discusses how to reduce inbound placement fees with Amazon, how placement fees are calculated and who the winners and losers are since these fees were implemented. 

Today's episode is sponsored by Clearco, a company that provides ecommerce businesses with working capital to fund inventory, marketing, shipping and logistics, and more! Check them out today! 

It's been a few months since Amazon implemented their new Inbound Placement Fees. 

The amount of increase varies, depending on the product, warehouse location, and other factors. But the good news is that you don’t always have to pay the fees.

In this episode, we’ll explore the 3 ways you can use to avoid or reduce your Inventory Placement Fee when sending products to Amazon. 

The 3 Ways to Reduce Inbound Placement Fees

1. Shipping to four or more locations can help avoid placement fees.
2. Shipping to Amazon Warehousing and Distribution (AWD) can also help avoid placement fees, although it may come with other fees such as receiving and warehousing fees.
3. Choosing a more centralized 3PL can help minimize placement fees and partner carrier fees.

Timestamps

• 00:00 – Introduction to Placement Fees
• 02:20 – Amazon Warehousing and Distribution (AWD) as a Solution
• 10:53 – Ship into AWD to Avoid Placement Fees
• 13:48 – Consider the Location of Your 3PL
• 17:09 – Impact of Placement Fees on Profitability

As always, if you have any questions or anything that you need help with, reach out to us at support@ecomcrew.com if you're interested. 

Don’t forget to leave us a review on iTunes if you enjoy our content. If you have any questions, send us an email at support@ecomcrew.com. We'd love to help you in any way we can. 

Thanks for listening!

Until next time, happy selling!

Transcript

Ecomcrew (00:00.046)
Hey guys, it's Dave coming at you today with a bit of a tactical episode on how to minimize inbound placement fees with Amazon. So it was several months ago that Amazon rocked all sellers worlds and announced that we would have to pay these placement fees to ship into Amazon, at least if we wanted to ship into fewer warehouses rather than more warehouses. So it was definitely one of the biggest fee changes that Amazon has rolled out in recent memory.

And now that we're a few months into this, we have a bit of a clearer picture in how much this is impacting us on the bottom line and also some strategies for getting around placement fees. So on this podcast, I'll break down both of those things, both the financial impact that we're experiencing in our brands, as well as some different tactics that you can use to get around these placement fees or at least minimize placement fees. Ready to start and grow your own profitable e -commerce brand?

This is the Ecom Crew Podcast, the web's most transparent podcast where we don't hide our brands, our products, or our failures. From creating stellar products to selling both on Amazon and off Amazon. Keep listening for authentic stories, practical advice, and tactical tips for starting and running your own e -commerce business.

Ecomcrew (01:23.534)
Hey guys, I wanted to pause the podcast for just one moment and introduce you to today's sponsor, Clearco. Clearco is something that I wish was around in 2019 as our business was growing at the rapid rate that it was, and it seemed like we could just never get our hands on enough funding. Clearco provides e -commerce businesses with working capital to fund invoices and receipts, to fund inventory, for marketing, shipping, logistics, and more.

As an example, one of their customers, Cecil and Lou recently drove 25 % growth in new revenue by using ClearCo funding for their in -stock inventory, which accounts for 60 % of their 2024 revenue. ClearCo works with e -commerce stores from Amazon to Shopify to BigCommerce. It's simple. There's no collateral. It's non -dilutive. There's capped weekly payments, and there's no personal guarantee to get the working capital that you need to fund your growth.

So go to clear .co, that's C -L -E -A -R dot C -O to sign up today and see what funding your business qualifies for. All right, now back to the show. Okay, to get things started, let's talk about quickly what a placement fee is. I'm sure most of you know, but in case you don't know what the placement fees are, let's talk about what it is and then also how it's calculated. So I'm still surprised that even today,

A lot of people don't really realize how placement fees are calculated. They think it's some magical formula that Amazon's pulling out of thin air. It's not really actually. There's a pretty set formula for it. So it's good to know what that formula is. But first things first, let's talk about what the placement fee is. Well, the placement fee as again, most of us know, it's a fee that we're paying if we want to ship to one, two or three, sometimes four warehouses instead of six different warehouses. And so that's the first thing that we're going to talk about.

when we're talking about tactics is how many warehouses you're shipping to because if you're shipping to one, two or three, you're gonna pay a placement fee. If you're shipping to four plus locations, you're not going to pay a placement fee. So the placement fees are broken down into size categories much like our FBA fees are when calculating those FBA fees. The difference is is that while FBA fees have about a million different size categories, placement fees really only have a handful of categories. So standard size items have

Ecomcrew (03:44.334)
about four different size categories and same with large bulky size items, AKA oversized items, they have about five size categories as well. And so let's pick a typical item. Let's say it's one and a half pounds. You're gonna pay if you're shipping to a single location, 32 cents to 49 cents per unit. And if you're shipping to two or three locations, you're gonna pay 17 cents to 34 cents per unit. And then if you're shipping to four plus locations, you're going to pay no placement fees.

Now Amazon, when they rolled out these placement fees, they actually concurrently announced an FBA fee reduction. So they reduced FBA fees across the board for all size categories. So the FBA fee decrease for us in our brands, and I'm gonna talk about a few actual SKUs here in a second, but for our brands, the FBA fee decrease for most of the SKUs actually offset a pretty high percentage of the placement fees that we're being charged.

Now, most of the FBA fees went down anywhere from 12 to 33 cents, depending on the size category. So this was great and that has actually really minimized the impact of the placement fees because some of these FBA fee decreases were actually pretty significant. Now, the big caveat here and the big catch 22 that we all know is coming is that Amazon did us a nice solid and they reduced the FBA fees when they implemented this placement fee. But you know what's gonna happen. Amazon's going to just take back

what they gave us in that FBA fee decrease. And when they roll out their next increase, which is probably coming at the end of this year, they're gonna take back everything they gave to us and they're gonna increase FBA fees by a lot. And of course how Amazon's probably gonna paint this is they're gonna be like, Amazon, we had a phenomenal gift that we gave to sellers this year and we decreased your FBA fees by 33 cents. And guess what? We're only going to increase FBA fees by 32 cents. So you're still saving a penny.

this year. Now of course they're going to hide over the fact that they instituted these placement fees, but that's probably how Amazon's going to paint what will likely be a massive FBA fee increase later in the year. And again, that's my prediction. I'm normally wrong on predictions like these, but that is my prediction. So I'll give you a couple of real examples of our SKUs. SKU -1 was a standard size item and we shipped it with partner carrier and we shipped a few hundred different units into FBA.

Ecomcrew (06:07.726)
Placement fee was 36 cents per unit. The FBA fee decrease was 33 cents per unit. So that means that we were stuck paying an extra three cents to get these items into Amazon. number two, also a standard size item shipped with partner carrier. I'm distinguishing with partner carrier because as I'll talk about in a second, some items we shipped AGL, some were going direct into FBA, some were going to AWD. But the SKU, we shipped partner carrier into FBA. And again, there was a placement fee of 34 cents and a

FBA fee decrease of 20 cents, meaning that we paid 14 cents more per unit. Now I should also distinguish here that these two SKUs, they have an AOV, like an average order value of over $100. So three cents, 14 cents, yeah, it's something, but relative to the overall selling price, was pretty insignificant. Now on the EcomCrew blog, I break down all the SKUs, but I'm gonna jump ahead here to a couple of the SKUs which seen huge FBA, or not FBA, but overall,

fee increases and these were really the oversized SKUs. And in particular, oversized SKUs that were going via AGL. And that was the big change here with the placement fee increase that Amazon rolled out this year. So there were some losers, some major losers when the placement fees were introduced. A good example would be somebody who had a warehouse near Ontario 8 that had strategically placed their warehouse near Ontario 8 because they would ship all their products into Ontario 8.

they would have been a big loser because they were now having to pay a placement fee to get those products shipped in. Another loser though, was anybody shipping AGL like ourselves. And we shipped almost all of our oversized items into AGL because it was a bargain. So let me give you an example here. One of these oversized SKUs that we sold, we get a 20 cent decrease in FBA fees, but per unit, the placement fee was $2. So that was a net change of $1 .86 on this oversized item.

And yes, this oversized item had a bit of a higher selling price at about $200, but $2 out of $200, that's a 2 % increase. That's a significant hit to our bottom line on this SKU. Another SKU, the exact same thing. Oversize going to AGL had a fee decrease of just 12 cents, but a placement fee of $4 .40 when going to AGL. The overall change was $4 .28. Now why is there this big discrepancy

Ecomcrew (08:32.878)
between these two items. And it really comes down to how Amazon is calculating these placement fees for AGL. So it seems that with AGL, Amazon just has this really complex formula they're using for what the placement fees are going to be. So unlike when you're shipping with partner carriers into Amazon, it's a pretty straightforward granular fee structure. With AGL, it seems to be a lot more complex. Now, don't 100 % quote me on this because maybe there's a simpler formula that I just can't get through my dense mind.

But as far as I know, Amazon has a complex formula for determining the placement fees with AGL. And why do I say they have a complex formula? Because as I was researching this article and this podcast and trying to figure out, hmm, is there an actual formula that Amazon's using to calculate these placement fees, Amazon linked me to a spreadsheet to figure out what the actual placement fees would be. So anytime that Amazon gives you a spreadsheet to figure out a fee rather than just a table, you know it's complicated. So overall.

It seems AGL is an absolute loser here. It's an absolute dog and it is becoming really inefficient to ship with AGL into FBA. Now why do I say into FBA? How else would you ship with AGL? Well, you could ship with AGL into AWD, Amazon Warehousing and Distribution. And that was the big winner with the placement fees. So as a lot of people know and a lot of people suspect…

Amazon rolled out these placement fees basically as a way to force people into using AWD, Amazon Warehousing and Distribution. So with Amazon Warehousing and Distribution, you pay no placement fees. Now with AWD, you don't pay any placement fees, but you do get charged a receiving fee and of course you get charged the warehousing for AWD. So a lot of you guys are already using AWD and you're kind of aware of the fees. Let me just run over it here really quick. Storage fee is 42 cents per cubic foot.

per month, which is cheaper than FBA. The processing fee per box is $2. And the transportation fee to get your items from AWD into FBA warehouses is a dollar per cubic foot. So that's basically equivalent to like a partner carrier fee, that transportation fee. So that transportation fee is pretty similar to a partner carrier fee. In fact, it's less a lot of times. So it's the processing fee, which is kind of the new fee that you're going to pay. So yeah, tip number one, if you want to avoid placement fees is.

Ecomcrew (10:53.918)
ship into AWD. Now you might be saying, well Dave, why didn't you just ship those two oversized skews into AWD and save on those placement fees? Those placement fees were ridiculously high. Well, again, that's the big loser. You cannot ship at this moment large bulky items into AWD. It's only for standard size items. And so we were forced to ship these into FBA. But if you're selling a standard size item, do not ship them into FBA. Ship them into AWD. That's the number one tactic that you can use to avoid these placement fees.

Now, my tinfoil hat conspiracy theory here and also prediction is number one, that Amazon rolled out the placement fees to force sellers into AWD. My other kind of prediction is that, ooh man, I don't think the FTC is going to like what Amazon kind of did here, forcing sellers into AWD, especially for the fact that Amazon has an FTC investigation going on about this exact thing about Amazon forcing sellers to use Amazon logistics.

In fact, when Amazon rolled out the placement fees and you could read through the tea leaves and see that they're basically trying to force sellers into AWD, my first reaction is, Amazon, why would you do that in the midst of an FTC investigation into your monopoly power and forcing sellers into using Amazon logistics? The optics, at a very minimum, were not great. Even if it doesn't necessarily do anything contradictory to that FTC investigation, the optics were still terrible. But regardless of what I think, the point is,

save on placement fees, don't pay them, ship into AWD. It is a bargain right now. Now sure, Amazon's probably gonna jack up these fees sometime in the near future, but right now, you don't pay placement fees, you're not paying nearly as much for storage fees, and overall, it's just a really good value right at this moment. Now eventually that's probably gonna change, but right now it's a great deal. Tactic number two, and again, this is not some really complicated tactic. A lot of you guys probably know this, but you really have to do the math when you're…

creating your shipment plans and consider the placement fees plus carrier fees. So for us, we have a warehouse in Washington State. Silly, silly location to have a warehouse, but nevertheless, we have a major warehouse in Washington State. Most of the time, we are far better off paying a higher placement fee to lock our items into West Coast warehouses. And so when you're creating shipment plans and you're calculating your placement fees, generally you have the option to choose between shipping your…

Ecomcrew (13:18.798)
products into the central, west, or east warehouses, or paying no placement fee and shipping them all over the place. So just to give you a rough example, recently we shipped in 240 units to Amazon. We had an option to ship these with distributed inventory and ship them all over the place, pay no placement fee. The partner carrier fee would have been $969, but we would have paid no placement fees. Overall, it would work out to about $4 .04 per unit in placement fees and carrier fees.

Alternatively, we can just ship everything into one or two West Coast warehouses, pay a placement fee of $29 .40, and pay partner carrier fees of just $907. So roughly an overall cost of about $937. And we were paying per unit $3 .90 versus $4 .04 with no placement fees when calculated on a per unit basis. And I think most sellers

kind of understand this math and when they're creating shipment plans, you probably are doing that math and you kind of figure it out intuitively or you figure it out on paper. One way the other, you figure out what the cheapest method is. Where we had a bit of a problem as a company is our employee who manages our FBA shipments, while he wasn't calculating all those different fees in totality, he was simply looking at the placement fees and going, okay, well, this one has no placement fee, that must be the cheapest one.

ship it there. And it took me about two or three months to realize, you're not calculating all of the fees. And so we were paying much higher overall fees than we needed to. So now each week when he's creating shipment plans, I'm forcing him to calculate the carrier fees and placement fees, save them in a spreadsheet so I know he's doing it, and then pick the lowest overall. And so it's just, again, one of these little things that happens when a new policy like this gets instituted where your old SOPs no longer become relevant and sometimes it can take some time to figure out that,

Okay, people are doing things not the way they should. So overall though, yes, make sure you are calculating placement fee plus carrier fee when you're trying to determine how to make your shipping plans. Okay, and little tip number three here. This one's a harder one to implement. It's not something you're gonna implement as soon as you get off this podcast. But the third little tactic here is really consider where your three PLs are. And if you have a warehouse and you own your own warehouse, congratulations, but you're probably not going to move that.

Ecomcrew (15:41.198)
anytime soon, but if you have a 3PL, you can move those around fairly easily and pick a 3PL that's a little bit more centralized. So 3PLs in the Los Angeles area where everyone would ship directly into Ontario 8, those were the hot thing in years past. Having that 3PL near Ontario 8, not nearly as big of a competitive advantage as it once was. In fact, it could actually harm you. And why? Well, the reason is if Amazon's asking you ship to Washington state, in Indiana, in Florida,

and Texas, well, having a warehouse in Los Angeles doesn't really help you much. Now, if you had a warehouse though in say, Kentucky or Tennessee, that's a much more centralized location. It's gonna probably result in you not having to pay placement fees because you will be willing to ship distributed inventory across multiple warehouses and it'll result in lower partner carrier fees too. And so you can figure out the math without actually having to switch your 3PL. So create a dummy address in somewhere like Kentucky.

And figure out, okay, well, if I ship the shipment from LA versus Kentucky, what would my placement fees and partner carrier fees be? And figure out what that is, and then calculate, you what would the overall savings be to you as a company? Maybe it wouldn't be anything, or maybe it would be significant, but do that math at the very least. So again, you're not gonna switch your 3PL right this second, but do the math in figuring out, okay, what would be a good location to have a 3PL, and what would minimize both partner carrier fees and placement fees for us? So that gives you guys the three quick

tactics for reducing placement fees. Overall, the placement fee debacle, I would say on a scale of one to 10 and how much it's impacted our profitability as a company, I would probably put it in the three to five range. So it hasn't been great, obviously, but it probably hasn't been as painful as it once was. We had a couple of SKUs which definitely have had very significant impacts and those SKUs especially are.

oversized slash large and bulky skews. Those have been impacted pretty significantly, but our standard size items, yeah, there's been an impact, but it hasn't been absolutely devastating. So I'd be curious to know how placement fees have really impacted your bottom line. Has it been significant or has it kind of been a nothing burger? Head on over to econcrew .com. We have a great article there which visualizes some of the tactics I talked about, about reducing your placement fees and leave a comment on that blog post and let us know.

Ecomcrew (18:06.434)
how it's impacted you, and also if you've figured out any other strategies for getting around the placement fees. And until the next episode, happy selling. We hope you enjoyed this episode of the eCom Crew Podcast. If you haven't done so already, please head over to iTunes and leave us a review. It helps more than you know. Did you know that eCom Crew has a ton of free content, including eCommerce courses? Head over to eComCrew .com slash free to check it out today.

That's going to do it for this episode of the Econ Crew Podcast. Until the next one, happy selling and we'll talk to you soon.