A conversation about Amazon's fee hikes for 4 years: the seller is really not easy

On May 1st, 2024, Amazon introduced a new low inventory fee, soon after which a return processing fee took effect on June 1st. This dot point new fee policy formulated by Amazon in H1 2024 gradually penetrated into the profit pattern and operation direction of sellers.

How Much Amazon Has Raised Its Fees in 3 Years

Amazon’s e-commerce revenue rose 9.3 percent in the fourth quarter of 2023. But its fees from third-party sellers were up by 19.8%. In other words, sellers’ fees increased at more than double the rate at which expected revenue grew.

Revenue Sources

For context e-commerce revenue grew just 6.7% over the course of those two years (and 2022 revenue volume was actually less than in 2021), but Amazon’s fees collected from Q4 2021 to Q4 2023 were up 43.7%.

And that steep fee hike all came before the advent of inventory placement fees, low inventory fees or return processing fat bites.

So just where has the Seattle online giant been making this added-fee revenue? It's in part due to inflation and an ever-increasing demand for more valuable services, like Amazon Global Logistics.

But another major factor in Amazon’s fee income growth is the introduction of more and more degrees of complexity in seller fees—fees that are frequently hard to spot and harder still to forecast.

FBA fees got multiplied by 7 between 3 sizes and 21 sizes in 5 years

The most straightforward evidence of escalating fee complexity is Amazon’s base FBA fees, which sellers pay to get their packages delivered to customers.

In 2018, “standard-size” items (of the most common size sold on Amazon) could be classified into only three size tiers. The number of tiers has since grown to 21.

The new tiers could in fact be a way to offer more granular (and fair) pricing. But the result is that it has gotten significantly more difficult for sellers to determine the actual size of a fee increase.

For instance, Amazon introduced a new EPA fee schedule in 2023. It initially seemed like a money-saving move for sellers because Amazon got rid of the peak-season surcharge (previously charged from October through December). Amazon also eliminated all but one of its weight tiers — the one that ranges from 12+ to 16 ounces, and in which fees even decreased a little.

But for items weighing less than 12 ounces, rates actually increased by 9 percent and 15 percent based on size.

Now, skeptics including even Amazon itself can claim there was nothing deceptive at play here — just a smarter pricing system, with costs clearly calculated per product. But intentional or not, the frequent rollout of new fee structures has made it all but impossible to gauge the true impact of increases, and has also thrown up roadblocks for sellers in the need to adapt retail pricing. It also deviates from the conventional method in the field of logistics for price hike initiatives.

UPS + FedEx Apply General Rate Increases Each Year

We are accustomed to UPS, FedEx, and most others once a year unilaterally announcing one common general rate increase (GRI). For instance, in 2024, each company increased rates by 5.9%. That was a clear, across-the-board increase. So if you spent $10 to send a package from Seattle to Los Angeles in 2023, you would spend $10.59 in 2024. This was a cleavable cost increase and could be predicted and priced-in by the merchants.

In fairness, price increases from UPS or FedEx are never popular. But they are a part of a competitive firmscape in which rivals limit each other. For Amazon, which remains both an e-commerce marketplace and a logistics provider, there is almost no competition.

It’s not that Amazon added additional size tiers. The issue is that, rather than imposing a single clear, straightforward general rate increase, it introduced layers of complicated new fees over the years, making it very difficult to tell what the true rate increase has been.

Amazon Increased Disposal Fees Nearly 400%, From 2021 to 2023

Here are some more examples:

• Amazon ratcheted up the number of standard-size tiers from 3 to 21 between 2018 and 2023.
• Amazon hiked processing fees by 380% in 2021 and 2023.
• In 2023, Amazon discontinued the Small and Light program in favor of the Low-Price FBA (lower price thresholds, but higher shipping fees in most cases).
• From 2023, long-term storage fees started on day 181 rather than day 271.
• Amazon added placement fees, low-inventory fees and return processing fees in 2024.

Some might say these are simply mundane non-structural modifications to ordinary fee schedule and not obfuscation by design. But, beginning in 2024, it became a much more difficult argument to make.

Amazon Three New Fee Structures for 2024

Focus Now on the Three New Fees The fees Amazon instituted in 2024 that we will focus on are the inbound placement fees, the low-inventory fees, and the return processing fees.

You could say a lot of what Amazon changed before — new size tiers, etc. — still permitted sellers to reasonably estimate what their costs would be. But not so with the 2024 fees — they couldn’t be independently worked out based on data outside Amazon’s AP/Seller Central, or they were based on nebulous performance metrics.

Inbound Placement Fee (2024)

Amazon began with placement fees in early 2024, charging sellers if they wanted to ship to fewer fulfillment centers.

The announcement of this fee sparked an explosion of outrage from sellers about the fact that they had no idea whether they’d actually owe one or, if so, how much it would be.

Amazon’s fee structure listed ranges. “Fees varied based on the inbound location,” Amazon said. How did you set the price? You needed to estimate using Seller Central or Amazon’s API.

This raised a legitimate question: since sellers could not predict a placement fee at the time of listing a product, how did they know the impact of this fee on margins and how much to increase prices in order to cover the new cost?

Low-Inventory Fee (2024)

In May 2024 Amazon rolled out a low-inventory fee that kicked in when inventory levels dropped below 28 days. It was not like long-term storage fees where that’s priced per item.

The main problem was its complexity. It was derived from the history of 30- or 90-day supplies. Was it impossible to calculate that number? No — but it was not easy (especially not going to Seller Central) and even less predictable.

Amazon delayed implementation by a month, perhaps sensing sellers’ nervousness.

Return Processing Fee (2024)

And then on June 1, 2024, Amazon introduced a return processing fee. According to Amazon, “This fee was applicable only for products with return rates that exceeded the category-specific threshold.”

The schedule of fees itself appeared clear enough. It was not known, however, what the category cutoffs were, or how frequently they were revised. Amazon also shaped return rates by changing its own return leniency. (Amazon didn’t report its overall return rate, but according to the National Retail Federation, the average holiday e-commerce return rate was 21 percent.)

Is Amazon Turning Its Own ‘Opaque’ Business Practices on Itself?

Why didn’t Amazon just raise the existing fees instead of rolling out a complex new mixture of fees?

One rationale is that these enabled more accurate pricing of services, incentivizing sellers who delivered good performance. In other words, they were fees tied to performance. Sellers who kept ocean-sized inventory while minimizing returns through listing quality may not have felt the impact. Good sellers were thus rewarded while bad sellers were punished.

But here’s a more cynical take: Amazon benefited from camouflaging how much it cost to sell on its platform, and created another revenue source. This could have given a misleading sense of profitability when compared to competitors like eBay or Etsy. It in turn made it difficult for sellers to figure out how much they needed to raise prices to protect margins.

Is that too far-fetched? Perhaps not. The Federal Trade Commission said not — it stated so in their lawsuit charging Amazon with illegally maintaining monopoly power. As alleged by the suit, Amazon “… extract[s] massive monopoly rents from… everyone and everything it touches,” by “… charging hundreds of thousands of captive sellers supra competitive prices. Those included monthly fees on every item sold and advertising fees that had become more or less obligatory for doing business. With all of these fees combined, many sellers ended up giving Amazon close to half of their total revenue.”

Whatever you think of Amazon’s motives for introducing new fees in 2024, that translated into sellers paying more that year.

Where Windingflow Can Help

So if that all sounded too daunting… for sellers who found Amazon’s growing array of fees increasingly complex, they had to do what they could to focus on efficiency and automation. Windingflow assisted Amazon Vendors and Sellers to get more done with:

• Automated Order Processing: Eliminated the need to input orders manually and ship them quickly.
• Supply Chain Integration: Got Vendor Central, Seller Central and more platforms in the same place.
• Cost & Error-Reduction: Included native EDI compliance to reduce chargebacks and unwarranted expenses.
• Scalable Architecture: Whether selling $100K or $100M, Windingflow grew as you did.

In an environment where costs kept climbing and the road to sustainable profits kept getting longer, combining solid strategy with the operational leverage of Windingflow helped businesses gain the edge they needed.