Businesses selling on Amazon have become accustomed to paying Fulfillment by Amazon (FBA) fees, and for many sellers, the increased exposure provided by the online retail giant, combined with the reliable and rapid Amazon fulfillment process, makes it well worth the cost of doing business on the platform. However, starting in April 2024, Amazon rolled out a new policy aimed at urging sellers to maintain optimal inventory levels on its marketplace: the low-inventory-level fee. This new FBA fee now targets sellers who fail to maintain enough stock on hand to effectively meet customer demand, according to Amazon’s seemingly arbitrary standard of 4 weeks or 28 days of inventory, based on sellers’ historical sales volume. While Amazon’s goal is to improve the customer experience by reducing stockouts and ensuring quicker deliveries, the new policy has had wide-ranging consequences for many sellers. Some have had to rethink their business strategies and improve their demand forecasting efforts, while others have faced the difficult decision to leave the Amazon marketplace altogether due to financial strain.
One thing the new low-inventory FBA fee certainly does is highlight the need for even the smallest businesses to bone up on their demand planning and inventory management skills, and possibly invest in intelligent software to make that process easier. (Visit Amazon for full details on all 2025 changes to FBA fees.)
The Amazon low-inventory FBA fee structure is explained on the company’s “seller central” community, so we won’t repeat the whole fee structure here. Essentially, there are 3 tiers of products based on weight and/or dimensions (up to 16 oz., up to 3 lbs., and 3+ to 20 lbs; for large standard products, the shipping weight is the greater of unit or dimensional weight). Each product tier is assessed a low-inventory fee based on the number of historical days’ worth of inventory for each product at 3 thresholds: 0-13 days (highest fees), 14-21 days (mid-level fees), and 22-28 days (lowest fees). The most severe penalty is for the larger products dropping below the lowest inventory level. So while a 10-ounce product falling below 28 days’ worth of inventory is assessed an additional FBA fee of $0.32 per unit, a large (weight or dimensional) product falling below 14 days’ worth of inventory is assessed an additional FBA fee of $1.11 each time it sells. Ouch.
In a crowded marketplace where multiple sellers often offer similar or identical products, profit margins are frequently razor-thin and many sellers rely on volume to stay solvent. An additional fee of this size can mean the difference between selling on Amazon and going out of business.
The new FBA fee structure initially raised a lot of questions among sellers and analysts, one of which is what happens in the months surrounding Amazon’s annual Prime Day, during which sales volume can skyrocket, which of course throws your historical record of inventory levels out the window. Rob Hahn of Pattern points out one potential sticking point: “To illustrate, let’s say a brand usually sells 100 units on an average week and therefore needs 400 units for every 30 days. But when Prime Day is around the corner, the brand opts to increase inventory to 600 units for the coming week, and it ends up quadrupling sales. This adjustment could lead Amazon to say that the brand’s optimal inventory level now has to be higher than 100 units a week if the brand wants to avoid the fine. So does the new fee mean that Amazon will charge the brand for not having enough inventory? Would Amazon penalize the brand for selling and storing too high a volume of inventory during Prime Day? Either way, it’s impossible for brands to forecast exactly how much inventory they’ll need, and Amazon is essentially threatening to punish them for something they can’t accurately predict.”
Naturally, there was a lot of pushback when Amazon announced the new fee structure, and many of those concerns are visible on Amazon’s seller central community.
One seller asks Amazon administrators, “I currently have a product that’s selling well and I have plenty of inventory. I am looking to offer a larger size, but am a bit confused on how the low inventory level fee can be applied. Since my first batch of this will be rather small to test the market, I anticipate this fee will apply as I run out of inventory. I recall seeing the low inventory level fee is applied at the parent [product] level. Does this mean as I have low inventory of the new, larger version, both versions will have this fee applied?” Amazon’s response? “That is correct.” So in this case, a historically successful seller that carries plenty of inventory may potentially be penalized (if inventory drops) for trying to innovate, paying double low-inventory FBA penalties for attempting to improve the buying experience and give customers a new SKU that they’re asking for.
Another seller complains, “Just got hit with my first low level inventory fee and it is SO UNREASONABLE. The low inventory level fees are absolutely unfair, unsustainable, and ridiculous. The cause for my low stock is bad quality and the time it takes to run QC and fix bad inventory. This is so unfair because quality checks are done to protect the customers. I should not be penalized for this as the manufacturing is difficult.” Amazon responds, “Thank you [for] sharing that feedback… It sounds like your inventory and product lines present special issues with regards to these fees. We understand that sellers have strong feelings about these fees.” Essentially: “Sucks for you, buddy.”
One could argue that nobody is forcing these sellers to use the Amazon platform, and indeed we’re sure that some Amazon sellers will be pushed into other business models if they are unable to adjust to the new requirements for maintaining the requisite 4 weeks of inventory.
To be fair, Amazon initially made some adjustments to the April 1, 2024 deadline, including enacting grace periods for current sellers to become accustomed to the new fee structure, and refunding fees assessed during the grace period (if applied for properly). They also modified their threshold for what’s considered low-inventory levels for some seasonal products and low-volume skus: “Because of the greater unpredictability in managing inventory levels for seasonal, end-of-life, and other low-volume products with varying demand, starting May 15, the low-inventory-level fee will not apply to products that have sold less than 20 units in the past 7 days.”
Amazon also doesn’t assess low-inventory FBA fees for new professional sellers for the first 365 days after their first inventory-received date. This gives sellers that are new to the Amazon platform a year to adjust to the system, related fees, and required inventory levels. However, this doesn’t apply to existing sellers who are launching new products. They are essentially required to guess at the correct inventory level from day one, or risk a penalty.
To avoid the fee, many sellers have increased their inventory levels, which is certainly the primary result Amazon was hoping for. However, for sellers with multiple products and/or large/heavy SKUs, weighing the costs of securing and maintaining adequate warehousing space against the cost of low-inventory fees can be a delicate dance. Is it better to pay an increased FBA fee for each product, or is it better to pay a similar or even greater amount to secure and maintain increased inventory in order to avoid the fees? Either way, the seller is the one footing the bill, which means they will likely need to raise prices and pass those increases on to customers. Sellers also need to carefully examine their sales trends and undergo effective demand planning, or else they could possibly be hit with even more costly overstock issues, irrespective of Amazon’s existing FBA fee structure.
Some sellers are diversifying, exploring additional sales platforms in order to reduce their reliance on Amazon and avoid the impact of FBA fees. Other sellers are investing in better forecasting tools and using analytics to predict demand more accurately, helping ensure they maintain optimal inventory levels. Reevaluation of product lines is certainly requisite. For example, certain sellers might now wish to not necessarily focus on marketing or selling the most profitable item, but rather prioritizing items with consistent sales that result in less volatile inventory levels. Avoiding the fees by maintaining adequate inventory levels can thus become the goal, rather than maximizing the profit of an individual SKU. From a traditional perspective, this is pretty strange, but it’s the price of doing business with an ecommerce mega-giant like Amazon as your partner.
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