Over the last few years, Amazon sellers have become adept at adjusting their inventory levels to keep Amazon happy and minimize the financial penalties that arise from exceeding Amazon’s strict storage limits. As we begin the new year, if you’re selling on Amazon, you’re going to need to stay on your toes. That’s because Amazon just sent out a letter announcing new storage limits and restrictions for 2023. In a letter to sellers, Amazon said, “Amazon sellers with an IPI (Inventory Performance Index) score less than 500 will be subjected to storage limits from August 16 to December 31.”
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Over the last few years, Amazon sellers have become adept at adjusting their inventory levels to keep Amazon happy and minimize the financial penalties that arise from exceeding Amazon’s strict storage limits.
As we begin the new year, if you’re selling on Amazon, you’re going to need to stay on your toes.
That’s because Amazon just sent out a letter announcing new storage limits and restrictions for 2023. In a letter to sellers, Amazon said, “Amazon sellers with an IPI (Inventory Performance Index) score less than 500 will be subjected to storage limits from August 16 to December 31.”
Amazon’s Storage Restrictions Have Sellers Feeling Uneasy
Amazon has been tinkering with inventory restrictions for some time now.
In the summer of 2020, Amazon announced a big storage update that affected a lot of FBA sellers. The ASIN-level quantity was limited to just 200 units, which made new product launches increasingly challenging. Later, in April 2021, Amazon turned around and removed the ASIN-level limits in favor of storage-type level inventory limitations.
Now, Amazon has another new idea involving storage limits and this time it involves online auctions.
As Amazon sellers, you’re probably used to the idea of an online auction. After all, every Amazon PPC campaign consists of auctions for the keywords that you’re bidding on. This isn’t your first rodeo. Still, it’s got to be a bit of a surprise to read here that Amazon has now turned its Fulfillment by Amazon (FBA) service into an auction.
Bidding for Storage Space?
Yes, it’s true. Starting March 1st, 2023, Amazon sellers can now bid for extra capacity beyond the existing inventory limits that had been historically set by Amazon.
Part of Amazon’s ongoing FBA warehouse process involves the continuous assessment of eCommerce sellers’ performance on the marketplace. Amazon uses their sellers’ IPI score and sales performance to determine their maximum warehouse space.
What has Amazon sellers pulling their hair out is that while selling on Amazon without FBA might not be impossible, it certainly tips the scale in favor of those sellers that take the steps to make Amazon happy.
How about using 3PL (third party logistics) companies?
The big problem is that the majority of shoppers on Amazon are Prime members and have become accustomed to the benefits of Prime shipping. With Amazon Prime requiring the use of FBA, the storage limits and fee increases – fully linked to Amazon Prime – have a lot of sellers feeling that their options are not only limited, they’re nonexistent.
How Will the Storage Bidding Process Work?
Up until now, Amazon sellers that exceeded their warehouse space were penalized. With this new program, Amazon’s Capacity Manager help page states that “If you have FBA capacity limits but could use more capacity for products that you expect to be popular with customers, you can request an increase to your capacity limits.”
Amazon continues to say, “In your request, specify the following: How much additional capacity you want for the specified period (up to 20% of your initial limit or 2,000 cubic feet, whichever is greater) and maximum reservation fee that you’d be willing to pay for the extra capacity.”
Using the formula above, if an Amazon seller was allocated 500 cubic feet of warehouse space, they could place a bid for an additional 100 cubic feet.
But, Amazon goes on to say that IF the seller is successful with the supplementary (bid upon) inventory, there’s a chance that they could come out even. That’s because according to the language from the Capacity Manager help page, “You’ll earn a $0.15 performance credit for every dollar of sales that you generate using this additional capacity during the period requested. We designed this credit to give you the opportunity to offset 100% of the reservation fee, if you use the additional capacity productively.”
That means that if the seller bids $0.15 for the additional storage space, AND they’re successful they could come out even. Of course, if they’re not successful with the extra inventory, that just means more money in Amazon’s pocket.
Moving Forward with Auction-Based Storage on Amazon
It seems that Amazon’s – and eCommerce sellers’ hopes – are that after paying for the extra space AND creating more sales, the inventory limits will rise, all without costing sellers anything.
Just like a PPC ad auction, Amazon will allocate extra storage to sellers with the highest bid first. “Our criteria for granting requests is completely objective. We start with the highest reservation fee and continue in this order until all allocated capacity has been granted.”
The bottom line is that as Amazon sellers, you’re probably comfortable with the idea of auctions based on supply and demand. We all deal with it in everyday life. Many freeway “express” lanes charge according to how much traffic there is. If the normal lanes are packed, the rate goes up.
As Amazon’s ecosystem evolves to deal with the challenges of supply chain disruptions and increasingly crowded warehouses, this seems like one way that Amazon sellers will have a monetary stake in helping Amazon solve the puzzle.
It’s just one more reason that Amazon sellers need to read the fine print, and keep an eye on their Amazon accounts. If you’d like a little help navigating the challenging eCommerce waters, reach out to the pros at Canopy Management.
How Canopy Management Can Help
As Amazon’s marketplace becomes increasingly competitive, Amazon advertising has grown in complexity. It’s no longer enough to have “good business instincts” as many entrepreneurs do.
It’s a different ballgame now.
That’s why many experienced Amazon sellers reach out to the team at Canopy Management. Our expert Amazon Creative Services, PPC and DSP pros are a big part of why Canopy partners show an 84% average profit increase.
Want to be part of the Canopy Tribe? Find out more right here.
Canopy Management is a full-service marketing agency for Amazon sellers. Our team consists of former Amazonians, multi-million dollar sellers, and award-winning experts. When you consider the many ways that Canopy Management can help you grow your business, you’ll see why selling on Amazon is much easier “under the Canopy.”
- Strategic Growth Planning
- Listing Copywriting Optimization
- Listing Photography
- Product Videography
- Advertising Management
- Customer Service
- Demand Side Platform (Amazon DSP)
- Amazon Posts
- Full Service Management
- Amazon Review Aggregation