Velocity Sellers, Inc

Velocity sellers logo
Amazon Auction Bidding for Additional FBA Storage: Key Strategies
January 31, 2023
  • Amazon Introduces FBA Storage Auctions
  • Overhauled Capacity Limits to Begin March 1st, 2023
  • How can sellers bid for additional warehouse space?
  • How does Amazon determine the maximum warehouse space for each seller?
  • Potential for Increased Sales
  • Recouping Fees Through Productive Use of Additional Space
  • Simplifying the Inventory Management Process

Navigating Inventory Limitations

For some time, Amazon has been experimenting with its inventory limitations, which prompted sellers to be quick on their feet. Recently, Amazon has reduced the storage limit for its Fulfillment by Amazon (FBA) service, posing challenges to sellers’ inventories. Sellers couldn’t use 3PL warehouses, which would have been a more suitable option for storing stocks. As a result, users have lost their potential sales. 

Adapting to New Inventory Caps

This update has put an artificial ceiling on the sellers’ revenue due to various restrictions over the past years. This situation can be frustrating. Sellers mostly lament the unpredictability of these changes. They also criticize Amazon’s poor communication about the impact on them.

Amazon requires sellers to use the FBA service. Nevertheless, several sellers shun away from FBA due to its high costs. Moreover, sellers saw an annual 10% increase in shipping fees over the last few years.

Amazon-Streamlines-FBA-Service-with-Online-Auction
Amazon reintroduces its FBA Service in an online auction format to give sellers more control and predictability over their inventory.

At the start of this year, Amazon is trying to streamline its FBA system and give sellers more control and predictability over their inventory. The e-commerce shop will allow sellers to exceed their dedicated warehouse space through an online auction. 

Amazon has transformed its FBA service into an online auction. Here, sellers can bid for extra storage beyond their inventory limits. This setup offers a chance to boost sales and recoup the entire reservation fee. Sellers hitting their capacity limits can still request more storage. This is especially useful if they anticipate high demand for certain products from their customers. When bidding for additional storage, sellers need to specify:

  • The extra capacity they need (up to 20% of their initial limit or 2,000 cubic feet, depending on which is greater) 
  • the maximum reservation fee they are willing to pay for the extra space. 

The FBA program may be a good way for sellers to resolve Amazon’s constantly growing warehouse and supply chain issues.

Amazon FBA Auctions: What it is and How it Works

Last 2020, Amazon updated its storage policy, impacting several FBA sellers. A year later, Amazon shifted strategies by removing ASIN-level limits in favor of storage-type-level restrictions. The retail giant frequently assesses seller performance in the marketplace. This evaluation includes sales forecasts for ASINs, IPI scores, and fulfillment center capacity, among other factors. These factors influence the maximum warehouse storage the sellers can use for a given period. The limitations have become unpredictable and limiting over the past years, which impacted sellers’ revenue. 

Now, Amazon is launching a new storage limits policy – Online Auctions. With over 90% of Amazon sellers using FBA, it would be interesting to see how the bidding goes once the new policy takes effect.

Sellers-will-bid-for-extra-storage-under-new-FBA-program

Amazon is continually updating its FBA program to tackle warehouse and supply chain challenges. The latest policy will be implemented on March 1st, 2023.

Overhauled Amazon FBA Storage Capacity Limits to Begin March 1st, 2023

Online bidding isn’t new to sellers, as each Amazon PPC campaign involves keyword auctions. However, Amazon still surprises its sellers with its new FBA policy. Sellers can have more than their dedicated warehouse storage through bidding. Firstly, those who bid the highest can gain extra capacity, with Amazon stating fair criteria for granting requests. Subsequently, Amazon will allocate network capacity to each seller, beginning with the highest reservation fee and moving downwards. Additionally, sellers can utilize the storage for the requested period, potentially available up to a month in advance of the requested date. This arrangement will finally give them time to create shipments and arrange inventory in the fulfillment centers.

Amazon’s January announcement of changes to its seller account structure should make it easier for sellers to forecast sales and plan purchases. Users can add products to their inventory for more space, thus the possibility of generating more sales. However, if the users’ sales forecast isn’t better than the limits system, they can potentially lose more margin to fees.

How can sellers bid for additional warehouse space using Amazon FBA Storage Auctions?

Amazon still burdens sellers with possible penalties for exceeding their storage capacity limits. With the launch of this program, Amazon has made it easier for sellers to secure additional storage space without incurring extra costs. According to Amazon’s help page, sellers can bid on up to 20% of their initial allocation or 2,000 cubic feet at a time, whichever is greater. You can do this in increments of 100 cubic feet or less. If Amazon accepts the additional bid upon inventory, the seller will earn advertising fees for each item sold during the additional space used.

Given this formula, suppose a seller has 200 cubic feet of storage space; they can bid for extra cubic feet in the Amazon auction. Moreover, the Amazon auction will consider sellers’ requests case-by-case, with no guarantee of additional storage space being granted. Amazon auction assures sellers that they might break even if they are successful with their supplementary inventory. Sellers can earn a $0.15 performance credit for every dollar of sales they can generate via the additional capacity during the period requested in the Amazon auction. This is so users can offset 100% of the reservation fee they use to obtain more storage in the Amazon auction.

The Capacity Manager allows sellers to purchase additional storage space in the Amazon auction, using a reservation fee as collateral.
The Amazon auction will prioritize requests based on the highest reservation fee per cubic foot and allocate available space accordingly, moving from highest to lowest bids. Since performance credits offset the reservation fee in the Amazon auction, sellers may not pay for any storage space they don’t utilize. This program was structured to give users more authority over their storage without paying the penalty for inefficient use of their inventory in the Amazon auction.

How does Amazon determine the maximum warehouse space for each seller?

Sellers can avoid paying overage fees with inventory restrictions. They can be charged an overage fee if the on-hand inventory in Amazon’s fulfillment centers exceeds the capacity limit. This doesn’t include available shipments. Overage fees are derived from the highest estimated or confirmed limit Amazon provides for the requested period. With overage fees, sellers don’t have to pay exorbitant inventory levels. Sellers with outstanding inventory levels shouldn’t worry about overage fees.

Potential for Increased Sales w/ Streamlined Inventory Management

Dynamic Pricing in Various Industries

Brands have been using online auctions known as surge or dynamic pricing to resolve supply and demand issues. This approach, where the price of a product or service is set to fluctuate in response to customer demand, has been widely adopted across various sectors. The airline industry, one of the pioneers of this pricing model, adjusts ticket prices based on factors like season, seat type, and booking lead time. Prices for the same flight can vary significantly depending on the purchase time, reflecting the industry’s adoption of dynamic pricing to respond to seasonal changes and other variables.

Adoption Beyond Airlines

The concept of dynamic pricing extends beyond the airline industry. Tech giants like Google and entertainment conglomerates like Disney have also implemented this strategy. Google Ads, for instance, alters keyword costs based on real-time supply and demand, while Disney adjusts theme park admission prices according to the season, visit dates, and days of the week, showcasing the versatility of dynamic pricing across different business models.

Amazon’s Dynamic Pricing Strategy

Amazon stands out as a major adopter of dynamic pricing, updating its product prices every 10 minutes to reflect consumer response. This strategy, powered by data analytics, machine learning algorithms, and real-time adjustments, has reportedly increased Amazon’s profits by 25%. The company’s ability to swiftly adapt prices in line with demand fluctuations exemplifies the effectiveness of dynamic pricing in the retail sector.

Enhanced Sales Through FBA’s New Program

Within Amazon’s FBA program, the new storage limit system offers sellers an opportunity to boost sales through better inventory forecasting. After investing in extra storage and achieving increased sales, Amazon introduced a mechanism where sellers might not need to bid for additional storage in the subsequent month. Despite the higher costs associated with inventory limits, the potential for sellers to recover their reservation fees through performance credits presents a financially viable model, encouraging efficient inventory management and sales optimization.

FBA-System-Allow-Resellers-to-Offset-Reservation-Fee
With efficient usage of the additional space, they can recoup the entire price of their reservation, where they can get a $0.15 performance credit. If they get smart with their space allocation, they can recover from their reservation fee.

Recouping Storage Fees Through Productive Use of Additional Space

Besides the predictability and control over their inventory levels, sellers can also earn performance credit and get a refund of their reservation fee. They can get a $0.15 performance credit. With efficient usage of the additional space, they can recoup the entire price of their reservation. However, the same holds if they aren’t smart with their space allocation. Sellers cannot recover from their reservation fee. 

These changes will allow sellers to get extra space and thus generate more sales when their forecasts are better than Amazon’s limits system. The idea is that after paying for the extra space but selling more, Amazon will increase the limit, and the seller will not have to bid for more space next month. However, the bidding process can be complicated. Moreover, it allows sellers to lose even more margin on fees.

Simplifying the Inventory Management Process on Amazon FBA

Amazon’s single, month-long inventory capacity limit is said to streamline inventory management. This change will address some of the most common customer pain points and make it easier to plan how much inventory to procure and manufacture. For better inventory planning, Amazon will provide an estimated capacity limit for the next three months. Its system is designed to track sellers’ IPI score or Inventory Performance Index, measuring how sellers use their storage efficiently. The retail giant will notify sellers when a higher or lower estimated limit becomes available.

If you’re navigating the complexities of Amazon FBA, you might find our article Top 3 Amazon FBA Issues & How to Fix Them incredibly helpful. It’s packed with practical solutions and tips that could be just what you need. Check it out for some valuable insights.

Leave a Reply

Your email address will not be published.

Peter Sims

Sales Executive & Brand Evangelist

Pete has been on Amazon for 3 years now and is very happy to found a home at Velocity Sellers. In his free time Pete is an avid hiker, runner, and bowler. He also enjoys reading any book he can get his hands on and making some tea to go along with it.

Arlind Hoxha

Creative Manager

As the Creative Manager at Velocity Sellers, Arlind leads with expertise honed over many years in creative agencies. He brings a wealth of experience guiding designers and excelling in ecommerce-focused endeavors. Beyond his professional prowess, Arlind is an avid gamer, seamlessly blending creativity and strategic thinking.

Florence Palahang

Administrative Manager

Holding a BS in Accountancy from Davao City and boasting seven years of experience as a Virtual Assistant, Florence has established herself as a valuable asset. With a background spanning 95 clients worldwide, she has found her niche at Velocity Sellers, focusing on Amazon marketplaces. Beyond work, Florence enjoys reading, crochet, and baking. Her collection of plants adds vibrancy to her mornings, and witnessing her family enjoy the outcomes of her efforts brings contentment to her universe.

Kiley Forche

Treasurer

An MBA graduate specializing in Finance, boasting 11+ years of expertise. Joined Velocity Seller in 2018, contributing to our growth. Outside work, treasures family time, exploring new destinations, and passionately supports Buckeye Football

Miljan Milev

Sr. Project Manager

Seasoned project manager adept in data and e-commerce projects, collaborating globally. Outside work, finds joy in traveling, cherishing moments with family and friends.

Camilla Messmer

Sr. Project Manager

University of Arkansas grad in Supply Chain Management, excelling in eCommerce project management. Enjoys baking, travel, and writing, adding a touch of creativity to every endeavor.

Zach Taylor

Director of Logistics

Zach, a graduate with a Sociology and Environmental Science degree from the University of Montana, has consistently found himself drawn to running businesses and improving business systems, logistics, and operations throughout his professional journey. In his free time, he enjoys cycling, running, and spending quality moments in the mountains with his family.

Chris Prall

Director of Advertising

A former chef turned Geomatics graduate. While studying, he delved into managing PPC campaigns for Amazon agencies and e-commerce clients, uncovering a passion for data-driven strategies. A maestro in crafting successful PPC campaigns, he’s fueled by driving client growth, from startups to 8-figure brands. Beyond work, Chris savors cooking, vinyl collecting, camping, and embracing the great outdoors

Steffanie Morrison

Director of Sales, Sr Marketplace Analyst

Steffanie brings a rich e-commerce background since 2013, selling products and advising brands. An analytical mind with degrees from Northern Illinois University and the University of Hartford, she resides in New Hampshire, relishing family moments, travel, and outdoor adventures like hiking and skiing with her husband and kids.

Eric Peterson

Director of Brand Onboarding

Master’s in marketing, film degree from Minnesota State University-Moorhead. At Velocity Sellers, he crafts brand value, excels in client service, and loves problem-solving. An advocate for animal welfare, he enjoys cooking, classic movies, and time with his dogs.

James Dee

Director of Brand Management

Over 20 years in e-commerce mastery, specializing in Amazon. Proven brand builder and business owner. Outside the office, a proud parent to five, including a Division 1 soccer player. Enjoys family time, the outdoors, and all things soccer.

Lisa Zajdel

Executive Director

Results-Driven Executive Director. With two decades of expertise in merchandising and retail, including a successful tenure as Kohl’s Private Label Buyer & E-commerce Manager, Lisa brings over 14 years of invaluable experience on Amazon. Her dedication to delivering results is unparalleled, ensuring a strategic, seasoned approach to optimizing your business for success.

Andrew Warner

CFO

Andrew Warner, Velocity Sellers’ CFO, occupies a central role in our financial triumph. His sharp fiscal oversight guarantees our operational efficiency, ultimately empowering our team to deliver unparalleled services to a global clientele, consistently setting high standards in the industry.

Jake Schwarzbaum​

CEO

As the Co-Founder and CEO of Velocity Sellers, Jake Schwarzbaum co-launched the company while supporting his father, Nathan, during leukemia treatments. His dedication to helping brands succeed on Amazon, without relying on automated systems, drives Velocity Sellers’ commitment to excellence.

FREE DOWNLOAD

How To Become Unstoppable On Amazon

This field is for validation purposes and should be left unchanged.