Amazon recently announced a major update to its FBA (Fulfillment by Amazon) inventory compensation policy, effective March 10, 2025. This new policy will significantly impact many sellers, making it crucial to understand its details.
Main Changes in the Policy
01. Updated Compensation Standards
Previously, compensation was based on the sales price. The new policy changes this, setting compensation based on the manufacturing cost. The notification clarifies that the manufacturing cost refers to the price a seller pays to a manufacturer, wholesaler, or distributor for the product.
In other words, the manufacturing cost is the purchase price. For factory-type sellers, it refers to the production cost. Amazon further explains that this cost does not include shipping, handling, customs duties, or any other associated fees.
This update makes the compensation standard clearer. It focuses solely on the manufacturing cost, eliminating confusion from other costs, and provides a more accurate calculation basis.
02. How to Accurately Determine Manufacturing Costs
Amazon offers two ways to determine manufacturing costs:
- Amazon-Assisted Estimation: Amazon will estimate manufacturing costs using data from other sellers or by referencing similar products sold in wholesale channels.
- Seller Input: Sellers can enter manufacturing cost data directly in their seller account. This feature is not yet available but will be by January 2025.
Once available, sellers can input accurate manufacturing costs, ensuring smooth operations and precise compensation calculations.
03. Compensation Mechanism Remains the Same
The compensation process for lost inventory remains unchanged. Amazon promises automatic compensation for lost items. However, many sellers find that the promised compensation is delayed or never arrives. After waiting, sellers often have to submit claims manually, wasting time and effort.
Sellers hope that Amazon will improve this system and ensure automatic compensation works as promised. This change could improve the seller experience and streamline the process.
04. Focus on Pre-Order Product Losses
Amazon clarified that products lost or damaged before an order is placed will follow specific compensation rules. If products are lost or damaged while still in FBA warehouses, compensation will now be based on the new manufacturing cost standard, not the sales price. This change aligns compensation with actual production costs, making it more reasonable and accurate.
For products lost or damaged after an order is placed, compensation will remain based on the sales price.
Seller Discontent with the New Policy
Sellers have expressed dissatisfaction with the new policy, as compensation will be based only on manufacturing costs, which is lower than their actual expenses. Inventory loss in Amazon’s FBA warehouses results from Amazon’s actions, but compensation won’t cover the seller’s full expenses, impacting their profit margins.
Sellers incur various costs, such as packaging, labeling, and international shipping, in addition to manufacturing costs. Losses from inventory damage create indirect costs as well. The new policy reduces compensation and places more financial responsibility on sellers, leading to frustration and resistance.
Inventory loss can also lead to other issues, like drops in organic rankings and increased costs to restore keyword rankings. Sellers may also face additional fees, like low inventory charges, which increase operational costs.
Some sellers worry about a potential conflict of interest, as Amazon manages the inventory. In theory, Amazon could “lose” items, compensate at the manufacturing cost, and then resell them. Transparent cost data might also lead Amazon to impose price limits on sellers.
Conclusion
Sellers must adapt to the new policy by understanding its details and preparing their cost data in advance to secure the maximum compensation for lost inventory. Although controversial, the policy aims to streamline compensation and improve transparency. However, many sellers feel it unfairly shifts risk and reduces compensation.
Sellers are calling for a reassessment of the policy to ensure it better aligns with actual business costs. In the meantime, sellers should stay informed and prepare for the changes coming in March 2025.