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The My Wife Quit Her Job Podcast With Steve Chou
572: Amazon Just Destroyed ALL FBA Sellers – Why You Should Be Worried
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In this episode, I dive into Amazon’s latest announcement and reveal how they’re totally destroying the profits for FBA sellers. - I’ll break down what’s really going on and why it’s hitting small businesses hard.
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Welcome back to the podcast, the show where I cover all of the latest strategies and current events related to E commerce and online business. Today I'm pulling back the curtain on what might be Amazon's most calculated move yet against its own sellers and why their fee freeze announcement for 2025 is just another lie. But before we begin, I wanted to let you know that tickets are now on sale for Seller Summit 2025 over@sellersummit.com the Seller Summit is the conference that I hold every year that specifically targets e commerce entrepreneurs selling physical products online. Unlike other events that focus on inspirational stories and high level advice, mine is a curriculum based conference where you will leave with practical and actionable strategies specifically for an e commerce business. Every speaker I invite is deep in the trenches of their e commerce business entrepreneurs who are importing large quantities of physical goods and not some high level guys who are overseeing their companies at 50,000ft. I personally hate large events, so the Sellers Summit is always small and intimate. Every year we cut off ticket sales at around 200 people, so tickets sell out fast and we've sold out every single year for the past eight years. If you are an e commerce entrepreneur making more than $250,000 or $1 million per year, we also offer an exclusive mastermind experience with other top sellers. The Seller Summit is going to be held in Fort Lauderdale, Florida from May 6th to May 8th. Right now, this is the cheapest the tickets will ever be. So head on over to sellers summit.com and grab your ticket. Now onto the show. Welcome to the My Wife Quit Her Job podcast. In this episode, I'm diving into Amazon's latest announcement and how they're totally destroying the profits for FBA sellers. I'll break down what's really going on and why it's hitting small businesses hard.
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So what exactly did Amazon just announce? In their own words, they are updating their FBA inventory reimbursement policy to help provide you with greater transparency and more predictability in how reimbursements are calculated for items that are lost or damaged. And this will help drive a more consistent approach that works. So first off, I just love how they phrase things to suggest that they.
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Are doing you a favor.
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What a crock. Here are the guts of the announcement. Effective March 10, 2025, Amazon will reimburse you based on the product manufacturing costs of the affected inventory instead of the selling price. Now for those of you who are new to Amazon fba, let me explain. According to Getida, every year Amazon sellers lose approximately 1 to 3% of their annual revenue due to inventory discrepancies, including mishandling lost or damaged items. These discrepancies can arise from various issues, such as products that incur damage within Amazon's fulfillment center, discrepancies between the number of units recorded in Amazon's warehouse and the seller's records. Items that go missing during transit to or from Amazon's facilities, and when a customer requests a return, gets refunded immediately but doesn't send back the item. Now, prior to this policy change, Amazon will reimburse you the full retail price of your goods. For example, if I sell a handkerchief for $10 and Amazon loses 100 units of my inventory, Amazon would pay me $1,000 even though it only cost me $2 per hanky to manufacture. But with this new change, Amazon will now only reimburse you the manufacturing cost of your goods. Now, the real question here is how Amazon determines what the manufacturing cost is. According to Amazon, manufacturing costs is defined as your cost to source a product from a manufacturer, wholesaler, reseller, or produce a item. If you are the manufacturer, it excludes costs such as shipping, handling, customs duties, or other costs. And here's where the language gets super sketchy. To help provide you with greater control and accuracy, you can choose how Amazon determines the manufacturing costs for your products. One, Amazon can provide a manufacturing cost estimate for you. This estimate is based on a comprehensive evaluation of comparable products sold by Amazon, by other sellers and through wholesale channels. Or two, you can provide your manufacturing costs directly and basically give away all your supplier information and financials to Amazon. What also sucks is that your reimbursed amount is just your cost of goods, which does not include shipping, handling, or customs duties, which is actually a huge part of your overall cost of goods. For example, with my store, shipping and customs can make up about 30% of the cost of the product. So even though my cost of goods is $2 per hanky, Amazon will only reimburse me $1.40 for something that isn't even my fault. Let's break down the implications of this new policy change. Even though it's Amazon's mistake that they lost your inventory, you now have to take a loss on your inventory because you will not get your shipping costs back, you will not get your import taxes back, and you will not get your prep fees back. I've been selling on Amazon for 10 years now, and I've had cases where Amazon literally lost an entire shipment of 500 units. By the way, if you're tired of Amazon's abusive policies and want to start your own profitable online store, make sure you sign up for my free 6 day ecommerce mini course below 100% free and I guarantee you'll learn a lot. Now, what's worse is that this issue hasn't improved over the years. And in fact, it's only gotten worse. If you ask any Amazon seller who has been using Amazon Warehousing and Distribution, or awd this year, it has been a total dumpster fire. When Q4 shipments started happening, Amazon's capacity went through the roof and they simply could not handle the sheer volume of deliveries. So basically, Amazon ran out of warehouse space and they didn't have the logistics in place to manage pickups, and they weren't getting inventory from AWD into their fulfillment centers on a timely basis. As a result, I have many friends that got totally screwed with delayed pickups, canceled pickups, delayed deliveries, stalled inventory and lost inventory. So bottom line, they couldn't get their products into Amazon and ended up running out of stock during the biggest shopping season of the year. And now things are about to get worse. Amazon's new policy essentially shifts all the blame and financial burden for their warehouse mistakes onto sellers. They've completely abandoned all responsibility for their own services. If this policy had been in place during the AWD debacle, thousands of sellers would have lost a fortune. And to make matters worse, Amazon had the gall to announce a price hike for AWD services starting in 2025. And here's the kicker. This price hike was announced right after Amazon claimed that they wouldn't raise fees in 2025. They flat out lied to us. Now they're charging more for a service that's been an absolute disaster this holiday season, while taking zero accountability for their failures. Now, you might be thinking to yourself, at least Amazon will still reimburse you for the cost of your goods, right? But here's the problem. How does Amazon determine your true manufacturing costs? I'll bet you a million bucks that Amazon's estimate will be less than what you actually paid for your products. And don't forget, Amazon won't reimburse you for transportation, logistics or import duties either. If you want an accurate reimbursement, your only option is to submit the actual invoices for your inventory to Amazon, which basically means telling Amazon who your suppliers are and your financials. Now, over the years, I've had so many friends that have had their products knocked off by Amazon's own private label brands. Take one friend of mine for example. She was making hundreds of thousand Dollars per year selling emu oil on Amazon. But then Amazon launched their own private label version of her product at 30% cheaper. If that wasn't bad enough, Amazon had the audacity to advertise their own branded emu oil directly on her product listing. And the result? Her sales tanked overnight. All because Amazon decided to compete directly against her. One of my close friends, Mike Jackness, used to sell gel packs on Amazon and he was making millions of dollars per year. But then Amazon decided to knock off his product, charged 30% less and and even copied his packaging and photo layouts. Now do you see why handing over your supplier and cost of goods information to Amazon is a recipe for disaster? With this data, Amazon can easily undercut you. They can go straight to your manufacturer, negotiate a better deal than you ever could, and use their sales data and clout to knock you off entirely. And let's not forget the hassle of actually providing this information to Amazon. Dealing with Amazon customer support is already a nightmare. Every time I've had to contact them, I feel like banging my head against the table. You're always stuck with reps and foreign call centers who give canned responses that never solve your issue. Now imagine having to deal with that level of incompetence for every single one of your products. It's a massive time suck, total headache and just not worth it. Now let's take a step back and look at this new policy. From 50,000ft, Amazon already controls the entire shipping and logistics process using giving them complete authority over your products from the moment they enter their system. By refusing to compensate sellers for lost or mishandled inventory, they've created a serious conflict of interest. Think about it. If Amazon loses 10,000 units of your product, what is stopping them from turning around and selling those same items as their own? They wouldn't have to pay import costs or taxes on those products and no one would be the wiser. Now you might think that sounds far fetched, but. But in my 10 years of selling on Amazon, I've seen it all. I've had my products shipped under the wrong listing and I've had customers order from us only to receive products we don't even sell. Just this Christmas, someone returned what was supposed to be our linen towels and we got shipped back a weighted vest instead. And it gets even crazier. I've had hundreds of units that Amazon claim were lost suddenly reappear for sale on my own listing, but from other sellers. This level of mismanagement and lack of accountability is exactly why this new Policy is so dangerous for sellers. Amazon holds all the power, and when things go wrong, you're the one left to pick up the pieces. Just think about it. There is absolutely nothing stopping Amazon from mysteriously losing your inventory and then turning it around to sell it under your own listing at a lower price, winning the buy box in the process. This isn't just a hypothetical. It's happened before and it will happen again. But now, with this new policy, Amazon stands to profit from these mistakes, creating a dangerous incentive to do a bad job. The harsh reality is that it's in Amazon's best interest to lose your inventory now. When they control every part of the process and face zero accountability, it is a recipe for disaster. And sellers are the ones who pay the price. And here's the thing, things were already bad. Amazon's advertising costs have been skyrocketing, increasing by 20% year over year. They penalize you with excessive FBA fees if you have too much inventory in stock. But if you have too little inventory, you're also hit with more fees. This year, they added an inbound placement fee, charging you on a per unit basis just for the privilege of letting your products into their warehouses. Oh, but don't worry. You can avoid this fee by using Amazon's warehouse and distribution service, which has been a complete disaster for sellers. Mismanaged, unreliable and downright horrific. Do you see the pattern here? Amazon keeps stacking the deck against sellers, making it harder and more expensive to succeed on their platform. Amazon controls everything, and every single policy change is designed to extract more money from sellers while offering less in return. Meanwhile, their Amazon prime service for shoppers has gone downhill too. This holiday season, I've only received about 50% of my orders within the promised delivery window. And as for sellers, Amazon promised no new FBA fees for 2025. But now it's clear why. The financial impact of this inventory reimbursement policy change will easily outweigh years worth of FBA fee hikes. Amazon's playing the long game, and unfortunately, it's at our expense. Right now, Amazon sellers are being squeezed from every direction. Direct from China, marketplaces like Temu and Shein are cutting out the middlemen, selling directly to US shoppers at rock bottom prices without paying taxes or import duties. To make matters worse, Amazon has doubled down on the competition by launching its own Temu style dropshipping service, Amazon hall, which directly undercuts their own FBA sellers. At the same time, Amazon keeps increasing fees for sellers while reducing the quality of service for shoppers. And now with this new policy, they're passing the cost of inventory losses directly to sellers. The sentiment in the Amazon seller community is clear. Amazon is no longer the land of opportunity it once was. Sellers feel the company is abusing its monopoly power and this inventory reimbursement change could very well be the last straw. Many top sellers are already scaling back their reliance on the platform, and with this new policy and the potential for abuse, it's likely that only high margin sellers will be able to survive in the long run.
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Hope you enjoyed this episode. If you're worried about these new Amazon fees, you should be. For more information and resources, go to my wife quitterjob.com Episode 572 Once again, tickets to the Seller Summit 2025 are now on sale over at sellers summit.com if you want to hang out in person in a small intimate setting, don't develop real relationships with like minded entrepreneurs and learn a ton, then come to my event. Go to sellersummit. Com and if you're interested in starting your own ecommerce store, head on over to mywifequitherjob.com and sign up for my free 6 day mini course. Just type in your email and I'll send the course right away via email.