Amazon Margin Pressure: Increased Fees, FBA Changes & Smarter Product Selection

Margins have always been tight on Amazon, but changes in rising FBA fees, increased storage costs, new return handling fees, and higher advertising CPCs have made profitability harder than ever.

For many sellers, the danger isn’t losing sales. It’s scaling unprofitable sales.

This shifts the entire product selection strategy:

• Not every SKU deserves to stay alive.
• Low-margin winners may quietly become losers.
• Fulfillment strategy (FBA, FBM, local warehouse, hybrid) now matters as much as the product itself.

This will help you navigate the math, strategy, and decisions sellers must make to stay profitable.

A Hard Look at Profitability, the New Amazon Math

To understand margin pressure, you must break down profitability line by line.

Here’s a simplified but realistic structure:

The 2026 Profit Formula

Profit per unit = Selling Price

• Amazon Referral Fee
• FBA Fulfillment Fee
• Monthly Storage Fee
• Inbound Shipping (International or Domestic)
• Packaging & Prep
• Advertising Cost (Blended ACOS or TACoS)
• Returns Cost
• Misc. overhead (3–8% typical)

Even a small increase in any one of these costs can wipe out your margin and turn a solid SKU into a weak performer almost overnight.

Example: A SKU priced at $29.99

Let’s run the numbers for a typical home & kitchen SKU.

• Selling Price: $29.99
• Referral Fee (15%): –$4.50
• FBA Fulfillment Fee: –$4.75
• Storage Fee (allocated per unit): –$0.35
• Inbound Shipping (average): –$1.20
• Packaging/Prep: –$0.45
• Promo deduction/coupons average: –$0.30
• Advertising cost (TACoS 14%): –$4.20
• Returns burden (2% return rate avg): –$0.60
• Overhead allocation (3%): –$0.90
• Estimated Total Cost per Unit: $17.25
• Net Profit: $12.74
• Net Margin: 42% ← Healthy.

However, small changes can break this fast. A minor bump in FBA fees, a rise in CPCs, or a higher return rate can shrink this healthy margin, slow your cash flow, and turn a reliable SKU into a barely profitable one before you even notice.

Now apply the 2026 pressure

• FBA fee increase: +$0.35
• Storage increase: +$0.12
• CPC inflation (higher TACoS): +$0.78
• Higher return handling fee: +$0.25

Additional cost = +$1.50 per unit

• Profit drops from $12.74 → $11.24
• Margin drops from 42% → 37%

Still profitable, but you’ve lost 5% margin overnight without even noticing, and this silent squeeze is hitting entire catalogs at once, slowly turning once-reliable SKUs into borderline performers and tightening cash flow across the board.

When a SKU Turns From “Good” to “Drop It”

A SKU must be measured not only on revenue or BSR, but net margin after all costs.

Here’s how to decide if a product should stay or go.

Drop a SKU if Any of These are True

1. Net margin consistently falls below 20%

With Amazon’s volatility, 20% today becomes 10% next quarter.
This is the danger zone.

2. TACoS climbs faster than the selling price

If you can’t raise prices but ads become costlier → future losses are guaranteed.

3. Negative cash flow due to slow sales

Paying storage + ads + inbound without healthy sell-through = money drain.

4. Velocity is decent, but returns are high

If a SKU sells well but 8–12% of units are returned, the margin collapses.

5. Oversized fee jumps kill your contribution margin

Many sellers ignore this until too late, large or awkward products become unviable with every FBA fee hike.

Keep a SKU if any of these apply

• You can bundle it with a better-margin product
• You can shift the fulfillment method to reduce costs
• The SKU boosts brand presence, even at a low margin
• It attracts organic traffic to your other profitable SKUs
• Seasonality can rescue its margin during peak periods

But even then, the numbers decide everything. Gut instinct might feel comforting, but relying on it is how profitable catalogs slowly bleed. Data is the only thing that keeps an Amazon business alive and moving in the right direction.

Product Selection Strategy in 2026: What Actually Works

Your product strategy must adjust to survive the new margin landscape.

1. Smaller, lighter, cheaper-to-ship SKUs win

FBA fee hikes impact heavy and oversized items the most.

Criteria to prioritize:

• Under 1 lb
• Fits in a small standard FBA tier
• Low breakage risk
• Low return probability
• No complex certification

These products absorb fee changes better and scale with lower risk.

2.  Avoid categories with high return rates

High-return categories destroy margins:

• Electronics accessories
• Apparel (especially size-dependent)
• Toys with many moving parts
• Anything with “misleading” expectations

If entering these categories, design your listing & packaging to reduce mismatched expectations.

3. Choose products with pricing power

Low-price products suffer the most from fee increases because fees are fixed per unit.

Look for products where:

• You can bundle
• Improve perceived value
• Offer premium variants
• Add accessories cheaply
• Increase item price by +10–20% without customer backlash

4. Prioritize SKUs with stable or improving CPC

Use advertising data to select SKUs with:

• Low competition on core keywords
• Stable CPCs
• Strong organic rank impact from PPC

This indicates resilient long-term profitability.

Hybrid Fulfillment: Your Secret Weapon Against Margin Squeeze

The strongest sellers in 2025 don’t rely solely on FBA anymore.

They combine:

1. FBA for high-velocity SKUs

Best for:

• Prime badge
• Fast turnover
• Products under 1–2 lbs

2. FBM for low-velocity or oversized items

Best for:

• Niche items
• Bulky inventory
• Products with low stock rotation

3. Local third-party warehouses (3PL)

Use a 3PL to:

• Prep products more cheaply
• Store inventory at a lower cost
• Replenish FBA only when necessary
• Avoid long-term storage penalties

4. SFP (Seller-Fulfilled Prime), where available

Useful when:

• Your 3PL can deliver fast
• Product margins cannot handle FBA fees

Hybrid fulfillment allows you to protect margin per SKU rather than blindly using FBA for everything.

International Markets vs Domestic: Margin Arbitrage

Expanding globally isn’t about grabbing more sales, it’s about finding better margins and placing each SKU in the market where it delivers the strongest return with the least resistance.

Amazon US:

High competition, high ad cost, but the highest demand. It’s a massive opportunity, but scaling here requires tighter margin control and smarter ad spend because every category is saturated.

Amazon UK & EU:

Moderate competition + more compliance cost + higher cart values. These markets often reward premium positioning, and brands can maintain healthier margins if they navigate the regulatory layer efficiently.

Amazon UAE / KSA:

• Lower competition
• Lower CPCs
• But a smaller market size
•  Higher landed cost.

Amazon Australia, Singapore:

Tiny markets but great for testing new SKUs with less risk. They work as proving grounds where sellers can validate demand, refine listings, and experiment with pricing before scaling to larger regions.

Smart sellers send each SKU to where the margin math works best, not where traffic is highest, because long-term profitability depends on choosing the right battlefield, not the busiest one.

How to Decide: Keep, Fix, or Kill a SKU

Use this simple framework:

KEEP it if:

• Net margin ≥ 25%
• TACoS < 12–15%
• Inventory turns 6+ times per year
• Return rate < 4%

FIX it if:

• Margin 15–25%
• TACoS too high
• Images, SEO, or A+ content is weak
• Packaging improvements can reduce returns

KILL it if:

• Margin < 15%
• TACoS > 20% long-term
• Regular stockouts destroy rank
• FBA fees exceed the product’s pricing power
• You cannot raise the price without killing demand

This is how you avoid unprofitable catalog creep and keep your entire lineup lean, healthy, and focused on SKUs that actually grow your cash flow instead of quietly draining it.

What Smart Sellers Are Doing in 2025

Sellers who stay profitable this year aren’t relying on luck, they’re tightening operations, protecting margins, and adapting faster than everyone else.

Here’s what their playbook actually looks like:

1. Running full margin audits every 30 days

Margins change fast, and monthly reviews are mandatory. This keeps hidden losses from piling up and gives you early warning when a SKU starts slipping.

2. Renegotiating with suppliers

Even a 3–5% cost reduction revives dying SKUs. Small savings on COGS can completely reset your margin structure and extend the life of your best performers.

3. Testing hybrid fulfillment

Shifting 20% of SKUs to 3PLs can significantly cut costs. It also reduces storage pressure, keeps FBA fees under control, and gives you more flexibility during fee hikes.

4. Launching fewer products but higher-margin ones

• Quality > quantity.
• Fewer SKUs → easier cash flow → higher margin survival.

This focused approach makes scaling smoother and lowers the risk of spreading inventory too thin.

5. Doubling down on bundling

Bundles dodge some of the fee pressure and increase perceived value. They help sellers raise average order value, reduce competition, and build more defensible listings.

What This All Means for Your Amazon Business

Amazon is no longer just about selling. It’s about selecting, fulfilling, and pricing intelligently.

In a world of rising fees and fulfillment challenges:

• Good SKUs become bad very quickly.
• Hybrid fulfillment becomes mandatory.
• International expansion becomes a margin strategy, not a growth tactic.
• Margin math decides everything.

Sellers who treat margin as a daily metric, not a yearly report, will win.

Ready to Protect Your Margins?

If you want your catalog to stay profitable, not just active, this is the moment to tighten your strategy, audit every SKU, and fix the leaks before they grow.

For hands-on support with auditing your margins, optimizing your catalog, or planning smarter fulfillment, AMZ Seller Hub (Dubai, UAE) is designed to help sellers walk through exactly these challenges.