Amazon sellers are in revolt over a new policy they say hurts profits and gives up guarded business data

What’s more, in order to calculate the payouts, sellers have one of two options. They can let Amazon determine the manufacturing cost. In the announcement, Amazon said such estimates would be “based on a comprehensive evaluation of comparable products sold by Amazon, by other sellers and through wholesale channel.” Still, sellers who spoke to Modern Retail said they’re worried that this could lead to inaccurate or low-ball estimates.

Alternatively, sellers can provide their manufacturing costs, such as proof of cost of sourcing, directly to Amazon. For sellers, this raises serious privacy concerns over how exactly their private manufacturing cost data will be used.

“Just before the holidays, when a lot of people shut down, they sneak in this little bombshell that has real financial repercussions for a lot of sellers,” said Derkits, a former Amazon corporate employee who has been selling on Amazon for five years and now runs a consultancy for sellers. “I understand the outrage.”

Derkits isn’t alone.

“They said they’re not going to do a fee increase this year, but this is, in essence, their fee increase,” said Brandon Fishman, the owner of the VitaCup coffee brand, which has been sold on Amazon since 2017 and generates about $20 million in annual revenue on the site.

Independent merchants like Derkits and Fishman are the lifeblood of Amazon’s massive e-commerce business, as they account for more than 60% of the goods that the e-tailer sells on its site. But over the years, Amazon has consistently hiked the fees it imposes on these sellers, claiming a bigger share of their earnings. Amazon raked in $140 billion of revenue last year from “third-party seller services,” which includes the fees it charges sellers, according to company filings.

In the post announcing the reimbursement policy change, Amazon said the change is intended to provide “greater transparency and more predictability.” But half a dozen Amazon merchants and agencies who spoke to Modern Retail said they see the change as Amazon’s latest effort to extract more money from third-party sellers and tighten its control over their businesses, all while the company is also facing a government lawsuit for allegedly abusing its monopoly power to squeeze merchants.

“Our primary focus remains on continuously optimizing our network and processes to eliminate defects altogether, thereby minimizing instances where reimbursements become necessary,” Amazon spokesperson Mira Dix said in a statement. She said the policy change is designed “to help drive a more consistent approach as more sellers are using our supply chain services for items that are sold through off Amazon channels, where we do not have visibility into sales price.”

Dix stated that if an item is lost or damaged after a customer sale, Amazon will continue to reimburse sellers the net proceeds for that sale.

‘Sellers are going to have to foot the bill’

Lost or damaged inventory on Amazon only accounts for a small percentage of a seller’s total revenue. But it’s still a common enough problem that it’s given rise to an entire industry of consultants who handle reimbursement claims on behalf of sellers. 

Instances of loss or damage vary from brand to brand, as some inventory is more vulnerable to damage or loss than others, such as glass or breakables. On average, reimbursements from lost or damaged inventory comprise 1% to 3% of a seller’s annual revenue, according to Joel MacPherson, co-founder of TrueOps, a firm that helps Amazon merchants with reimbursement claims. TrueOps, which manages reimbursements for 2,000 Amazon sellers, generates about $4 billion in sales annually from such payouts, giving it a large sample to assess. 

“It’s probably the largest fee increase ever because loss of damage is something that happens all the time with every account. It’s unavoidable,” MacPherson said. “But now the sellers are going to have to bear that cost.”

Historically, Amazon has reimbursed sellers for the full retail value of the item. With this new change, Amazon is only reimbursing for the cost of manufacturing, and sellers say this will lead to significantly reduced payouts. They expect take-home pay will take a hit, too.

“Any inventory that’s lost or damaged at Amazon for which sellers are only reimbursed their manufacturing cost is an immediate net operating loss on that product because sellers are going to have to foot the bill for or essentially eat all those logistics costs and imports and duty costs,” Derkits said. “Those are costs that sellers aren’t getting back.”

It’s too early to say how exactly merchants’ earnings will be impacted. But Derkits said he is currently eligible to recover $108,000 in reimbursement claims. With the new fee change, that amount could drop more than 42% to $62,000. VitaCup’s Fishman said he expects his reimbursement payouts to drop as much as 70%. Meanwhile, Craig Leslie, founder of The Bean Coffee Company, an Amazon seller, said the policy change could cut his reimbursements in half. 

“We might reimburse half a million dollars this year to clients, and now it’s going to be as little as $250,000 to clients,” said Joshua Rawe, co-founder of AmpliSell, a marketing agency with 25 clients that helps Amazon sellers with reimbursement claims. 

For Amazon, the benefits are obvious. As Fishman put it, “It’s probably going to save Amazon billions.”

‘Every seller’s worst fear’

It’s not just the financial hit that has sellers worried. Sellers who spoke to Modern Retail said the announcement raises questions about how exactly information about their manufacturing costs will be utilized, particularly when it comes to Amazon’s private label business, which the e-tailer started around 2009. 

A Wall Street Journal investigation from 2020 found that Amazon has allegedly used data from third-party sellers to help develop its private-label goods. Brands have claimed that Amazon copies their products and undercuts them with prices that make it difficult to compete. Amazon has since pulled back on its private-label business to alleviate regulatory scrutiny. 

Private label brands only account for 3% of Amazon’s sales volume, significantly lower than any other major retailer, according to Numerator. Still, an analysis by Momentum Commerce, a firm that manages Amazon sales on behalf of brands like Crocs, Lego and Clorox, estimated that Amazon’s private-label sales reached more than $1 billion in the first quarter of 2024. 

To AmpliSell’s Rawe, Amazon sellers have two “closely guarded secrets”: one, their manufacturing cost data. And two, who their manufacturer is. 

“With Amazon saying, ‘Hey, give us your cost,’ that’s like giving up your competitive advantage to these sellers,” Rawe said. “They’re like, ‘Well if I give you my cost, you’re going to go out and figure out how to source it cheaper and create an Amazon brand of my product.’ That’s every seller’s worst fear.”

The Coffee Bean Company’s Leslie agreed. 

“I don’t ever want somebody to know all the ins and outs of the business. Otherwise, they can just go and replicate it,” Leslie said. “It’s basically giving your business away.”

VitaCup’s Fishman said the new policy was out of step with how other major retailers work with brands and third-party sellers. 

“Have you ever heard of Walmart or Target or any other major store asking you what it costs to make your product? No, that’s not how things work,” Fishman said. “It’s a massive breach [of] privacy.”

Amazon’s Dix said the updated policy aligns with common practice among other logistics and fulfillment providers.

“Protecting sellers’ data is very important to us, and we follow strict data protection policies,” she said. “Specific cost data is not shared with any other seller in Amazon’s store, including Amazon Retail, and this data is only used to calculate sellers’ potential reimbursement and to improve the usability and effectiveness of our services.”

Still, some sellers are apprehensive. “This data in the hands of Amazon has a lot of potential applications that have me more worried than the initial cash hit,” Derkits said.

‘I don’t want to be on Amazon anymore’

Amazon’s new reimbursement policy comes a year ago after the e-commerce giant announced a slew of onerous new fees. Many sellers had to adjust their businesses to absorb the costs associated with the fees, from raising prices on goods to trimming their product catalogs, Modern Retail previously reported. Amazon’s previous announcement that it wouldn’t raise fees had initially raised sellers’ hopes that selling on the platform would be more manageable in the coming year. But the recent reimbursement policy change has left many feeling frustrated that it’s going to be harder than ever to sell on Amazon. 

“My margin has been so diluted that building a sustainable Amazon business in 2025, I think, is going to be near impossible,” Derkits said. 

Sellers say it’s become so difficult to sell on Amazon that some longtime merchants like Lori Barzvi, who has been selling on the platform for 10 years, are trying to “break up” with it altogether. For the last three months, Barzi has been investing in growing her direct-to-consumer website so she can become less dependent on Amazon, where she sells washable pee pads for dogs through her brand Pupiboo.  

“I don’t want to be on Amazon anymore,” Barzi said. “I just don’t want to give this company any more of my money or any more control over me.”