The Profit Issue
Welcome to The Profit Issue
Profit is the thread running through every major change on Amazon this year.
Creator partnerships now deliver 8-12x ROAS relative to standard ad spend. Amazon's 2026 fee increases penalize slow inventory turnover. Return fraud creates double losses on consumables. Non-FIFO fulfillment drives disposal costs. Together, these forces reveal a single story: the margin requirements to succeed on Amazon are tightening.
And in an environment marked by tariff uncertainty and rapidly shifting trade policies, protecting profitability isn't a goal—it's survival. If you're feeling the squeeze, you're not alone.
The brands that will thrive aren't those with the biggest budgets. They're the ones with clear visibility into unit economics, the discipline to make hard portfolio decisions, and the agility to adapt as the landscape shifts.
That's what this issue is about: giving you the insights to protect your margins when both the margin for error and the margin of opportunity keep shrinking.
Campaigns and Content - The Amazon Creator Opportunity Hiding in Plain Sight
Amid all the focus on Sponsored Products, DSP, and retail media budgets, a powerful growth lever is sitting in plain sight: 23% of Amazon sales flow through affiliate links, yet fewer than 5% of CPG brands actively partner with those creators strategically.1
Amazon Creator Connections—a formal program launched in 2023—now offers brands direct access to this ecosystem through performance-based campaigns. For CPG brands in food, beauty, and lifestyle, this isn't just another marketing channel. It's the same creator-driven commerce model fueling TikTok Shop's explosive growth, except the conversion happens inside Amazon's ecosystem where purchase intent is already highest.
Amazon's marketplace generated over $638 billion in 2024, with creator-driven sales representing an estimated $146 billion—larger than the entire U.S. grocery e-commerce market.2 Yet most CPG marketing teams treat creator partnerships as experimental brand spend rather than core performance marketing.
The Creator Economic Advantage
The economics of creator marketing differ fundamentally from traditional brand advertising. When you run Amazon PPC, you're managing product costs, shipping, inventory risk, and operational expenses at every level of scale. You need 3-4x ROAS just to maintain healthy margins.
Creators operate under different rules. Zero product costs. Zero inventory risk. Zero costs that scale with volume. Once they cover content creation expenses—typically requiring just 1.1-1.2x ROAS—every additional click becomes pure profit.3
That difference creates a new kind of marketing chemistry. If a creator achieves even a 1.1-1.2x return on ad spend, the campaign becomes self-sustaining—an unbounded system that feeds itself. Creators can scale faster than brands because they're not limited to a single SKU. A creator's video can feature five complementary products—a moisturizer, a supplement, a snack—each generating commissions across multiple brands.
The Performance Data Validates the Opportunity
The returns speak for themselves: influencer marketing delivers an average $5.20 ROI per dollar spent, with top performers seeing $20+ returns.4 Affiliate campaigns—the model Creator Connections uses—deliver an average 12:1 ROAS, nearly 4x higher than Google Ads' 3.31:1 average.5
For brands that embrace creator partnerships strategically, creator-driven traffic represents 15-30% of total Amazon sales.1 Meanwhile, 94% of consumers who see influencer content showcasing Amazon products make those purchases on Amazon—not on brand DTC sites.6 The platform effects are too powerful to ignore.
What We're Hearing from the Market
A VP of Marketing at a $25M beauty brand shared: "We were spending $50K monthly on Amazon PPC at 2.8x ROAS and wondering why growth stalled. We tested Creator Connections with $10K in additional commission budget and saw those partnerships deliver 8x ROAS because we only paid on actual sales. The creators were incentivized to make genuinely compelling content, not just run ads."
Another executive at a supplement brand noted: "The lightbulb moment was realizing creators could test messaging and positioning faster than we ever could. They'd try five different angles in a week. We'd spend months on creative testing. Their agility plus performance-based payment created a powerful feedback loop for our entire marketing approach. Creator-driven sales now represent 22% of our Amazon revenue."
The Strategic Balance: Not Either/Or, But Both
Brands cannot abandon owned advertising entirely. You need owned channels to:
Maintain brand authority and control messaging
Build depth of brand equity beyond endorsements
Ensure customers know they're buying more than "some goop endorsed by someone famous"
The opportunity isn't choosing between brand marketing and creator partnerships—it's architecting a hybrid model:
Your owned channels (60-70% of budget): Build brand depth and authority through PPC, DSP, and brand content
Creator partnerships (30-40% of budget): Provide agile testing, authentic social proof, and performance-based acquisition at scale
Three Strategic Plays
1. Redefine Creator Spend as Performance Marketing Stop viewing influencer partnerships as experimental brand marketing. With Creator Connections, you only pay commissions on completed transactions—your CAC is capped and transparent from day one.
Immediate priority: Launch 3-5 Creator Connections campaigns targeting micro-influencers (10K-100K followers) in your category. Budget 15-20% of Amazon marketing spend as additional commission (10-15% on top of Amazon's standard rates). Success benchmark: 6-8x ROAS within 60 days.
2. Leverage Creator Velocity for Message Testing Creators test messaging at velocity internal teams can't match. Rather than viewing this as a threat to brand control, use it as a rapid testing engine.
Operational next step: Provide product, key benefits, and brand guidelines—then give creators creative freedom. Track which messaging drives highest conversion and feed those insights back into your owned marketing. Target: Identify 3-5 high-performing angles to incorporate into owned content.
3. Architect Hybrid Budget Models Build portfolio allocation that optimizes blended returns: 60-70% to owned channels for brand authority, 30-40% to creator partnerships where you only pay on results.7
This quarter: Model a scenario where 25% of Amazon revenue comes through creator partnerships at 8-12x ROAS. Compare total profitability against current 100% paid media approach. Target: 10-15% improvement in blended ROAS across all channels.
Track creator-driven sales as a core KPI. Most brands can't quantify what percentage of Amazon sales come through affiliate links—this represents a critical measurement gap. Establish baseline metrics this quarter, then target 15-20% creator-driven sales within 12 months.
The Bottom Line
The creator economy represents a fundamental shift in how customers discover products on Amazon. The brands that move first on Amazon Creator Connections will own the playbook for creator commerce in their categories. Everyone else will be buying attention secondhand—at premium CPCs and declining returns.
Here's your starting question: How much of your Amazon revenue currently comes through creator-driven sales? If you don't know the answer, that's the first metric to establish this quarter.
FIFO and Find Out: Why Amazon Doesn't Care
If you've ever managed inventory on Amazon and felt like your oldest stock just sits there — you're not imagining it.
FIFO (First In, First Out) is inventory management 101: oldest units sell first. It's critical for anything with expiration dates. But Amazon's fulfillment network doesn't work that way. Your February inventory sits aging in a Texas warehouse while your May shipment flies off the shelf in California.
This isn't a mistake. Amazon prioritizes speed to the customer over the health of your inventory. And with 2026's fee increases, that choice is about to get expensive.
Why Amazon Doesn't Do FIFO
Your inventory isn't sitting neatly on a shelf in one location. It's distributed across dozens—sometimes hundreds—of fulfillment centers nationwide, spread out in cubbies on roaming shelving units managed by algorithms optimized for one thing: delivery speed.
When a customer in Seattle orders your product, Amazon ships from the warehouse closest to Seattle. When someone in Miami orders, it ships from Florida. Amazon has no system to track which batch arrived first across this distributed network because their algorithms optimize for getting products to customers as fast as possible, not for rotating your stock by receipt date.
Amazon's fulfillment network was built for speed, not symmetry. FIFO isn't a bug in the system—it's a casualty of scale.
Amazon's 2026 fee increases—covered in detail earlier in this newsletter—make their priorities crystal clear. Starting January 15:
Inventory aged 12-15 months: Fees double from $0.15 to $0.30 per unit/month
Inventory aged 15+ months: New $0.35 tier (or $7.90 per cubic foot)1
If you're carrying 10,000 aged units, you're now looking at $3,000/month instead of $1,500.2 Amazon is telling sellers: move your inventory faster, or pay exponentially more for warehouse space. They want you selling at velocity where aged inventory represents less than 2% of your total costs.
What We're Hearing from the Market
A supplement brand owner shared: "I sent in inventory with 18 months until expiration. Six months later, I'm getting customer complaints about products arriving with only 4 months left. Meanwhile, I'm sending fresh stock every month that sells immediately. Amazon won't tell me where my old inventory is sitting, and by the time I figure it out, it's too close to expiration to sell."
A beauty brand executive noted: "We thought FBA meant Amazon would manage our inventory properly. Instead, we're paying disposal fees on products that expired in their warehouse while newer batches sold through."
A food brand VP put it bluntly: "Amazon knows what FIFO is—they just don't care. Their system is designed to serve customers fast, not protect our margins. That's the trade-off for using their logistics network."
The Workarounds (And Why They All Fail at Scale)
Experienced sellers have developed tactics to manage FIFO issues:
Creating separate FNSKUs by expiration date (unmanageable beyond 10-20 SKUs)
Letting inventory run to near-zero before replenishing (guarantees stockouts and kills velocity)
Using FIFO-aware prep centers (adds 15-25% to logistics costs)
Pricing newer batches higher to move old stock first (artificially constrains pricing strategy)3
All these workarounds share the same flaw: they add operational complexity that breaks at scale or force trade-offs that damage other metrics. Amazon is never going to implement FIFO across their network. The distributed nature of their system—the very thing that enables two-day delivery to 200 million Prime members—makes true FIFO technically impractical.4
From Amazon's perspective, FIFO would slow fulfillment and increase costs. Random stow allows items to be placed anywhere there's available space, maximizing throughput. Enforcing FIFO across a distributed network would mean:
Tracking every inbound batch's receipt timestamp
Coordinating cross-warehouse transfers to align order routing
Prioritizing by expiration over distance—increasing delivery times and cost
That tradeoff doesn't serve Amazon's Prime promise—and it's why FIFO compliance isn't coming.
What CPG Brands Should Actually Do
Accept the Trade-Off Using FBA means accepting that Amazon prioritizes delivery speed over inventory age. If this is unacceptable for your product category, consider FBM (Fulfilled by Merchant) or maintain direct control through alternative channels.
Model the True Cost Factor 3-5% product loss from expiration into your FBA economics. If your margins can't absorb this, either your pricing is wrong or your product isn't viable on FBA. Budget for monthly removal orders as standard operating procedure, not emergency expenses.
Action this quarter: Calculate your aged inventory percentage. Anything above 2-3% should trigger immediate removal orders.
Optimize for Velocity, Not Volume Send smaller, more frequent shipments timed to your actual sell-through rate. Yes, this increases per-unit inbound costs, but it reduces aged inventory risk. Amazon's fee structure now rewards this behavior—they're literally charging you more to hold excess inventory.
Action this quarter: Shift from quarterly to monthly shipments for any SKU with shelf life under 12 months.
Track Aged Inventory as a Core KPI Monitor your Inventory Performance Index (IPI) score and aged inventory percentage weekly, not monthly. Amazon penalizes sellers with IPI scores under 450 by reducing storage capacity up to 30%.5 Set internal targets: aged inventory should never exceed 2-3% of total units.
Action this quarter: Add "% aged inventory >180 days" to your weekly executive dashboard.
The Bottom Line
Amazon's fulfillment network was built for speed, not symmetry. FIFO isn't a bug—it's a casualty of scale. In Amazon's world, your inventory doesn't move first-in-first-out. It moves fastest-in, fastest-out.
The brands that win are those who design their operations to work with Amazon's logistics: short replenishment cycles, tight velocity targets, and proactive aged-stock management.
That's not a bug. That's the feature you're paying for.
Amazon's 2026 Fees: The Devil in the Details for CPG Brands
Amazon's latest fee update claims an average increase of less than 0.5% per unit—roughly $0.08. But for CPG brands operating in compressed-margin categories like food, beauty, and pet products, the headline obscures a more challenging reality. Small increases on low-priced, high-velocity SKUs can shift profitable items into break-even territory, and the fee structure varies sharply by category and price point.
The Real Numbers Behind the Headline
According to Amazon's 2026 U.S. Referral and FBA Fee Changes Summary, here's what brands will actually see¹:
Per-Unit Fulfillment Fee Changes
Standard ($10–$50): + $0.25 (small) | + $0.05 (large)
Premium (>$50): + $0.51 (small) | + $0.31 (large)
Low-priced (<$10): + $0.12 average
Aged inventory (12-15 months): + $0.30/unit monthly
Aged inventory (15+ months): + $0.35/unit monthly (new tier)
Consider a $15 organic pet supplement in a small standard box. That $0.25 increase represents a 1.7% hit to selling price—potentially 8-12% of contribution margin in a category where margins already run 15-20%. For premium beauty items over $50, the $0.51 increase is proportionally smaller but still meaningful when multiplied across thousands of units.
Beyond base fulfillment fees, brands face increases to inbound placement services (averaging $0.05 more per unit), stricter aged inventory penalties, and new packaging fees for select bulky items—particularly impacting food and toy brands with seasonal inventory patterns.
What We're Hearing from You!
In conversations with CPG executives this month, a consistent theme emerges: this isn't just about absorbing another fee increase. It's about recognizing that the multi-year trend of compressing Amazon margins requires a more sophisticated approach to channel economics.
One VP of E-Commerce at a mid-sized pet brand put it plainly: "We can't just optimize our way out of this anymore. We need structural changes to our cost base and channel mix."
That sentiment reflects a broader shift. Amazon's adjustments mirror a five-year progression toward premium pricing for logistics and storage services, tracking with inflationary trends in global shipping and labor.² Meanwhile, alternative marketplaces—Walmart, TikTok Shop—are gaining share, making channel diversification not just prudent but necessary.
The Bottom Line
Amazon's fee adjustments reflect its evolution from a sales channel to a premium logistics provider with pricing to match. For CPG brands, this means treating marketplace profitability as a strategic priority, not a tactical footnote—and recognizing that sustainable growth requires Amazon as one component of a multi-channel strategy, not the entire go-to-market approach.
Footnotes
¹ Amazon Seller Central, "2026 U.S. Referral and FBA Fee Changes Summary," October 2025.
https://sellercentral.amazon.com/help/hub/reference/external/G201411300?locale=en-US
Amazon's Refund Problem: Why CPG Brands Pay Twice for the Same Product
Your Amazon refund rate probably doubled in the past 18 months, and it's not because your products got worse. Here's the CPG-specific challenge: when customers claim issues with beauty products, supplements, or food items, Amazon typically issues an immediate refund without requiring the product back. You lose both the product and the revenue. And as economic conditions tighten, expect this to accelerate.
Refund fraud has nearly tripled since 2018, with fraudulent refunds now representing 14% of all retail transactions—costing retailers $890 billion in 2024 alone.1 For CPG brands operating on compressed margins, this double-loss dynamic is fundamentally reshaping marketplace economics.
Where Profit Disappears
For CPG categories—particularly beauty, personal care, food, and supplements—Amazon's policy favors immediate customer satisfaction over seller verification. Customers claim products arrived damaged, leaked, expired, or "not as described," triggering automatic refunds while keeping the items. Unlike electronics or apparel where returns are required, consumables and beauty products typically qualify for returnless refunds.
The numbers: chargebacks and refunds will cost merchants over $100 billion in 2025, with 75% attributed to "friendly fraud."2 What's particularly concerning: 84% of customers now view refund requests as more convenient than contacting sellers, and 72% don't understand that false refund claims constitute fraud.3
Amazon itself isn't immune. The company took a $1 billion charge in Q1 2025 tied partially to unresolved customer refunds and returns, reducing North America retail margin by nearly a full percentage point.4 If Amazon—with its scale and infrastructure—is absorbing margin hits, the impact on mid-sized CPG brands is proportionally more severe.
Why This Accelerates in a Downturn
Two forces are converging: systematized refund manipulation is expanding through social media promotion of "refund as a service" schemes on TikTok, Telegram, and Discord.5 First-party fraud—where verified customers intentionally file fraudulent refund claims—surged to 36% of all reported fraud in 2024, up from just 15% in 2023.2
More significantly, economic pressure drives opportunistic behavior. As household budgets tighten, the temptation to claim "product arrived damaged" and receive both free products and refunds increases. Historical data shows refund fraud spikes 15-25% during economic downturns as consumers look for ways to stretch dollars.
The CPG Double-Loss Dynamic
A fraudulent refund on a $12 pet supplement doesn't just erase that sale—you lose the product's full COGS plus shipping, and it wipes out profit from the next 6-8 units. In beauty and personal care, where returnless refunds are standard policy, some brands report refund rates approaching 12-15% on certain SKUs. At those rates, only products with 40%+ gross margins remain viable on the platform.
What We're Hearing from the Market
A beauty brand VP shared: "We're running at just over 1% net profit on Amazon, almost entirely due to refund abuse. Customers claim products arrived 'leaking' or 'used' when we know they weren't. Our refund rate is 4% on Amazon versus 1% on DTC where we can actually investigate claims. The difference isn't our product—it's that Amazon's policy assumes the customer is always right."
A VP at a mid-sized supplement brand notes: "We've pulled our lower-margin SKUs entirely from Amazon. When someone can get a $15 product for free just by claiming it 'didn't work as expected,' and they keep the product, we're literally paying people to take our inventory. Only our 50%+ margin items still make sense on the platform."
Strategic Response Framework
1. Build Pre-Fulfillment Documentation Implement video/photo documentation during packing for products over $20. While Amazon rarely considers this evidence for CPG refunds, it creates defensibility for pattern abusers and helps identify packaging vulnerabilities that legitimately cause damage claims.
Action this quarter: Document your top 20% of SKUs by value. Track whether damage claims correlate with specific fulfillment centers or shipping carriers.
2. Model True Unit Economics with Refund Reality Amazon's Revenue Calculator now includes return/refund fee modeling.1 For CPG, add your actual refund rate (not Amazon's category average) plus 20% to account for economic-driven increases. Model products at these refund levels to identify which SKUs remain profitable.
Beauty typically runs 6-10% refunds, supplements 4-8%, pet consumables 3-5%, food 2-6%. Products exceeding category benchmarks by 50% warrant immediate investigation or removal.
Action this quarter: Audit your catalog against category refund benchmarks. Calculate the refund rate threshold where each product becomes unprofitable, then set alerts when approaching 75% of that threshold.
3. Price for the Double Loss This isn't hypothetical—65% of Amazon sellers raised prices in 2024 specifically to offset refund fraud and fee pressures.1 For CPG returnless categories, build a 3-5% refund adjustment into pricing models. This isn't margin expansion; it's survival math.
Action this quarter: Re-price vulnerable SKUs to account for full product loss (COGS + shipping + fees) on refunded units. Test whether higher prices actually reduce opportunistic refund behavior.
4. Set Hard Refund-Rate Thresholds Define the refund rate that triggers channel reconsideration. For most CPG brands, 8-10% sustained refund rates make Amazon unprofitable unless gross margins exceed 45-50%. Make this a quarterly board metric, not a hidden operational cost.
The Bottom Line
Amazon's returnless refund policy for CPG creates a unique vulnerability: customers keep products and money, while brands absorb full losses. As economic conditions tighten through 2026, expect opportunistic refund behavior to increase 15-25% as stretched consumers rationalize "the company can afford it." The brands that will survive are those pricing for this reality, setting hard refund-rate thresholds for channel participation, and making ruthless portfolio decisions based on true unit economics—not hopeful projections.
What refund-rate threshold will trigger removing a product from Amazon for your brand?
Let’s Meet Up!
January 2026 – Winter FancyFaire (San Diego, CA)
A celebration of specialty foods and beverages.
Perfect for brands seeking wholesale and retail expansion.
February 2026 – SOURCING at MAGIC (Las Vegas, NV)
The industry’s largest apparel and accessories sourcing event.
Connect with global suppliers and manufacturers.
March 2026 – Expo West (Anaheim, CA)
The must-attend event for natural and organic products.
Network with buyers and explore CPG and wellness innovations.
Local Spotlight – Detroit & Southeast Michigan
Expect multiple retail and e-commerce events through late 2025 and early 2026, focused on manufacturing, omnichannel retail, and marketplace growth. (Full schedule coming soon!)
Want to connect at one of these events?
Footnotes
CNBC, "Easy returns cause big trouble for Amazon sellers," June 2025; National Retail Federation data. ↩ ↩2 ↩3
Chargeflow, "The Ultimate Chargeback Statistics 2025," 2025. ↩ ↩2
Chargeback.io, "23+ Chargeback Statistics Every Merchant Should Know for 2025," 2025. ↩
Amazon Q1 2025 earnings analysis. ↩
CNBC, "Refund fraud schemes promoted on TikTok," March 2024. ↩