In a world where Amazon Prime offers two-day deliveries, buyers’ shipping expectations are high. It’s no wonder, then, that Amazon FBA (Fulfillment by Amazon) has gained so much popularity among sellers.
With FBA, Amazon does the heavy lifting of warehousing, fulfillment, and shipping for sellers. For some businesses, this sounds like a dream come true, as it would save a lot of time (and potentially a lot of money).
However, other sellers think FBA sounds a little too good to be true, and worry about the costs associated with it. But before you assume that the program isn’t feasible, it’s worth learning how FBA can be a workable and profitable solution for your business—even as a small seller.
In this article, we’ll break down the basics of Amazon FBA, what it offers sellers, and how to decide whether this is the right fulfillment choice for you.
If you’re already familiar with the nuts and bolts of FBA, we recommend skipping to the pros and cons section. If you’re curious about how FBA works, what it costs, and what effort is involved, keep reading.
Table of Contents
- How Amazon FBA Works
- Amazon FBA Fees and Costs
- Pros of Choosing Amazon FBA
- Cons of Choosing Amazon FBA
- Is Amazon FBA Right for Me?
How Amazon FBA Works
FBA functions as an extension of your business, taking the work of warehousing, shipping, and customer support off your plate. Once you enroll in Amazon FBA and ship your products to their warehouse, they handle every aspect of the fulfillment process.
Let’s quickly discuss how Amazon FBA works from the seller’s side of things so you have a better understanding of what’s required of you.
Enrolling in FBA only takes a few clicks. Just log into Seller Central, and under your account info, you’ll find the option to register for Amazon FBA. Don’t worry—this won’t change your existing settings, and you won’t be charged any fees. This step just makes it possible for you to change your product fulfillment method to FBA.
After you register, you’ll need to convert individual products to FBA via the inventory page. You can bulk-select products or choose to start with one.
If you’ve already prepared your products for Amazon, go ahead and click “Convert and Send Inventory.” If not, move on to step two.
2. Prepare Your Products for Amazon
Preparation involves the most work and involvement on the seller’s part. Here’s how to make sure your products meet Amazon’s “ecommerce ready” standards before sending your inventory.
- First, double-check the FBA product guidelines to ensure there are no special regulations or restrictions around your product. These guidelines cover everything from prohibited products to how to handle expiration-dated inventory.
- Make sure your products are packaged securely and correctly. Ensure the product is protected from damage, both in warehousing and shipping. For example, package fragile items in bubble wrap. Amazon will handle this step if you opt into their FBA Prep Service, for additional per-item fees.
- Ensure your product is properly labeled for FBA, either with a manufacturer’s barcode or an Amazon barcode. You can also opt into the FBA Label Service, where Amazon will do this labeling for a fee of $0.30 per item.
Once you’ve met these conditions, you’re ready to send your inventory to Amazon.
3. Ship Your Inventory to Amazon
Within Seller Central, Amazon will guide you through the process of creating your shipment plan. This plan covers all the preparation details (such as packaging and labeling), as well as shipping details like quantities, number of boxes, and carrier information.
This process involves multiple steps and might be a little intimidating for first-time sellers, so we highly recommend Amazon Seller University’s walkthrough videos to help you understand the process. Amazon also provides a thorough Quick Reference Guide to Packaging and Shipping Inventory to Amazon that will walk you through the minutiae and answer most of your questions.
Amazon is currently working on rolling out a new shipment workflow to make things simpler for sellers. However, this program is still in beta and only available to sellers who ship one SKU per box and use small parcel delivery.
Amazon FBA Fees and Costs
There are several different fees and costs to be aware of when it comes to using FBA. Amazon offers a fee preview tool (available on your seller dashboard) so you can see exactly what the fees will be for you. You should also leverage the FBA Revenue Calculator, which compares the net profitability of your current fulfillment fees versus the cost of FBA.
To understand these expenses in more detail, here’s a look at Amazon FBA’s upfront fees and additional costs.
Upfront fees are the main fees you’ll pay for FBA; they come in two types that cover both shipping and warehousing.
FBA fulfillment fees are charged per unit, based on the product size tier for your item. These tiers are organized based on product dimensions and shipping weight, as well as on whether the product is apparel or non-apparel.
To see how this fee breaks down, imagine you’re selling peanut butter. It’s a non-apparel product that fits the tier “small standard-size (10 oz or less)”, so it carries a $2.50/unit fee. A “large standard-size (10 oz or less)” product is $3.31/unit. You can see a full breakdown of FBA fulfillment fees here.
FBA monthly storage fees are warehouse rental fees, calculated based on the space your products take up in fulfillment centers. These fees fluctuate based on time of year, with the high-demand season of October to December carrying a much higher cost per cubic foot.
When deciding whether or not Amazon is right for your business, it’s important to note that the program has additional fees beyond the upfront ones. These costs won’t apply to every seller, but it’s good to keep them in mind.
- Long-term storage fees. Any product that has been in a fulfillment center for a year or more generates this fee, which is either $6.90 per cubic foot or $0.15 per unit (and it will always be whichever is more expensive). Keep a close eye on your Inventory Age and Inventory Health reports, and consider removing products that stagnate.
- Preparation costs. Depending on your products and how you receive them from the manufacturer, you may generate additional costs to prepare these products to meet FBA’s standards. FBA Prep Service charges between $0.50 and $1.00 per item for packaging and $0.30 per item to label items. (Note that if your packaging or labeling is subpar, Amazon will fix it for you, but charge you for their prep services.)
- Shipping costs to Amazon. If you use an Amazon Partnered Carrier to ship your goods, you can calculate shipping costs within your shipping plan. For most sellers, an Amazon Partnered Carrier will make the most sense, as they provide discounted rates and detailed tracking.
- Refund administration fee. Amazon FBA processes refunds for you, but they charge a fee for each one based on products’ prices, shipping, taxes, and gift wrap.
- Amazon errors. Sometimes Amazon messes up—they charge you for the wrong size tier, forget to administer your refund, send damaged items, and so on. When Amazon is at fault, they do provide reimbursements. Just make sure you review inventory and order reports frequently so you know when an issue has happened and can request compensation.
The Amazon FBA revenue calculator we mentioned only assesses upfront fees, which is helpful, but not comprehensive. When deciding whether or not FBA is affordable for you, you need to look at the costs more holistically and make estimates accordingly.
Pros of Choosing Amazon FBA
There are many benefits to letting Amazon handle your fulfillment, in both operations and sales capacities.
- Time savings. Amazon FBA takes a lot of jobs off your plate, which means you have more time to run other parts of your Amazon business.
- Amazon Prime qualification. Speaking of speed, when your products are fulfilled by Amazon, they’re automatically qualified for Amazon Prime—no application or additional fees involved! Since Prime is a huge driver of sales, this is a major win, especially for smaller operations.
- Improved buyer confidence. Amazon adds a special callout to product pages letting shoppers know the product is Fulfilled by Amazon, which many shoppers see as a trust signal.
- Increased chance of winning the Buy Box. The Buy Box is the default purchase option on Amazon, and it has a significantly higher chance of winning the sale. According to BuyBox Experts, “at least 82% of Amazon’s website sales today go through the Buy Box.” Products fulfilled by Amazon get Buy Box priority, giving FBA sellers a significant competitive advantage.
With Amazon FBA, you can streamline your operations, offer better service to your customers, and give your products a competitive edge.
Cons of Choosing Amazon FBA
Before you jump into selling with FBA, be mindful of these potential downsides of the program.
- Time and effort still involved in preparation. Preparing and shipping your products to Amazon takes less effort than fulfilling your own orders, but it does take time—especially with Amazon’s strict product guidelines. So you’re still investing your time while also paying Amazon’s fulfillment fees.
- Long-term storage fees. Inventory that doesn’t sell well can end up costing you more than you might think, thanks to Amazon’s storage fees. So while it seems that you should be able to sit back and let Amazon do most of the heavy lifting with FBA, it’s critical that you stay on top of your inventory reports. Keeping items in stock—and making sure your inventory isn’t stagnating—is key to using FBA successfully.
- No control over branding. With FBA, you lose the ability to brand your shipments or do any marketing follow-up or outreach with your buyers, either in your packaging or post-purchase.
For all the benefits of Amazon FBA, long-term fees, the hit to brand equity, and the time (and potential costs) involved in preparing your inventory should give some sellers pause.
Is Amazon FBA Right for Me?
Now you know how Amazon FBA works and the main pros and cons of this fulfillment method. At this point, you’re probably wondering, “How do I know if this is the right choice for my business?” Whether or not Amazon FBA makes sense for your business is heavily influenced by your seller type: reseller, private label, or proprietary product.
Resellers take existing products and resell them on Amazon. They usually face intense competition on Amazon, as their product shares a listing with other merchants selling the same product.
Due to the nature of their business, it’s important that resellers stay responsive to the market, keep overhead low, and take every competitive advantage they can find.
FBA provides a service that meets all three of these demands. For resellers looking to capitalize on fast trends, Amazon FBA’s lack of an inventory minimum makes it easy to sell small batches of products quickly.
The program also allows resellers to run their business without traditional operational costs. If you’re willing to pay for FBA’s prep services, you can even have your suppliers ship merchandise to Amazon directly, making it possible for you to run a resale business from your living room.
And while FBA’s competitive advantages might not be enough to guarantee you the Buy Box if your competitors also use FBA, the trust signals and Prime eligibility provided by FBA will help you compete in a crowded listing.
Verdict: Resellers who have the capital to use FBA will likely find the service ideal for their business model.
Private label sellers remarket generic wholesale products with their own branding. They use Amazon to take advantage of its large audience and the catalog flexibility offered by its marketplace.
To determine if Amazon FBA is right for your private label business, you need to decide if its logistical benefits outweigh the lack of brand control.
Perform product research to see how many other sellers are offering the same product under their own private label. If the market is crowded, FBA could provide an important competitive advantage. After all, it offers Prime status and boosts buyers’ trust in your product. If your market isn’t crowded, and you want control over your brand experience, fulfilling orders yourself may be the best route.
Verdict: Private label sellers can benefit greatly from FBA’s flexibility and ease of use. However, they must decide if they’re willing to give up control over their branding as a part of using the service.
Proprietary Product Sellers
Proprietary product sellers build a brand around their original products. These sellers typically use Amazon as one channel while also selling via their own ecommerce (or retail) store.
The proprietary product seller’s biggest concern is establishing the value of their original brand versus other brands selling similar products. However, Amazon FBA restricts your ability to use any additional marketing materials in your packages (such as review requests or social media invitations) or to interact with customers directly. This makes it difficult to build brand awareness on Amazon over time.
While FBM also has some restrictions on additional materials—such as anything that tries to divert future sales away from Amazon, or offering incentives for positive reviews—you do have a little more flexibility to use your packaging to build brand identity.
On the other hand, FBA’s ease of use may be appealing to small brands. Not to mention, the “Fulfilled by Amazon” trust marker on products can help boost sales.
Verdict: Proprietary product sellers with the resources to manage their own fulfillment may want to consider Seller Fulfilled Prime (SFP) instead of FBA. This will take more effort than FBA; however, SFP allows you to take advantage of the Buy Box benefits of being a Prime seller—while also managing your customer experience and brand reputation more closely.
Start Small and Build Momentum on Amazon FBA
Amazon FBA enables sellers of all sizes and stripes to offer world-class shipping and service to customers on the world’s largest marketplace. The service isn’t perfect or cheap, but it is one of the most reliable solutions for simplifying your ecommerce business.
If you’re interested in using Amazon FBA, our advice is to start small. Begin with a single product and only ship 5 to 10 items at a time to test the waters. Evaluate your FBA performance closely so you’re able to make improvements, and gradually expand your use of the service.
Whether or not you choose to use FBA, promoting your product on Amazon is an important part of successful selling. Learn how PPCWIZ can help you overcome the challenges of advertising on Amazon.