Fulfillment by Amazon (FBA) is a service offered by Amazon as a means for third-party sellers to automate their order fulfillment and shipping services. It's a simple concept: Sellers sell, and Amazon ships.
FBA is an excellent way for many people to find their online sales and marketing niche on the Amazon Marketplace and other channels.
Everyone knows that Amazon works with third-party sellers, but many don't know the full extent. Third-party seller products account for more than half of all units sold in Amazon stores — with 73% of Amazon sellers taking advantage of FBA.
Anyone can sell something on Amazon, provided they know where and how to do so.
How Does Amazon FBA Work?
Anyone enrolled in an Amazon seller account can let Amazon handle all shipping, including returns and refunds, as well as product warehousing in Amazon’s warehouses, picking and packing and more.
Sellers send their own products to Amazon, which warehouses everything and then processes the orders as they come in. As long as you handle the sales and make sure Amazon stays stocked with your products, the rest is done for you.
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What Does Amazon FBA Cost?
Here’s the part everyone always wants to jump to — the cost. It will cost money, but it doesn’t have to be a small fortune.
When deciding on Amazon FBA, you will want to consider the following costs:
Dangerous vs. non-dangerous goods.
Before you can sell on Amazon FBA, you will need to see whether the items you’re selling are categorized as dangerous or non-dangerous goods.
Dangerous or Hazmat products refer to those which can include toxic or flammable parts. Outside of explosives and weapons — which are prohibited — some examples include battery-operated lithium products, items with non-harmful chemicals or magnetic materials.
If the products you’re selling are determined to be dangerous goods, the difference in price between them and a non-dangerous item will be significant, from fulfillment costs to storage fees.
Fulfillment fees include picking and packing orders, shipping and handling, customer service and product returns. The fees are also determined by the weights and dimensions of your products.
There are two primary categories of FBA fulfillment fees, non-apparel and apparel, with pricing differences to match.
Non-apparel: Depending on the size of your product and the peak rate, the costs of fulfillment range from $3.07 per item for small-standard to $161.11 per product for special oversized items.
Apparel: For apparel products, the pricing is very similar, ranging from $3.43 per item to $161.11.
Inventory storage fees.
Amazon charges monthly inventory storage fees based on the daily average volume for the space your inventory occupies in Amazon fulfillment centers.
January - September
$0.75 per cubic foot
$0.48 per cubic foot
October - December
$2.40 per cubic foot
$1.20 per cubic foot.
Long-term storage fees.
If your inventory has been in a fulfillment center for longer than a year, you will start to be charged a long-term storage fee each month.
This fee will include either $6.90 per cubic foot or $0.15 per unit, depending on whichever amount is greater.
Inventory health report.
An Inventory Health Report is an Amazon-generated report that provides FBA and other sellers with a comprehensive breakdown of their inventory, competitive pricing ranges and further important details.
The health report is designed to help FBA sellers with the optimization of their inventory and lower costs with an Inventory Performance Index (IPI) score.
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Amazon FBA Pros
While this isn’t a complete list, here are some of the biggest things that stand out about the Amazon FBA program:
Logistics support and scalability.
With FBA, Amazon does all the work for you. FBA allows third-party Amazon sellers to delegate their packing, shipping and customer service process to Amazon’s fulfillment network rather than handle logistics from their homes or offices.
For a small fee, you get an enormous weight off your shoulders.
Get all the benefits of Amazon Prime.
Products in FBA automatically get the Prime member badge and are eligible for Prime free shipping to the customer and shipping times.
Additionally, you won't have to pay or charge premium shipping rates to do that because it's included in the service.
Win the Buy Box.
The Amazon Buy Box refers to the box on the right-hand side of the product listings that says either “Add to Cart” or “Buy Now.” For sellers, getting Amazon customers to click on those boxes is imperative, especially since more than 80% of Amazon sales occur through it.
With FBA, merchants gain access to the Buy Box and all of the benefits associated with it.
Shipping rates discounts.
Because you’re working with Amazon, a global fulfillment giant, you’re also going to spend less on your shipping costs through the FBA platform.
Therefore, even though you’re paying Amazon FBA fees, they may be lower than you think when you factor in the shipping savings and still cheaper than managing your own shipping plans and fulfillment in-house.
24/7 customer support.
Amazon offers its own, 24/7 customer service for FBA sellers. You can also use their FBA platform to care for your customer service needs, routing all of your services through one platform for easy management.
More storage space.
Without FBA, how much inventory could you realistically store? Do you have a warehouse or means to rent one? Are you capable of moving and managing inventory on that scale?
This is where the Fulfillment by Amazon program wins. For a cost, Amazon sellers have access to unlimited storage space because Amazon has warehouses all over the country that can hold a lot of goods.
Not only does FBA allow you to sell to targeted customers through the Amazon platform, but you can gain access to new multi-channel fulfillment solutions.
Amazon Multi-Channel Fulfillment (MCF) allows you to sell your FBA products on various platforms and channels — such as BigCommerce and eBay — while still having Amazon fulfill them.
Amazon FBA Cons
Because no two people are the same, it’s important to look at the potential reasons FBA services might not be the right solution for your needs. Here are some of the factors to consider:
It can be costly.
FBA is indeed a convenient service, but it costs money. That’s money that some people might not be able to spend just yet.
Additionally, this service isn’t good for low-cost items because of how fees are calculated, so you’ll want to be selective about the products you enroll in. Fortunately, Amazon has a handy FBA calculator that can help you see whether it’s a profitable move.
Requires continual inventory management.
Amazon has a list of requirements for products coming into the warehouse to be fulfilled through FBA.
You will have to ensure that your products are prepared accordingly before sending them off to Amazon, including how they are packaged, providing proper labeling and shipping following the FBA inventory warehousing guidelines.
Because Amazon packs and ships your products from its fulfillment centers, you will likely have limited branding opportunities.
If you are using Amazon’s fulfillment center, the shipping boxes they use will invariably be covered in their logo and branding. Even if you have control of your product packaging on the inside, the first thing customers will see is that the package is from Amazon.
Amazon commingles its products with the same manufacturer ID from various third-party merchants. In essence, they are pooling together like products.
Commingling is designed to increase fulfillment efficiency by Amazon. While this is a benefit for Amazon, for merchants, this can lead to their products being mixed in with low-quality items from less professional sellers.
In many cases, there have been sellers who see an increase in the number of returns or their frequency. This is due, in part, to Amazon’s open return policy.
However, Amazon now handles the processing. While they used to have returns shipped back to them — and you would have to arrange to have them then forwarded to you — Amazon now allows returns to go directly back to your facility.
Should You Use Amazon FBA?
After reviewing all the information, you will need to decide whether or not Amazon FBA is a good idea for your business.
To be clear, Amazon is a competitive marketplace, no matter what product or service you plan to sell. However, the opportunities present are hard to pass up for forward-thinking entrepreneurs — especially those just getting started.
For small or ecommerce businesses, utilizing an already established fulfillment program and infrastructure as well as resources like Amazon Seller Central can make the most challenging half of the process worth it in the end.
Amazon FBA vs. Seller-Fulfilled Prime
For those who want to capitalize on the valuable Prime customer base but don't want to pay the fees of the FBA program, there is the option to create a Seller-Fulfilled Prime (SFP) account where you can sell, fulfill and find products and orders.
While FBA charges fees for storage and fulfillment that may be fractional in comparison, Seller-Fulfilled Prime makes you pay all shipping costs, which can eat into your profit margins. However, these costs are generally fixed and don't fluctuate.
Inventory storage and control are also in your hands — with FBA, you send your stuff to Amazon, and they handle the rest. When you use SFP, you have to manage your inventory, find a place to store it, pay for storage and more. The fulfillment logistics are all at your behest and can be difficult for anyone.
Ultimately, SFP will likely end up being more work, so small brands and new sellers tend to fare better with the FBA program. However, if you have low-cost items, large items that would incur high storage fees with Amazon, or a mature fulfillment process, SFP is a great way to get the Prime badge while keeping your costs down.
How to Maximize FBA Sales
There is plenty of valuable insight to be gleaned to help you maximize your FBA sales from the start. If you want to increase your profits and streamline your growth using this service, here are a few tips and tactics to keep in mind:
Use online analytics tools.
Use online analytics tools to product research the most profitable and popular items available on Amazon and determine which are the best product categories to sell in.
The bestsellers are often at the top for a reason — see what they're doing and take notes.
Be smart about your product selection.
Think about sales rank but also about what you get in exchange.
High-ranking Amazon products are competitive but will sell quickly and keep inventory moving. Low-ranking products could cause stagnant inventory and long-term fees. However, they may also allow you to become a leading seller since there’s less competition.
Bundle items when you can.
One of the most challenging parts of Amazon selling is competing with dozens of near-identical listings that may be a handful of reviews or a few dollars in price difference but otherwise indiscernible.
Merchants can stand out by creating bundled Amazon listings that draw people’s attention and offer more for their money.
Build your brand.
Merchants must take the time to create a brand step-by-step and put it in a position that creates success and reaches their target audience. It’s not just about being in the buy box. It’s about ensuring that you are selling high-quality products and sourcing them from a reputable manufacturer or distributor.
It would be best if you also got good reviews to ensure your metrics qualify you for the buy box and maximize your sales opportunities.
Respond promptly to customers.
One of the most significant factors in choosing a seller on Amazon is how well they respond and engage when provoked.
If a user has a question, answer it promptly and politely to let everyone know that you’re there when they need you.
Using Amazon FBA the Right Way
As with all things, Fulfillment by Amazon only works if you integrate it correctly and use it properly. To accomplish this, there are some best practices and overall themes that you need to follow, including:
You don’t have to sell everything, and you shouldn’t.
Remember, Amazon FBA costs money for storage and warehousing. Until you know what will sell, consider trying a few items and working your way into different products as time goes on.
Choose a well-cultivated selection of items and list them through FBA so that you have a slightly easier time learning the best practices when just starting.
Be smart when choosing your products.
As mentioned above, you must be very careful in product selection. Just because you think something would sell doesn’t mean that it will.
The market is competitive on Amazon, and you need to choose the most profitable products to avoid stagnant inventory — allowing your products to stand out even if they’re not the top-selling items.
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The Final Word
Leveraging the power of Amazon FBA can allow you to get much more out of your online business sales, but only if you do it correctly and have profitable products.
There are several ways to sell on Amazon, and no two people will arrive at the same decision for the same reason. With the information presented here, it should be easier to decide on the correct path for selling on Amazon, whether through FBA, SFP or other means.
Ultimately, the Fulfillment by Amazon program offers sellers the best of everything in a neat little package priced reasonably well and provides significant benefits to new and experienced merchants.