As an experienced Amazon seller, I‘ve helped countless entrepreneurs weigh the pros and cons of Fulfillment by Amazon (FBA). This in-depth guide will explore whether FBA is right for your business.
First, what does FBA entail? With FBA, you ship your inventory to Amazon‘s warehouses. When an order comes in, Amazon handles picking, packing, shipping, customer service, and returns.
This frees you from the hassles of fulfillment. But FBA isn‘t necessarily right for everyone. Let‘s dive into the key factors to consider.
The Benefits of FBA
Here are the major advantages that FBA offers:
Access to Amazon‘s Vast Customer Base
Amazon has over 300 million active customers worldwide. FBA gives you direct access to tap into this massive buyer pool.
Plus, more than 50% of units sold on Amazon go to Prime members. Prime increases customer loyalty – 64% of members say they shop more after joining. FBA helps you capitalize on this built-in audience.
Increased Sales from Higher Visibility
FBA listings have a higher chance of winning the crucial Buy Box. This defaults to FBA offers over merchant-fulfilled ones.
One study found 89% of purchases went to the Buy Box winner. FBA also qualifies you for Prime badges which boost conversion rates by 25%.
In 2020, FBA products accounted for over 80% of Amazon‘s unit sales. The increased visibility drives more orders.
Faster and More Reliable Shipping
Amazon handles logistics and can ship products faster than individual sellers in most cases. Their sophisticated fulfillment network spreads inventory around the country, positioning it closer to customers.
Prime members expect quick, free shipping. 53% say 1-2 day shipping makes them more likely to shop at Amazon. FBA‘s speed caters perfectly to these expectations.
According to Amazon, FBA products are 50% more likely to ship on time and have four times fewer delivery issues. Fast, reliable shipping keeps customers happy.
Less Workload for Sellers
FBA handles the time intensive fulfillment work involved in each order: picking, packing, shipping, tracking info, customer communication, returns/refunds, etc.
This is a huge benefit. Prepping orders and managing shipping eats up a massive amount of time. FBA lets you focus on things like sourcing products, marketing, and growing your business.
Better Customer Support
Amazon has invested heavily in customer service. Their team handles any customer issues promptly and professionally. This takes the burden off sellers.
Buyers can email, chat, or call for support and get quick help with any problems. Amazon handles returns and refunds swiftly. This helps avoid negative reviews.
Improved SEO from Prime Shipping
FBA listings can rank higher in Amazon search results compared to merchant-fulfilled offers. Why? Amazon‘s algorithm favors products that can be shipped quickly with Prime.
Higher search visibility means more impressions and sales. By one estimate, FBA boosts conversions by 25-50% over sellers fulfilling themselves.
Potentially Lower Overall Costs
With FBA, you avoid the overhead of staffing and managing your own fulfillment operation with warehouses, equipment, etc.
Amazon‘s enormous scale also lets them negotiate better shipping rates. One study found FBA shipping costs were 28% lower on average.
However, FBA has fees for storage, fulfillment, etc. I‘ll break these costs down later. But for some businesses, FBA‘s infrastructure saves money overall.
As you can see, FBA provides some major perks. But it also has limitations sellers need to be aware of.
The Downsides and Challenges of FBA
While FBA has many benefits, here are some of the key drawbacks to consider:
Amazon Fees Can Eat into Profits
Amazon charges fees for storage space, fulfillment, shipping – they bill you for the services used. These fees range from 10% to 40% of the product price generally.
FBA Fee Example for a $25 Board Game
|Storage (30 days)||$1.25|
|Shipping to Customer||$5|
|Total Fees||$9.60 (38% of price)|
As you can see, fees take a significant cut. You need sufficient margin to absorb FBA costs.
Less Control Over the Customer Experience
Once inventory is handed off, Amazon has full control over fulfillment. You have no input or oversight regarding shipping methods, packaging, inserts, etc.
For some brands, not being able to customize and perfect the unboxing experience is a tough tradeoff. This lowered control can impact customer satisfaction.
Higher Return Rates
Amazon‘s customer-friendly policies lead to more frequent returns – typically 30% higher than non-FBA orders.
Handling returns costs money. Plus excessively high return levels can get you suspended. You must account for the increased refund volume.
Long Term Storage Fees Can Sting
Amazon charges additional long term storage fees when inventory sits too long, usually over 6 months. This especially hurts slow moving or seasonal products.
I‘ve seen sellers hit with thousands in surprise storage fees. Keeping stock moving quickly avoids this.
Prep and Labeling Takes Significant Time
Before shipping to Amazon, inventory must be prepped and labeled to their specifications. You need scannable barcodes, FNSKUs, etc.
This process can eat up a lot of time, especially if you sell many product variations.Streamlining pre-shipment prep is crucial for scaling efficiently.
Sales Tax Complexities
If your business operates out of a different state than your inventory warehouse, sales tax gets complicated fast. You must file appropriately.
Getting sales tax wrong results in fines and penalties. An accountant familiar with FBA can make sure you stay compliant.
Not All Products Are Eligible
Certain products are prohibited from being sold via FBA, like hazardous materials. Make sure your goods aren‘t restricted to avoid issues.
FBA also favors easily shippable, smaller items. Giant, bulky products take up storage space so Amazon may reject them.
As you can see, FBA has some definite drawbacks and limitations sellers need to be aware of. Next I‘ll share some tips for weighing the pros and cons.
Tips for Analyzing the Pros and Cons of FBA
When evaluating if FBA is beneficial for your specific products and business model, here are some tips:
Carefully Calculate the Fees
Take the time to thoroughly estimate the various FBA fees – storage, fulfillment, shipping, etc. See if you retain sufficient margin after fees to be profitable.
You can use Amazon‘s Revenue Calculator tool to run the numbers. Be sure to run calculations separately for each product.
Consider Your Customer‘s Expectations
Does your product need ultra-fast Prime shipping speeds? Or are customers more focused on lower costs?
If fast delivery is highly expected by buyers, FBA helps meet that demand. If bargain prices are more important, FBA fees may not make sense.
Realistically Evaluate Your In-House Capabilities
Could you handle brisk sales volumes in-house if not using FBA? Analyze your capacity for storing, picking, packing, shipping, tracking, returns, etc.
If your sales outpace your fulfillment capabilities, it makes sense to lean on FBA. But if you can handle the workload, you retain more control.
Research Any Applicable Restrictions
Ensure your main product types are eligible for FBA and not prohibited. For example, fragrances can‘t be sold via FBA due to flammability.
Check Amazon‘s extensive list of restricted products so you fully understand the requirements.
Stay Updated on Policy Changes
Amazon frequently adjusts policies that impact FBA. For instance, a fee increase or returns change could influence profitability.
Monitor the Seller Central notifications regularly. Sign up for newsletters from Amazon experts to stay on top of key changes.
Talk to Other Sellers About Their Experiences
Connect with sellers in your category to learn from their real-world experiences using FBA. Ask about the benefits and challenges they faced first-hand.
Feedback from peers who sell similar products can better inform your decision of whether to use FBA.
Taking the time to thoroughly analyze these factors will help you make a well-reasoned choice about FBA‘s suitability.
Comparing the Cost of FBA and Self-Fulfillment
One way to evaluate FBA is to directly compare the costs of fulfillment through FBA versus doing it in-house. Here‘s an example cost breakdown for each:
Fulfilling 1,000 Orders/Month In-House
Fulfilling 1,000 Orders/Month via FBA
In this scenario, FBA provides fulfillment for $500 less than doing it in-house, thanks to lower overhead. But in some cases self-fulfillment may be cheaper – it depends on the specifics. Thoroughly build out your own cost models.
Hybrid Alternatives to 100% FBA
Rather than using FBA exclusively, many sellers blend FBA with other fulfillment methods:
- Seller Fulfilled Prime – You handle fulfillment but can still qualify for Prime badges by meeting shipping speed targets. This retains the Prime benefit while keeping control. However, winning the Buy Box against FBA is harder.
- 3PL Preparation + FBA – Use a third party logistics provider to handle prep, labeling and shipping to Amazon. Combines the ease of FBA without all the tedious prep.
- FBA for Amazon Orders + 3PL for Other Channels – Use FBA for all Amazon orders, but fulfill website, retail, etc orders through an outsourced 3PL. Lets you tap the benefits of both.
These hybrid alternatives give you flexibility to choose the best of both worlds – FBA ease plus control where needed.
Key Factors When Deciding On FBA
When weighing all the pros, cons and costs, these are the key factors to consider:
- Profit Margin – Will FBA fees consume too much of your profits?
- Shipping Speed – How important is fast Prime delivery for your products?
- Product Type – Are your products restricted or ineligible for FBA?
- Overall Workload – Can you handle fulfillment in-house if not using FBA?
- Recent Amazon Changes – Have fees, returns policy, or other changes affected FBA appeal?
Analyze each of these thoroughly for your specific business situation to decide if FBA is advantageous.
Optimizing FBA for Success
If you do choose FBA, here are some tips to avoid pitfalls and maximize the benefits:
- Ship inventory early to avoid stockouts – aim for 1-2 weeks of lead time.
- Carefully prep items to Amazon‘s specifications to avoid rejections.
- Consider adding inserts to build your brand since you lose packaging control.
- Stay on top of inventory to prevent long term storage fees.
- Monitor metrics for claims, defects and negative feedback. Address issues quickly.
- Consider purchasing shipping yourself for valuable priority products rather than leaning fully on Amazon‘s choices.
Mastering these best practices helps get the most out of selling through FBA.
Conclusion – Weighing the Pros and Cons of FBA
As you can see, FBA provides some enormous benefits in terms of reaching customers, boosting sales, minimizing workload and providing reliable fulfillment.
However, the fees, lack of control, and other drawbacks mean FBA may not be the right choice for every seller. Taking a strategic approach and analyzing the key factors will enable you to make the smartest decision for your business.
In many cases, a hybrid model is the best option – using FBA for part of your inventory while still maintaining some control over other items.
With the right combination of tools and partners, you can get the benefits of FBA‘s world-class infrastructure while still retaining flexibility where needed. Evaluating all these dynamics will allow you to thrive selling on Amazon.