Hey there! As an experienced Amazon seller who has helped thousands of businesses sell on Amazon, I know one of the biggest questions people have is – should I use FBA or not?
It‘s a great question, and not one with an easy yes/no answer. FBA can provide immense benefits, but also involves real costs and tradeoffs.
In this comprehensive guide, I‘ll walk you through everything you need to know to make the right decision for your specific business situation. My goal is to provide an unbiased perspective so you can evaluate if Fulfillment by Amazon is ultimately worth it for your needs.
Let‘s dive in!
How Does the Amazon FBA Program Work?
Before weighing the pros and cons, let‘s quickly cover the basics of how Amazon FBA (Fulfillment by Amazon) functions.
FBA is a fulfillment service offered by Amazon that provides these core benefits:
- Storage – Amazon stores your inventory in their fulfillment centers until a sale occurs
- Pick & Pack – When an order comes in, Amazon picks the item(s) from inventory and packages them
- Shipping – Amazon handles shipping the order to the customer
- Customer Service – Amazon‘s team handles all returns, refunds, and customer inquiries
In exchange, Amazon charges various fees for their services which I‘ll break down in more detail shortly.
Here is a quick overview of the typical FBA order workflow:
- You send your inventory to Amazon‘s fulfillment centers upfront
- A customer places an order for your product
- Amazon picks, packs, & ships the order from their warehouse
- The customer receives the order with 2-day Prime shipping
- If any issues come up, Amazon handles customer service
So in essence, FBA enables you to outsource your core fulfillment operations to Amazon – allowing you to focus on things like sourcing products, managing listings, and growing your brand.
Next, let‘s look at the fee structure so you know exactly what costs are involved.
Amazon FBA Fees: What Are the Costs?
When evaluating the pros and cons of FBA, one of the biggest considerations is the fees involved. Amazon charges sellers various fees for their services, which can impact profitability.
Here are the four main types of fees to be aware of:
1. FBA Subscription Plans
- Individual plan – $39.99 per month
- Professional plan – $139.99 per month
The professional plan unlocks additional features like bulk shipping and access to Amazon‘s partnered shipping rates.
2. Storage Fees
You pay monthly storage fees based on the volume of inventory kept in Amazon‘s fulfillment centers. The rate depends on the size of your products:
- Standard-size items: $0.69 per cubic foot
- Small oversize items: $0.48 per cubic foot
- Large oversize items: $0.39 per cubic foot
For example, if you stored 150 cubic feet of standard-size inventory, your monthly storage fees would be $103.50 (150 * $0.69).
3. Fulfillment Fees
These fees are charged per order fulfilled, covering the labor and materials involved in picking, packing, and shipping. Fulfillment fees vary based on the product category and dimensions.
For instance, fulfilling a standard-size clothing item runs $2.41 – $3.19 per order. A larger electronics item may cost $4.23 – $5.98 per order.
4. Other Potential Fees
Other supplementary fees include:
- Return processing fees ($1.80 per return)
- Inventory removal fees
- Unplanned service fees
Amazon details all their FBA fees on their pricing page. Be sure to thoroughly estimate your projected monthly costs based on storage needs and order volume so there are no surprises!
Now that you know what FBA costs, let‘s compare it to fulfilling orders yourself.
FBA vs FBM: What‘s the Better Option for You?
When deciding on a fulfillment approach, two options exist – Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM).
With FBM, you handle the entire order fulfillment process yourself end-to-end. This includes:
- Storing inventory in your own warehouse space
- Receiving and processing orders
- Picking, packing, and shipping each order
- Handling all customer service needs
With FBA, you outsource those fulfillment operations to Amazon.
Here is a comparison of the key differences between the two models:
As you can see, FBA simplifies fulfillment and provides Prime eligibility, but does involve fees and less control.
In general, FBA makes the most sense for sellers who:
- Sell high order volumes
- Ship small, lightweight products
- Want to tap into Prime customer demand
- Need Amazon‘s fulfillment capabilities
Whereas FBM is likely a better fit for sellers who:
- Ship heavy or bulky products
- Need to customize branding/packaging
- Have unique shipping requirements
- Operate on tight profit margins
Many sellers use a hybrid approach, using FBA for some products while handling others themselves via FBM. This provides flexibility to choose the best fulfillment method on a per product basis.
Your Responsibilities with Amazon FBA
Now, while FBA handles storage, shipping, and customer service, sellers still need to take care of crucial operational and strategic parts of the business.
Here are some of the core responsibilities that remain with the seller with Amazon FBA:
Product Sourcing and Research
Selecting the right products to sell is incredibly important. You need to thoroughly research market demand, competition levels, pricing, supplier options, and production costs for potential products.
Tools like Jungle Scout, Helium 10, and Productor can help streamline the analytics process. But you ultimately need to find profitable, scalable products that are a fit for your brand. This process takes significant work.
Creating and Optimizing Listings
You need to create compelling Amazon product listings that convert browsers into buyers. Listings require strong titles, descriptive bullet points, high-quality photos, accurate details, and relevant keywords. This is the product page a customer sees, so it needs to look professional and gain their trust.
Carefully tracking and replenishing your inventory levels within Amazon‘s fulfillment centers is crucial to avoiding stockouts and lost sales. Study historical sales data and forecast demand to keep the right amount of safety stock.
Marketing and Customer Acquisition
Driving traffic and sales requires marketing efforts like Amazon PPC, social media, promotions, and more. You need to analyze performance data and double down on platforms that cost-effectively deliver new customers.
The takeaway is FBA handles fulfillment, but you remain responsible for sourcing, branding, inventory, and sales.
Next, let‘s walk through getting started with FBA logistically if you decide it could be a fit.
Getting Started: Your Step-by-Step FBA Launch Process
If after weighing the pros and cons you decide to launch on Amazon using FBA, here is an overview of the process:
1. Register for an Amazon Seller Central account
This is your main portal for managing your Amazon business. You can register for an Individual or Professional selling plan.
2. Set up your account
Complete critical account settings like banking info, return addresses, and disbursement preferences. This prepares your account to start selling.
3. Send inventory to Amazon
Carefully prep and label your inventory per Amazon‘s requirements, then ship boxes to Amazon‘s fulfillment centers.
4. List your products
Create and optimize Amazon listings for each product you are stocking in FBA. Focus on quality photos, descriptions, and keywords.
5. Drive sales
Kick off marketing campaigns and promotions to increase product visibility. Amazon PPC ads are a good starting point for sales.
6. Monitor performance
Keep close tabs on key metrics like inventory levels, sales, costs, and profitability to inform business decisions.
I recommend starting small – test with a sample shipment of your top few products before sending your entire catalog. This allows you to validate performance before fully committing.
Now let‘s explore some of the biggest benefits you can realize by leveraging Fulfillment by Amazon.
The Top Benefits of Amazon FBA
If you decide FBA could be a good fit, here are some of the major advantages you can enjoy:
1. Prime Eligibility
FBA inventory is eligible for Prime shipping benefits like free 1-2 day shipping. Over 80% of Amazon customers are Prime members, so this can significantly boost conversion rates.
2. Expanded Distribution Network
Amazon‘s fulfillment center network provides amazing distribution capabilities a seller could never match solo. This allows cost-effective shipping to customers across the country.
3. Less Day-to-Day Work
Outsourcing fulfillment reduces daily workload associated with shipping orders, allowing you to focus your energy on high-value tasks.
4. Enhanced Customer Service
Amazon has specialized teams to promptly handle returns, refunds, and other buyer issues. This can increase customer satisfaction and retention.
5. Improved Performance Metrics
FBA listings have an edge when it comes to winning the Buy Box and getting high search rankings, helping drive more sales.
6. Access to Data and Reports
Robust inventory and sales reports provide visibility into performance to spot opportunities.
For sellers focused on growth, the benefits of FBA can certainly justify the fees and downsides in many cases. But FBA isn‘t necessarily right for every seller.
Potential Drawbacks to Consider
While FBA has nice perks, there are also some limitations to be aware of:
1. Loss of Control
Amazon controls how inventory is handled once it arrives at their fulfillment centers. You lose control over customizing branding and presentation.
2. FBA Fees Can Eat into Margins
All the various FBA fees can add up quickly, so ensure your margins remain healthy enough to sustain them.
3. Requires High Volume
For very low sales volumes, FBA fees can exceed the costs of handling fulfillment yourself until you scale up significantly.
4. Amazon Prioritizes Itself
Amazon makes decisions that benefit its own bottom line, which may occasionally conflict with interests of third-party sellers.
5. Inventory & Account Suspension Risks
Violating Amazon‘s rules could result in product or account suspensions, so you need to carefully follow their guidelines.
6. Long Term Storage Fees
Storing inventory in FBA too long results in long term storage fees, preventing indefinite stockpiling of slow products.
Carefully consider both the pros and cons before deciding if FBA is a good fit. Many sellers do a hybrid approach to maximize their control and cost efficiency.
The Bottom Line: Is Amazon FBA Worth It for You?
So what‘s the verdict – is Amazon FBA ultimately worth it?
The answer depends on your specific situation as a seller. Here are a few key factors to think through:
Your Sales Volume
If you are selling less than ~40 units per month, FBA fees may exceed the costs of handling fulfillment yourself. Once you reach 100+ units monthly, FBA becomes more cost efficient.
Your Product Details
FBA performs best with small, lightweight products that are affordable to store and ship. Large, heavy, bulky, or hazardous products are less of a fit.
If fulfillment operations are completely overwhelming your team, FBA provides relief. But you do lose control over customization.
Leveraging Amazon‘s infrastructure and customer service can improve buyer satisfaction. But evaluate if you need to control branding.
Your Growth Goals
For hypergrowth, FBA can provide the expanded distribution capabilities to scale quickly. But it requires sufficient margins.
My recommendation is to consider starting with FBA for your fastest selling items. This allows you to validate performance before fully transitioning.
I hope this guide has provided an insightful and balanced look at Amazon FBA pros, cons, costs, and considerations. Please reach out if you have any other questions! I‘m always happy to help sellers decide if FBA is ultimately the right choice for their business needs and goals.