Amazon Fulfillment: Is Amazon FBA Worth the Cost?

The Amazon fulfillment network is one of the unsung heroes behind the retail giant’s domination of the ecommerce industry. After all, Amazon doesn’t just sell billions of items every year—it has to ship all of those items, too.

In effect, the Amazon fulfillment network solved one of the biggest problems in the ecommerce industry: how do you make the ecommerce shipping process as simple, easy and quick as possible?

As an ecommerce retailer, you face the same giant problem. People don’t like to wait (or pay for shipping), so if you don’t have a good shipping solution, you can lose out on a lot of potential sales.

The good news is, with fulfillment by Amazon (FBA), you don’t have to try and simulate the Amazon fulfillment network. Instead, you can simply put it to work for you.

That’s great news, but Amazon FBA isn’t free, which begs the question: Is Amazon FBA worth the cost?

For millions of third-party Amazon sellers, the answer is a resounding “YES!” For others, the benefits of using the Amazon fulfillment network don’t justify the costs.

To help you decide which camp you fall into, let’s take a look at what Amazon fulfillment is, how much it costs and when Amazon FBA does (and doesn’t) make sense for a business. Let’s get started!

What is Amazon Fulfillment?

As you can probably imagine, Amazon fulfillment is as simple as it sounds. You sell it, Amazon ships it. Of course, the process is a little more involved than that, but that’s the fundamental idea.

If you choose to use Amazon FBA, here’s how the overall process will work:

1. You acquire your items (make them, purchase them locally, buy them from the manufacturer, etc).
2. You send those items to an Amazon fulfillment center (depending on how you acquire your products, you might have them sent directly from the manufacturer, etc to the fulfillment center)
3. Amazon tracks and stores your items.
4. A customer orders an item.
5. Amazon receives the order info and picks and packs the appropriate item(s).
6. Amazon ships the item(s) using the customer’s chosen shipment method.
7. You and the customer are able to track the shipment through Amazon.
8. Amazon handles customer service and/or returns when necessary.

While this Amazon fulfillment process is obviously intended for Amazon sellers, you can use Amazon FBA to fulfill orders from any sales channel: your website, eBay, Facebook, you name it!

With Amazon FBA, you may never see, touch or hold your products again. You don’t have to worry about renting a warehouse, negotiating shipping rates or packaging. Amazon takes care of everything…for a price.

How Much Does Amazon FBA Cost?

Let’s face it, anytime you hire a middleman to handle a headache for you, it’s going to be more expensive than taking care of that headache on your own. Amazon FBA is no different.

With Amazon FBA, there are two basic fees you’ll need be aware of: 1) storage fees and 2) fulfillment fees.

Amazon Storage Fees

Amazon charges a monthly fee to simply store your products. Like renting a warehouse, you pay this fee whether or not your items sell. It’s simply the price you pay to keep your items somewhere other than in your basement.

Here’s a quick look at what you probably expect to pay to have Amazon store your items:

Note, this is an estimate, not a fixed price. Amazon FBA prices tend to shift around (especially during the holiday season), so check to see what rate Amazon FBA is currently charging before you sign up for anything.

If you go to the trouble of actually renting warehouse space, there’s a good chance that you’ll have to pay around $1.10 per square foot. At first glance, this looks more expensive than the FBA deal shown above, but remember, Amazon’s prices are per cubic foot.

In a warehouse, you can stack items without having to pay for more square footage. Hypothetically, you could stack 8+ cubic feet of items in one square foot for that same $1.10/sq ft price tag. With Amazon FBA, 8+ cubic feet of standard-size products would cost $5.52.

Of course, most warehouse storage isn’t quite that efficient, but the point is, you get a lot more cubic footage for your money with a warehouse than you do with Amazon FBA.

In addition, a warehouse usually doesn’t hike their rates during the holiday season. Amazon, however, does. So, if you plan on selling during the holiday season (like most retailers do), you can expect to pay a lot more for Amazon FBA than you would for a warehouse.

Amazon Fulfillment Fees

In addition to their storage fees, Amazon also charges a fulfillment fee every time they pick, pack and ship an item for you.

Here is a quick approximate of what you can expect to pay for fulfillment:

Here again, keep in mind that these prices tend to fluctuate some, so you’ll want to keep an eye on what the current Amazon FBA rates are. These rates are also specific to Amazon FBA items that you sell through Amazon. Product that you sell through your website or some other channel will cost a lot more to ship through Amazon FBA.

As a general rule of thumb, if you’re primarily selling items through Amazon, Amazon’s fulfillment fees are pretty hard to beat. USPS priority mail packages under 1-lb have about the same delivery window as Amazon FBA, but they cost $6.70 or more…and you have to pick, pack and deliver it to the post office yourself.

Amazon FBA takes care of the whole pick, pack and shipping process for you…and only charges $2.41.

If you deal in volume, you can usually negotiate discounted prices with shipping carriers, but even then, you’d be hard pressed to find a cheaper way to pick, package and ship your items.

However, everything changes if you do a substantial amount of sales outside of Amazon.

Unless you’re dealing in truly huge product volumes, you probably can’t afford to pay for both a warehouse and Amazon FBA, which means you’ll be stuck paying more to ship products you sell outside of Amazon than you would if you were shipping them on your own ($7.90 (FBA) vs $6.70 (USPS) for 2-day shipping on a 1-lb item).

If all of these calculations are giving you a headache, Amazon has a Fulfillment by Amazon Revenue Calculator that you can use to calculate the cost and possible revenue from using FBA for individual items. If you want to run these calculations for items in bulk, you can use Synocentric’s bulk calculator to evaluate up to 20 items at a time for free (or more with a paid subscription).

Amazon FBA: The Good

There are a lot of reasons to love Amazon FBA—especially if you want to avoid the hassle of managing your own fulfillment and distribution network. Let’s take a look at where Amazon fulfillment really shines:

Customers Love “Fulfilled by Amazon” Products

Whether they’re trying to meet Amazon’s free shipping minimum or want to take advantage of their Prime membership, people look for the “Prime” checkbox or the “FREE Shipping on eligible orders” note in their search results.

Amazon’s done a great job of training their customers to expect free shipping and Amazon FBA allows you to use that to your advantage. At this point, free shipping is such a big part of Amazon that if you don’t offer free shipping (either through FBA or on your own), many people will look for a competitor that does.

Amazon FBA makes it easy to offer free shipping to your customers. And, since the Amazon FBA’s shipping rates for products sold on Amazon are a lot lower than you can offer on your own, Amazon FBA is also a very cheap way to provide “free” shipping.

Customer Service and Return Management

Let’s face it, most of us don’t want to deal with the hassles of customer service or returns. It’s disappointing, painful and takes way more time than it should.

A great return policy makes people a lot more likely to buy your products and Amazon’s return policy is one of the best out there. Right or wrong, Amazon has trained people to expect a virtual “no questions asked” return policy. If you don’t want to deal with that hassle, Amazon FBA’s customer service and returns management team can be a lifesaver.

No more answering calls, emails or chat messages in the middle of the night? No more messing with reverse logistics? That’s a pretty good selling point.

However, like “free shipping”, Amazon’s “free returns” are only free to the customer. You’ll still have to pay a returns processing fee for any items returned using this service. It’s a lot cheaper than hiring a customer service team, but it definitely isn’t free.

Ease of Use

Finally, the biggest perk of Amazon FBA is the ease of use. Like I mentioned earlier, with Amazon fulfillment, you may never need to touch a product, visit the post office or handle an angry customer again.

Since most people don’t get into ecommerce because they love driving a forklift and filling out address labels, Amazon FBA can be a great way to take a lot of the headache out of managing your ecommerce business. This ease comes at a price, but if Amazon FBA makes sense for your business, it can the fulfillment side of ecommerce a breeze.

Amazon FBA: The Bad

Unfortunately, Amazon FBA isn’t a perfect solution. Here are a few minor issues that you may need to work around if you use the Amazon fulfillment service:

Inventory Management

Amazon fulfillment centers aren’t a storage unit. You can’t just send them product and expect them to sit on it until it sells. Your products are eating up valuable inventory space and if they don’t sell within 6 months, Amazon will up your storage fees quite a bit.

This makes using Amazon FBA a bit of a balancing act.

You need to keep enough inventory in the fulfillment center to make sure you can cover your orders, but you can’t afford to store more than you expect to sell during the next 6 months. For sellers who stock hundreds or thousands of items, figuring out exactly how much inventory you need for each item at any given time can be a real challenge.

Preparing Items

Amazon is great at fulfillment, but to fulfill your orders, they need your product. Depending on what you’re selling and where you’re getting it from, getting your product packaged to Amazon’s standards and shipped to an Amazon fulfillment center can be difficult.

If your items aren’t correctly packaged when they arrive, Amazon will take care of it for you. But, surprise, surprise…they’ll charge you a fee.

For certain businesses, this isn’t a real issue, but for others, it can be a real problem. If you think that packaging and shipping your products to an Amazon fulfillment center is going to be about as much work as sending them directly to your customers, Amazon FBA may not be for you.

Amazon FBA: The Ugly

Finally, to make their whole fulfillment process work, Amazon does a couple of things that may make Amazon FBA a non-starter for your company.

Commingling Merchandise

To make good on their 2-day shipping promise, Amazon has fulfillment centers all across the globe. Each new order is fulfilled by the closest center that has that product in stock—even if that product didn’t originally come from you.

When you send an item to an Amazon fulfillment center, you don’t create your own labels. Instead, you use the items bar code. Your item is added to that fulfillment center’s local inventory of that product. While you can opt out of merchandise commingling, by default your items will be included in this commingling process.

So, when someone receives the product that they ordered from you, what they really receive is that product. That product might have come directly from you or it might have come from your customer’s next-door neighbor.

The upside to commingling is rapid delivery. The downside is quality assurance.

As a seller, you’re responsible for the quality of the items that your customers receive. Even if Amazon swaps out your product for another seller’s faulty product, in your customer’s mind, you still sent them a faulty product.

Hopefully, since Amazon FBA covers returns and customer services, it shouldn’t a big problem, but some sellers have received negative reviews, been forced to close shop or even faced legal action when their customers were sent counterfeit or damaged commingled items.

Sales Tax Compliance

In addition to creating potential quality assurance problems, Amazon’s decentralized fulfillment process can make sales tax compliance difficult. Once Amazon receives your item, there’s no guarantee that they’ll keep your item at the fulfillment center you sent it to.

As a result, you have no way of knowing where you should register for sales tax compliance.

Amazon doesn’t tell you where your items currently are or which warehouses stock which products. That exposes sellers to several potential tax liability issues. To date, it hasn’t become a major issue, but it’s something to keep in mind as a potential problem that could arise from using FBA.

Should You Use Fulfillment by Amazon?

At this point, you should hopefully have a good sense for whether or not Amazon FBA is right for your business. Millions of ecommerce entrepreneurs are running profitable businesses using FBA, so it clearly works.

But, it doesn’t work for everyone.

In general, Amazon FBA works best for businesses who primarily sell through Amazon. If 80-90% of your sales come from Amazon, FBA’s increased storage fees are easily offset by their lower shipping fees. Toss customer service and returns management into the mix and Amazon FBA is a great option.

However, if Amazon is just one of your sales channels, Amazon FBA is an expensive way to fulfill your orders. For non-Amazon orders, FBA’s shipping and storage fees cost significantly more than you would pay to store and ship your products on your own.

Of course, Amazon isn’t the only third-party fulfillment option out there. Depending on what you’re selling, a service like Shipwire may be a better fit. Or, alternatively, you can find third-party solutions for specific aspects of your fulfillment process, like order management, drop shipping, and product returns management.

Conclusion

Ultimately, whether or not Amazon FBA is right for you will depend on you, your products and your business objectives.

For many Amazon sellers, Amazon fulfillment is an easy way to outsource much of the headache of running an ecommerce business. For others, the benefits don’t justify the cost.

What do you think? Are you a fan or foe of Amazon fulfillment? Anything else you’d add to this article? Leave your thoughts in the comments!