Amazon FBA: Is It Worth It For Amazon Sellers?
Digital Marketing Metrics•
September 13, 2022
Amazon Prime revolutionized the eCommerce industry in a lot of ways.
One of the most significant, of course, was the wide range of variety or products that could be delivered to your doorstep in two days or less.
If you ever wanted to get a tube of lipstick, a garden hose, and a set of live succulents in a single box on your porch five hours after placing the order, Amazon made that possible.
And if you’ve ever wondered how exactly that’s so possible, the answer is Amazon’s FBA program.
So what is Amazon’s FBA program? And how do you know if you should use it for your own eCommerce products?
In this post, we’re going to answer both questions and more, making it easy for you to know whether or not it’s right for you.
What is Amazon’s FBA?
Amazon’s FBA stands for “Fulfillment by Amazon,” which is a service that enables brands to outsource order fulfillment to Amazon in its entirety.
Here’s how it works:
- You’ll determine what percentage of your inventory you want to allocate to Amazon’s fulfillment centers and set that limit within your product catalog
- You’ll send these products to Amazon fulfillment centers, which are then distributed to warehouses all over the country
- When orders come in, Amazon warehouse workers are the ones to receive the order, package it up, and ship it off
- You get paid when the order comes in
- Amazon handles any returns for those orders, providing customer service themselves as needed
If you’re selling on Amazon, you do not have to use the FBA service. You can handle your own shipping and distribution, which is why you’ll see products that may charge for shipping and/or have longer delivery times than is “standard” for Prime products.
5 Fulfillment By Amazon Programs
Fulfillment by Amazon is its own standalone service, but it also has five additional programs for applicable businesses. These can make FBA more advantageous if relevant to you, and they include the following:
- FBA Small and Light, which reduces the cost of fulfilling orders for small, lightweight, and low-cost products; you can enroll specific SKUs in this program
- FBA Subscribe & Save, which allows you to offer discounts on eligible products for repeat purchasing; this can increase customer retention and repeat purchases
- FBA Pan-EU, which lets you offer fast delivery in European countries that are Prime-eligible
- FBA Export, which allows you to expand your FBA products to over 100 countries
- Multi-Channel Fulfillment, in which Amazon will still pack and ship orders to your customers even when you’re selling from your own or third-party eCommerce sites.
The Benefits of Amazon FBA
There are so clear and undeniably benefits of using Fulfillment by Amazon as a service.
The most significant, perhaps, is that it may make your products more competitive.
Plenty of users turn to Amazon not only for convenience but also due to the fact that it’s an enormous marketplace of different products. And the reality is that the average customer may see two similar products and choose the one with free two-day shipping. If they like the competitor’s product, they may become loyal to that particular product after the initial purchase, and you’ve lost not only a potential sale but a potential customer, too.
Because Amazon’s warehouses are all over the country, those lightning-fast (and sometimes even same-day) shipping speeds are possible. This gives you an edge when your product shows up next to someones who charges $5.99 for shipping that will take a week to arrive.
Many small businesses also find that letting Amazon handle order management makes their jobs a little easier. You just have to get a chunk of your inventory to Amazon when you list, but they’re the ones who will box up individual products and ship them out at fairly aggressive speeds. You (or your team’s workflow) won’t be interrupted fulfilling the Amazon-specific orders, which can give you a significant amount of time back in your day.
FBA also means that you’re getting Amazon’s customer support services for free. Customers contact Amazon— not you— for help with missing products, damaged items, or concerns. While some brands don’t love this (and would much rather provide customer service themselves), this can be an advantage for those who are struggling with bandwidth.
The Downsides of Fulfillment by Amazon
FBA is a great service for many eCommerce brands, but it isn’t without its potential downsides.
The biggest downside ultimately boils down to a lack of control.
Many eCommerce businesses may have customized packaging to elevate the customer experience (and build brand recognition!) that might include branded mailers or shipping boxes. A sustainably-focused beauty brand might promote the fact that they use recycled mailers and packaging materials, for example. They may also add a free product or sample when a certain order threshold is hit.
When Amazon is taking care of order fulfillment, you lose that. You do get to control if your product is sent to them in individual packaging, but almost nothing else.
And if Amazon loses your package or damages it on the way, you can end up with a customer that’s frustrated with your brand or products even if there was no fault of your own. This is particularly true since Amazon does have customer service, but it may not be to the level of service that your brand seeks to offer.
There’s also the risk that products are lost or damaged in the warehouse. These risks are small, and Amazon is on the hook for damage when they occur, but if you suddenly need to manufacture hundreds of products to keep up with demand, that could put you in a bind. Again— this is not common, and it could happen anywhere. But for those who like to be in control, it’s something to consider. Your products have to be shipped to Amazon and then stored before they’re shipped to the customer; extra steps always pose extra risks.
Last but not least, of course, there’s the cost. FBA is not free, and it can eat into your profit, especially since selling on Amazon in any capacity already comes with expenses. This brings us to our next section…
How Much Does Fulfillment by Amazon Cost?
FBA has multiple different types of storage and fulfillment fees. The reality is that these can be comparable to other shipping station services, but they can also add up quickly.
FBA fulfillment and storage fees do not include standard Amazon selling fees (those are separate), but can include the following:
Inventory Storage Fees
For all items stored in an Amazon fulfillment center, these fees are based on the daily average volume of inventory and are measured in cubic feet. The “product size tier” of the products you’re selling also impacts these fees.
Long-Term Storage Fees
These fees are assessed monthly for all the items that you’ve had stored in the fulfillment center for over 365 days, so if you have slow-moving products, this is something to keep in mind. If you’re able to cycle out inventory regularly, this can help prevent long-term storage fees.
Fulfillment fees are charged for every unit shipped, and it’s the cost of packing your order, shipping and handling, customer service, and product returns.
Unplanned Service Fees
If your inventory arrives at a fulfillment center without “proper preparation or labeling,” it adds to the cost of the overall service fast. Make sure that you’re following prep instructions before shipping your products to Amazon.
Removal Order Fees
Have products that aren’t moving? You can have Amazon return or dispose of products that are stored in a fulfillment warehouse, but it will cost a per-item fee. (One more good reason to only send a small portion of your inventory at a time.)
Returns Processing Fees
These fees are processed when Amazon provides customers with free return shipping when a return is made.
How to Estimate Your Amazon Fulfillment Fees
These are a lot of fees, and Amazon doesn’t like to give out specific flat percentages that make your total cost easy to assess. Fortunately, they do have a Fulfillment by Amazon Revenue Calculator to help you determine your revenue (and, of course, how much you’ll be paying to them). You can enter your package dimensions, product costs, and cost of shipping to get a basic breakdown of the price.
Amazon claims that FBA can be cost-savings, but even their own calculations show that all else being equal, your net margins will be higher if you’re shipping the items yourself (and that’s before extra long-term storage fees, return fees, or product removal fees are added in).
That being said, it does cost (according to Amazon again) around 32% less per unit than other shipping options with major carriers or some shipping stations. Prime’s two-day shipping costs less than other two-day options, for example, which is something to keep in mind.
Final Thoughts: Is FBA Right for My Business?
Every business is different, and there is no one right answer that will apply to each.
Whether or not Fulfillment by Amazon is right for you depends on a number of factors.
It may be a great fit if you meet any of the following criteria:
- You want to leverage Amazon Prime status in order to build brand awareness, drive more sales, or compete in a tough market where customers regularly shop on Amazon
- You’re having trouble scaling, and don’t have the bandwidth to manage shipping and/or additional customer service
- Your existing storage and shipping solutions are just as or more cost inhibitive
It may not be a good fit if you’re a business that already has a large and loyal following, success with online advertising and branding, and/or tight margins. If you’d much rather keep people purchasing on your site, it may be best to skip FBA; as soon as customers find out they can get free two-day shipping, they might bounce over to Amazon instead, eating into your profit unnecessarily.
If you’re unsure of whether or not it’s a good fit, you can always try it with a small batch of products and see how the numbers shake out for your brand. If sales go through the roof, you can always increase your FBA inventory. If not, keeping your inventory batch small, gives you time to step up your Amazon marketing while minimizing fees.
Need help selling more on Amazon? We can help you maximize your ROAS and revenue by increasing both sales and profitability. Learn more here.