Is Selling on Amazon FBA the Best Choice For Your Business?March 07, 2018
Selling on Amazon is a huge opportunity to develop your own e-commerce business. And, like any other business, you have to play your cards right along the way so you won't start bleeding money instead of piling them up.
When you decide to become an Amazon seller you have two options you can go with. You can run your business either as an FBM seller or an FBA seller.
You see everywhere on the internet sellers who praise the Amazon FBA program and this leaves lots of beginners wondering: Is Amazon FBA overrated?
I'm here to tell you that the answer to this question is strictly dependant on your situation. The FBA program is awesome and has a lot of perks, but this doesn't make it the perfect fit for any business.
In this article, I'll cover the subject of FBA so you can make the best decision for yourself. You'll learn about what is Amazon FBA, how it works, what benefits you get, the FBA fees and optional services, and when FBA is not such a great choice.
So let's dig in.
By being an FBM seller (Fulfilled by Merchant) it means that you are the one handling everything about the orders. You are responsible for packing the products, delivering the orders to customers, handling the returns.
Basically, it means your business needs to be taking care of everything involved in an e-commerce business, including delivery and customer support.
By fulfilling the order yourself the only fees you'll have to pay to Amazon are the fees that every Amazon seller is paying. These can be referral fees, per item fees, the monthly fee for the professional seller account – it depends if you opt for an individual account or a professional account.
While you don't have to pay extra fees to Amazon for handling your orders, you still have to invest money in packing, labeling, and delivering the orders to the customers.
FBA stands for Fulfilled by Amazon and it's probably the most powerful business model out there.
Selling through the FBA service means that your inventory will go to one of the Amazon warehouses and each time a customer buys a product from you, Amazon will fulfill the order. They will handle the packing, shipping, customers' service, and returns so you don't have to “get your hands dirty”.
FBA gives you the freedom to run a business independent to a location
When you fulfill the orders yourself you have to deliver the packages as soon as the purchasing occurs. This means you have to always be available to pack the products and take them to a shipping company. By letting FBA do the job for you, you gain the freedom to run your business even if you're traveling or are too lazy to ship the products yourself.
You don't need storage space
Having the stock laying around your house might not be ideal if you don't have a garage or a spare space you don't use. If you live in a small apartment or have little storage space, it might be challenging to organize all the stuff without tripping over the boxes all around.
You're qualified for Prime
Products with fulfillment by Amazon are qualified for Amazon Prime. How does this help you as a seller? Well, customers with a Prime account get free shipping in 2-3 days for the products in the program. Even same-day delivery is available to Prime users in certain cities. Not to mention, over half of Amazon customers are Prime. It's a huge market you don't want to miss.
You get the FBA tag on the product listing
Having customers see “Fulfilled by Amazon” when looking at your product will strongly influence their decision to buy. People are keener to trust Amazon with the handling and shipping then a seller they know nothing about.
You increase your chances to win the Buy Box
Winning the Buy Box is crucial for an Amazon business as the winner of the Buy Box gets most of the sales. FBA sellers have priority over FBM sellers when it comes to the Buy Box because of the smooth shipping system.
The FBA program is not only used for selling on Amazon. You can run a multi-channel business and have all the inventory in the same place. So even if you also sell on eBay or your own e-commerce site, you can have Amazon fulfillment centers handling your orders across multiple channels. The fees for multi-channel fulfillment are quite pricey, so it may or may not be the best choice for your business depending on how much you can afford.
There are two categories of fees you have to pay for the FBA service
- Order handling / per order
- Pick and Pack / per unit
- Weight Handling / per pound
They vary based on your product's weight and size.
Inventory storage fees
They are charged monthly and are based on the size of your products (the volume). The storage fees vary based on the period of the year. In the Q4, the storage fees are higher than the rest of the year. Also, you'll be charged with Long-term Storage fees if your inventory stays in the warehouse longer than 6 months.
The shipping fees
Don't forget to also take into consideration the fees for shipping the inventory to the Amazon's warehouse from your house/manufacturer.
Amazon offers a solution for sellers with small and light products, priced at $15 or less. The fees for FBA Small and Light program are lower than the traditional FBA.
In order to be eligible for the Small-and-Light program your products must meet the following criteria:
- Items are 16 × 9 × 4 inches or less
- They weight 15 ounces or less
- The price is $15 or less
- They are fast-moving products
- They are not in the restricted categories
- They are not temperature sensitive
- You must send a minimum of 24 units per ASIN
The Small-and-Light Program has its own packing requirements you need to follow when sending your order to the warehouse.
You can see in the following example how you can benefit from this program rather than selling through traditional FBA if your items meet the requirements.
You can pay Amazon an extra fee if you want them to prep and label the packages for you. The fees for prep and labeling are charged per unit and are based on the categories your products are in.
When you fill the Shipping Form to send the inventory to the fulfillment center, you'll be asked if Amazon will fulfill the order or you'll do it yourself. If you choose the inventory to be fulfilled by Amazon, you'll get an estimation of the FBA Prep fees.
When should you use the FBA prep service?
Using the preparation center can help you in more ways:
- Big inventory – If you are buying lots of inventory and you can't take care of it in the established time, the prep center will take care of it for you.
- High packing costs – Prep centers have lower costs on packing than you do because they buy the supplies in bulk.
- You're out of time – You save a lot of time on prepping which gives you more time for researching, sourcing, and building relationships.
- Small space – If you don't have a dedicated space for your business, you may find it challenging to handle all the boxes in a small apartment and keep it all organized. Not to say the extra effort if you live on a higher floor.
If your inventory isn't selling and you want it removed to avoid long-term storage fees or the Q4 which is pricier, you have to pay Amazon to send the inventory back to you.
The removals fees are charged per item, and the process takes from 10 days up to 30 days in the holiday season.
You can also pay Amazon to destroy your inventory if you want or need to get rid of it for any reason. The disposal fees are also charged per item.
Before sending the items to the Amazon's warehouse you need to make sure they follow Amazon's guidelines regarding the inventory. This means your products must be properly prepped, labeled and packed.
Amazon has specific guidelines when it comes to prepping the shipment, so you want to familiarize yourself with them before sending your inventory in.
For example, if you sell a set of products as a single unit, you have to place a “Sold as Set” or “Ready to Ship” label on the sealed box otherwise they might get separated. If you pack the items in bags, you must provide a suffocation warning.
You can find detailed information about the prep guidelines in Amazon Seller Central.
If you don't follow the guidelines and Amazon is not happy with the way you delivered your products, you will be charged unexpected prep fees. So make sure your products are Amazon ready when sending them in.
If you're sending a product for Amazon FBA and it's wholesale or arbitrage (it already has an active product listing), don't rush into sending the items with the UPC label on.
Make sure you don't commingle!
The process of sending the item with the manufacturer's barcode (UPC) when there are multiple sellers of the same product is called commingle.
By commingling, you risk your items being mixed with other sellers' items. If more sellers provide a product with the same UPC, the products will end up being mixed together in the warehouse. Then, if a customer orders an item from you, there are chances he'll receive an item from your competitors' inventory thinking that it's your item.
You have no idea how your competitors' products are. They can be damaged, used or counterfeited. If the customer receives a product that's not in great shape, you're the one who'll get refunds and bad feedback.
You can read this post about an unfortunate seller's story which started with commingling. Take it as a precaution.
Use the FNSKU barcode
The right approach is to print FNSKU labels on your product before sending them in. This means that you‘ll have your unique barcodes and avoid any risk of getting your stuff mixed in with other sellers'.
You can find the FNSKU label in your Seller Central Account after filling in the inventory. Download the FNSKU label and, from there, you must print it and get it on the items.
You have more options here:
- Print and place the labels yourself on the product if you're the one doing the shipping prep
- Pay an extra fee to Amazon to do it for you
- Agree with your manufacturer to place the FNSKU labels on your product before sending the package to the warehouse
If there is a UPC barcode on your product, you must cover it with the FNSKU label.
You can get a better understanding of all the Amazon barcodes by reading our guide.
If you have hazmat items
You're not allowed to sell hazardous items through FBA. Amazon doesn't want to take the risk of handling unsafe products. So if you want to sell something like paint, dyes, fertilizers, you'll have to turn to the Fulfilled by Merchant approach.
If you're in a hurry and theres no FBA competition
If you find a profitable product and there's no FBA seller on that listing, that might be a chance that FBM is a better choice.
When you send the items to the Amazon's warehouse it might take up to a week until your shipment is processed, while if you fulfill the orders yourself, you can start selling the items right away. Keep in mind that this can only work if nobody is selling that product through the FBA program.
Seasonal items in the middle of the season
If you found a great deal for some seasonal item but the clock is ticking fast and you can't send it in time to the warehouse, you can do it FBM.
For example, if there are 2 more weeks until Easter and you just found 30 Easter bunnies in a store that you're sure that will sell fast before Easter, there's no time to send them to Amazon as it may take 1-1.5 weeks until the products are ready to sell. So your only option here is to fulfill the orders yourself and take advantage of the deal you just laid.
When you fill out your shipping plan, you can't choose which warehouse your items will go to. Amazon decides where to send your items.
I don't know on which grounds Amazon decides the warehouse, but it sometimes happens that the warehouse is far away from you, resulting in an expensive shipment. Moreover, there are warehouses where they take a long time to check-in the shipments.
I can give you two ways to get around it.
Delete the plan before you approve it
Some say that Amazon will frown upon deleting too many plans, but if you don't approve them first, there shouldn't be a problem. The destination usually won't change the same day, so you must have a little patience.
Try to change the warehouse:
- Don't approve the shipping plan
- Change the quantity of an item
- Change it back to the real quantity
- Give the shipping plan another spin
- Give it 3-4 days as this won't happen immediately
Keep in mind that these are some tips you can try out, they sometimes work, but sometimes, unfortunately, they won't.
There is no simple answer to this question. For some, FBA is more profitable. Others have more advantages by being FBM sellers.
It all depends on you and the business you want to run.
By selling on Amazon FBA program you have more fees to pay but you gain time to handle the other aspects of your business.
If you are an FBM seller, you don't have to pay additional fees but you pay with the time invested in handling the orders yourself.
Selling with FBA is the best option if your profit margins allow you to pay the fees and still sell at a profit. Usually, FBA is used by merchants who sell big quantities of products.
If you're going to sell a few products and they have a quite low-profit margin, it's best to fulfill the orders yourself. You'll still have to pay for packing and shipping the orders to the customers, so you have to get quotes and see which approach is more convenient in your case.
The best way to make a decision is to lay down your business plan, your budget, and the investment required. Decide what products you want to sell, estimate the number of sales you'll get and the profit margin, and see if you're affording to pay the fees to become an Amazon FBA seller.
Selling on Amazon FBA is great business, but if the fees are too high for your products, you may want to start by fulfilling the orders yourself and slowly climb to become an FBA seller.
Hope this post gave a good understanding of what is Amazon FBA and how you can benefit from it.
Is an Amazon FBA business the best fit for you? I'd be happy to hear about your experience.