Fact check: The advantages and disadvantages of Amazon FBA
"Fulfillment by Amazon" or FBA is a service from the American e-commerce giant that enables online retailers to use Amazon's massive logistics network to sell and ship their items directly through Amazon.
This allows you to sell your products via the platform as well as store your goods at Amazon – they take care of the packaging and shipping of the orders.
Learn all the pros and cons of Amazon FBA, how much it costs, and potential alternatives!
What is Amazon FBA?
FBA is an effective way to grow your online business while minimizing the hassle. When you hand over your fulfillment to Amazon, you save a lot of effort and expense when it comes to warehouse rental and staff.
All you have to do is register online as an FBA seller, list your products and send them to Amazon. They store your items and automatically take care of all incoming orders. Your task is to market the products on Amazon's sales platform and keep the inventory well stocked.
In summary, here are the benefits of FBA for you:
- The fulfillment of all your Amazon products, including:
storage, packaging, shipping and returns processing - Worldwide, dynamic logistics network with unlimited storage capacity
- 24/7 Amazon customer service
How exactly does Amazon FBA work?
- You deliver your products to an Amazon warehouse, where they are stored.
- As soon as customers buy your items, Amazon automatically packs and sends the items and takes care of the entire process, including invoicing.
- Amazon also takes care of customer service if something doesn't work out and handles all returns.
- Every two weeks, Amazon transfers the collected earnings to your bank account.
Obviously, Amazon doesn't do this for free. Various fees apply depending on quantity, size and weight. You pay a certain amount for storage fees and shipping costs. However, the shipping costs are relatively cheap, since Amazon, as the world's largest shipping platform, has negotiated specific contracts with most shipping service providers.
The advantages of Amazon FBA:
Here are some of the biggest advantages of Fulfillment by Amazon:
Logistics:
Amazon takes care of your entire logistics process. From storage to packaging and shipping. You just have to make sure that there is enough product in inventory. This relieves a massive burden for sellers.
Storage:
Amazon stores your products in its fulfillment centres for a fee and handles your logistics from there. You don't have to look for warehouse locations, or worry about staff or warehouse rentals – just make sure that your products meet Amazon's guidelines and that the inventory in the warehouse remains well stocked.
Speed:
In addition to normal shipping at Amazon, you can also ship for free with Prime. Your products are certified as such and Amazon ensures lightning-fast shipping to your customers. This adds considerable appeal to your products.
Shipping:
It is no surprise that the largest shipping platform in the world has very good terms and has specifically negotiated contracts with almost all shipping services. This means that your shipping costs can also decrease if Amazon takes care of your fulfillment.
Returns management:
If your customers return the goods they ordered, the package is sent back to Amazon, who takes care of the entire return process, including refunds. Another normally tedious process, taken care of by Amazon's fulfillment service.
Customer Service:
As a retailer on Amazon, you can use the in-house customer service, which is available at all times and takes care of the concerns of your Amazon customers. There are rarely bottlenecks or long waiting times and your customers can communicate their issues directly.
MCF - Multi Channel-Fulfillment:
It is now possible to sell your products across multiple platforms – e.g. on both Amazon and eBay – and let Amazon handle all of your fulfillment. This is called MCF (Multi-Channel Fulfillment). This allows you to offer your products to a wider group of customers.
The disadvantages of Amazon FBA:
No two companies are the same and requirements can vary greatly. Here are some of the most common disadvantages of Fulfillment by Amazon:
Storage at Amazon:
Like most fulfillment providers, Amazon doesn't like it when there's too little movement in their warehouses. If products sit unsold for too long, storage fees become more expensive. It is important to note this and, if necessary, to calculate it – or you monitor your stock continuously and precisely so that your storage costs do not get out of hand.
You must also ensure that the products you sell through Amazon meet a precise list of requirements in order to even be accepted into the FBA program. Depending on the product type, some of these can be difficult for sellers to fulfill.
You can find the exact product requirements for Fulfillment by Amazon - here.
The cost of FBA:
How much does Amazon FBA cost? The service has many great advantages, but they don't come for free. For start-ups and smaller companies with less capital, fulfillment with Amazon may not pay off in the end due to various fees. Sending cheap items via Amazon can be expensive, because the storage costs can be high. If the products are also big and heavy, your profit will melt away.
In addition, Amazon prioritizes the payment of its outstanding fees over your business. So you cannot use the incoming sales to settle any outstanding debts with Amazon, but must always remain liquid so that your fulfillment continues unhindered.
Amazon offers a handy FBA calculator for this, so that you can find out if it's worth shipping through them.
Would you like to have your fulfillment in your own hands in the future? We can help you with this. Without commitment, fixed costs or minimum volume. Simply send us a message.
Returns processing:
It is often reported that, due to Amazon's flexible return policy, product returns are increasing. Although Amazon takes care of the logistical processing, sellers assume the costs for damaged returns, which can have a negative impact on your profit. You have no influence on which returns are accepted and which are not.
Competition, identity and customer loyalty:
The number of potential customers on the world's largest sales platform is obviously enormous – but so is the competition! You should invest heavily in your marketing and present your products in the best possible way so that they have a chance to be seen and bought on Amazon.
There is almost no customer loyalty through Amazon's FBA program, because the items are bought "via Amazon" and the packages are branded accordingly. Of course, your products are still included, but Amazon is always named as the contact point, which reduces the recognizability of your company.
The fact that Amazon provides you with comprehensive customer service is definitely a huge relief for your day-to-day business. Amazon is also very accommodating in its replies to inquiries, which makes it extremely popular with customers around the world. However, since their service employees often answer inquiries for different retailers, there is little direct feedback – which also affects customer loyalty and reduces the awareness of your business.
Amazon FBA alternatives:
Regardless of the pros and cons of Amazon FBA, one thing is clear: you are handing over an important part of your business to Amazon and are dependent on their processes and fees. That is why many sellers are looking for alternatives to the FBA model without giving up their Amazon customer base and the Prime label.
As an e-commerce retailer, you can position yourself more broadly, become more independent and build better customer loyalty through more branding options.
As a retailer, you have one great FBA alternative to sell your goods on Amazon:
FBM – Fulfillment by Merchant:
You sell your products via Amazon, but take care of storage, shipping and returns processing yourself, or hand over your logistics to an external fulfillment provider like LOGSTA.
The advantage of FBM is that you get the opportunity to design your packages the way you want. Many fulfillment providers like LOGSTA also enable the targeted branding of your parcels and are Amazon Prime certified.
This way you can reach your customers personally and directly, strengthening your brand.
In addition, there are fewer restrictions and fees, and we are usually more flexible than Amazon, especially when it comes to storage space, because you only pay for the space you currently use. We can also keep the warehouses stocked for multi-channel fulfillment customers who use Amazon's FBA service in addition to FBM through us.
If the order volume is low, you can take your logistics into your own hands and use our Send it yourself service in Germany, Austria and France - soon also in the UK. Alternatively, if your package volume is so large that internal fulfillment is too time-consuming, we will be happy to take care of it!
That is our speciality – from transporting your products to our warehouse, to automated packaging, to your customer's doorstep. Learn more about our services or send us a message – we will find the perfect logistics solution for you.
Information on fees and costs of FBA among others from Amazon.com Seller Central documentation - as of August 2022.
Page: https://sellercentral.amazon.com/help/hub/reference/external/G200209150?locale=en-US
Page: The Pros And Cons of Joining the Amazon FBA program
URL: https://sellerinteractive.com
Page: Amazon's FBA shipping service: advantages and disadvantages for retailers
URL: https://www.ecosistant.eu
Page: Amazon FBA explained - What are the advantages and disadvantages?
URL: https://www.everbill.com
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