The advantages, disadvantages & costs of Amazon FBA in the US
Discover the pros and cons of Amazon's FBA service in the US:
Get a comprehensive understanding of Fulfillment by Amazon and its operations, including details on expenses, potential ways to reduce FBA fees, initial capital requirements, and alternative selling options apart from Amazon FBA.
So, is Amazon FBA worth it? Let's find out!
What is Amazon FBA?
- "Fulfillment by Amazon" (Amazon FBA) is a service offered by the American e-commerce giant that allows online sellers to leverage Amazon's vast logistics network and have their products shipped directly by Amazon.
To participate in the FBA program, you need to sign up as an Amazon FBA merchant on Seller Central, list your products, and send them to Amazon. Once your items are received, Amazon handles their storage and fulfills all incoming orders seamlessly.
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.
Amazon has created a concise 2-minute video that provides a clear overview of what Amazon FBA entails.
Start selling with Amazon FBA in three steps:
To begin your journey with Amazon FBA, follow these three simple steps:
- Register online as an FBA merchant.
- List your products on the platform.
- Send your products to Amazon's fulfillment centers.
Once your items are received, Amazon will handle the storage and fulfillment of all incoming orders. Your primary role will be to market your products on the sales platform and ensure a well-stocked inventory with Amazon.
How much money do I need to start with Amazon FBA?
The required start-up capital for a successful entry into Amazon FBA can vary depending on the size of your business and the products you plan to sell. Here is a general overview of the costs and fees associated with Amazon's FBA service:
- We recommend having a minimum of $ 5,000 in start-up capital if you aim to establish a growing company and achieve long-term profitability on Amazon. This amount also covers various overhead expenses that should be taken into account.
Apart from Amazon FBA fees, other expenses to consider include:
- Business registration (costs vary)
- Registration as a "professional" seller in the Amazon Seller Account ($39.99/month - advisable if you sell more than 35 products per month; otherwise, $0.99 per sale)
- Marketing costs (varies, typically around >10% of the product value initially)
- Product costs, order expenses, shipping to Amazon, and customs fees (highly variable depending on the product)
- Application for barcodes and EORI/EAN number for product identification and customs clearance (costs vary)
- Import VAT, if applicable based on the product and local regulations (depends - 0 to 37,5%)
In addition, there are ongoing expenses to consider for your Amazon business, such as:
- Accounting services
- Product photography
- Employee costs
- Licenses
- Certifications
- Sample products
- Amazon Seller Tools
- Flyers and promotional materials
- Trademark application
Please note that these costs can vary widely depending on your specific business requirements and circumstances.
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.
In the video, you will receive a brief overview of how Amazon's FBA program works and the necessary steps you need to take.
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.
Cost of Amazon FBA
No need to worry! When you utilize Amazon FBA services and pay for them, Amazon takes care of numerous tasks on your behalf. They handle storage, packaging, delivery, customer service, and even returns. The FBA fees you pay encompass all these services.
The exact FBA fees vary based on factors like product category, size, and weight. Consequently, we cannot provide specific figures here.
In general, the following Amazon FBA fees are applicable:
Amazon Seller Account: You pay $39.99 per month for your Amazon seller account.
Sales or referral fees: These range from 8% to 15% and are charged on the selling price of your products.
Storage fees: These vary depending on the size and weight of your products. It is important to keep track of the dimensions and weight as they will affect the fees.
Shipping fees: Again, the cost will depend on the dimensions and weight of your products.
Refund fees: If there are any returns, there will be a refund fee of 5% of the sales fee, up to a max of $5.
Additional service fees: Additional fees may apply for media products.
All costs with all Amazon FBA fees can be found
- here in the cost breakdown of your seller account at Amazon.
It is important to take these costs into account when pricing your products.
Important to know: If you ship your products via Amazon FBM (Fulfilment by Merchant), the storage and shipping fees are waived because you take over these tasks yourself or entrust them to a fulfilment company of your choice - such as LOGSTA.
Saving on Amazon FBA Fees
To minimize your Amazon FBA fees, you have several options at your disposal:
Storage: Consider using your own warehouses or interim storage facilities to reduce Amazon storage fees. This can be particularly cost-effective for larger products, allowing you to still benefit from Amazon's FBA service.
Pricing: Adjusting your selling price strategically can impact your profit margin and subsequently the fees charged. By carefully setting prices, you can mitigate the impact of FBA fees.
Packaging: Optimize the packaging of your products to ensure compactness and efficiency, which can result in lower shipping costs by falling into a lower shipping category. Improved packaging not only reduces costs but also enhances customer satisfaction.
Product optimization: Continuously optimize your products to reduce costs. This can involve finding more affordable suppliers, improving product quality, or utilizing cost-effective materials and production methods.
Sales optimization: Increasing your sales figures can help lower FBA fees relative to your overall turnover. Invest in targeted marketing, optimize your product listings to reach a wider audience of potential Amazon buyers, and maximize your sales opportunities.
Amazon FBA US Revenue Calculator
Before launching your Amazon business, it's crucial to conduct a comprehensive cost analysis.
- Use either the official calculator in Amazon's Seller Central or various FBA calculators available from other providers online.
This accurate cost assessment will enable you to identify potential savings and establish a strong foundation for your pricing and business strategy.
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 Juli 2023
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
Amazon © YouTube Channel
Amazon Seller Central UK and US Pricing Pages
The exact data might change, mistakes could occur. Please check the official websites for detailed current info.
Picture sources:
Logsta © 2023
Amazon
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