Over 2 million sellers are currently leveraging Amazon’s FBA program, without this program we’d of struggled to get our business off the ground. To help you decide whether FBA is right for you, I will be answering this question; Is selling on Amazon FBA worth it?
Enrolling in the FBA program means you get to take advantage of Amazon’s shipping and fulfillment services. FBA sellers also benefit from the Amazon Prime shipping program.
Let’s me take you through the specifics of FBA in more detail.
Amazon FBA – The Basics
FBA, or Fulfilment by Amazon, involves sending your products to Amazon for storage and distribution. It’s simple; a customer places an order, Amazon picks, packs and ships the order for you.
One of the big plus points is that they’ll even handle your returns and refunds – this alone makes the fees worth it.
Amazon FBA takes the hassle out of fulfilling orders and ensuring your products reach customers safely and on time.
There are also two ways to approach the FBA model; you can either resell other peoples products or sell your own under a private label brand.
Amazon sellers usually refer to reselling as either online arbitrage, retail arbitrage or wholesaling. These three models are slightly different, but the objective is the same, buy low, sell high.
As a private label seller, you’re entirely in charge of your products and your brand, which means your profit margins are usually higher too.
I am not the biggest fan of online arbitrage, I have tried it, but won’t be doing it again – you can read why here.
Amazon pays sellers on a bi-weekly cycle. Amazon calculates your sales, deducts the necessary fees, and deposits the funds into your bank account.
Amazon will reserve part of your balance to ensure there are no order issues.
As a first-time seller, you will have an extended reserve period, I’ve covered everything you need to know about payment in this article.
Amazon has multiple fulfillment centres all over the world; this means customers receive their orders quickly, and you have the opportunity to scale your business globally.
Amazon does the heavy lifting whilst you can work on growing your business.
The Cost of Amazon FBA
With Amazon FBA, there are two primary fees to factor into your product pricing; storage, and fulfillment fees.
Amazon Storage Fees
To store your products, Amazon charges a monthly fee – this fee applies regardless of whether you make sales or not. The storage fees depend on how many cubic feet of storage space your products require.
Fees also vary based on product-size tier as well as the time of the year. Oversized products are much easier to store. Smaller items, on the other hand, require specific types of shelving and drawers, making storage more specialised.
From January to September, standard-size products cost $0.75 per cubic foot, and from October to December, the cost is $2.40 per cubic foot.
For oversized products, the cost is $0.48 per cubic foot from January to September and $1.20 per cubic foot from October to December.
If you want to sell goods that Amazon class as dangerous, expect to pay anything from $0.78 to $3.63 per cubic foot.
Products that are stored by Amazon for more than 365 days attract long-term storage fees. Amazon does this to keep operations as efficient as possible – it encourages sellers to move products faster.
Amazon Fulfillment Fees
Every time Amazon needs to pick, pack, and ship one of your products, they charge a fee based on dimensions and weight.
Standard-size non-apparel items have fulfillment fees that range from $2.50 to $5.42. Standard-size apparel items range from $2.92 to $5.95.
Oversized product fulfillment fees range from $8.26 to $137.32, and for those selling dangerous goods, fulfillment fees range from $3.85 to $157.12.
You can see Amazon’s guide to product dimensions and weight here to get a more accurate idea of the fees you can expect to pay.
These costs do tend to fluctuate, so it helps to keep track of changes. This way, you can adjust your prices and still make a profit.
I’ve gone through the exercise of comparing different storage and fulfillment options, and Amazon’s prices are challenging to beat.
I recommend using Amazon’s revenue calculator to determine your costs and potential revenue before you make any final decisions.
Is Selling on Amazon FBA Worth It?
If you don’t want to manage your fulfillment and distribution network, Amazon FBA is the right program to consider.
Let’s look at some of the plus points of becoming an FBA seller.
Turn Free Shipping Into a USP
Customers that shop on Amazon have come to expect good deals and extras such as free shipping. As an FBA seller, you can use Amazon’s low shipping fees to your advantage.
The shipping and packing fees for products sold via Amazon are a lot lower than if you had to do it all yourself, this makes it much easier to offer free shipping on orders and boost your bottom line.
Selling Online Becomes Easier Than Ever
Amazon truly simplifies the eCommerce process. Instead of having to pack products, fill out address labels, and handle deliveries, Amazon FBA does it all for you. All you need to do is decide what to sell, keep your inventory in stock, and manage the marketing side of things.
With Amazon FBA, you get to focus on running and growing your online business instead of worrying about the day-to-day logistics.
Returns & Refunds Are Taken Care Of
Ok, so not having to spend time dealing with returns and refunds frees up your time as a business owner. If a customer contacts Amazon, they can organise to return the product and obtain a full refund, without you having to do anything. Having someone to assist you with this aspect of customer service is a lifesaver, particularly when you’re just getting started. Keep in mind that Amazon’s free-returns policy is only applicable to the customer – you still need to pay a returns processing fee.
It’s worth mentioning that you will still have the responsibility of responding the customer messages. If a customer messages you on Amazon, you have 24 hours to respond. When we started, we’d handle this ourselves, but we now have a team of customer service agents ready to assist our customers.
Next, let’s look at some of the potentially challenging aspects of being an FBA seller.
Amazon Has Very Specific Requirements
Whichever products you decide to sell, you will need to ensure they are prepped and packed according to Amazon’s specifications. If they aren’t, Amazon will charge you additional fees to assist with this.
Here’s a video explaining how we prepare and package our products before we send them into Amazon.
You Need to Sell to Skip Unnecessary Fees
Amazon fulfillment centres aren’t storage units – they expect you to sell your products. Products that don’t sell within six months will attract higher storage fees – even more so after a year. When this happens, sellers consider liquidating their stock. You can read more about this here.
The trick is to manage inventory in a way that ensures you don’t end up with excess stock. How popular you expect a product to be and seasonality are two considerations when calculating and managing inventory numbers.
Commingling Products Can Be Risky
For efficiency purposes, Amazon gives sellers the option to commingle or pool their products with similar products from other sellers. Unfortunately, some sellers will send in counterfeit or damaged products; this puts your brand’s reputation at risk. If you are a private label seller, you won’t need to worry about this; no other seller should be selling your products.
Sales Tax Compliance Can Be Difficult
With Amazon’s fulfillment network, there’s no telling whether your items will stay at the same fulfillment centre, they move stock around regularly. Sales tax compliance can become tricky; I’d recommend looking at software like TaxJar to streamline this process.
Is Fulfillment by Amazon Right for You?
FBA is one of the best ways to try your hand at online entrepreneurship, but it isn’t for everyone.
For FBA to work, you need to have confidence in the products you sell. In my opinion, Amazon FBA is the perfect place to grow and nurture your very own private label brand.
Amazon should be used as a platform to grow your business, but long term, you shouldn’t rely on it entirely. Use Amazon to build a snowball of product sales; you can then use that profit to build your brand away from the Amazon platform.
Amazon is a fantastic platform, but don’t put all of your eggs in one basket. In our training, we talk about the power of growing a brand on and off the Amazon platform.
We’ve leveraged Amazon in this way, and it’s a decision we have not regretted.
If you want to compare Amazon to other platforms, here’s my take on Amazon vs eBay.
If you have any other questions about starting a business on Amazon, leave me a comment below.