Fulfillment by Amazon (FBA) handles the complex business tasks for Amazon sellers so they can focus on scaling their Amazon business. However, this comes with its own costs or challenges and may not make sense for every business. This raises the question: Is Amazon FBA still worth it in 2023? Well, in this guide, we will answer these questions and further look into the pros and cons of using an FBA business.
So let’s get into it!
What is Amazon FBA?
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Fulfillment by Amazon (FBA) is an e-commerce platform provided by Amazon as a way for third-party sellers to make their order fulfillment and shipping services easier. It involves sending your products directly to Amazon warehouses or Amazon fulfillment centers, where they are stored, packed, and shipped to your customers whenever you receive an order.
When your customer places an order, Amazon employees prepare, package, and ship the product for you. This takes the burden off Amazon sellers and grants them flexibility while selling products on Amazon.
How Does Amazon FBA Work?
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Anyone who has an Amazon seller's account can use the FBA business to handle all their shipping needs including returns and refunds, as well as product warehousing in Amazon’s warehouses, picking, packing, and more. Here are a few steps that demonstrate how the FBA program works:
Step 1: Sign up for an Amazon FBA business account
First, you will sign in for an Amazon Seller central account. Regardless of the business model you choose, you will have to create a seller central account before selling on Amazon FBA. After that, you will create a product listing to sell your products and indicate FBA as your fulfillment channel.
Step 2: Sending your inventory
Once you have signed in as an Amazon FBA seller, you can send your inventory to an Amazon fulfillment center. You can basically do this yourself or if you are a private label seller, your supplier can ship the products directly to the fulfillment center.
Step 3: Sorting
After your inventory is received by Amazon, the warehouse employees sort your product and store them with a tracking code for easier identification. When your client purchases your product, amazon processes the payment and updates your inventory.
Step 4: Packing and Shipping
After that Amazon picks, packs, and ships the product to the buyer using their chosen shipping method. Here they will provide both you and your customer with the tracking information.
Step 5: Customer service
After the transaction, they will manage customer services such as processing returns or refunds and even tackle inquiries about the product.
Step 6: Payment
Finally, Amazon pays you according to Amazon's Payment Policy by depositing your funds in your amazon account. This is usually done on a bi-weekly basis. Of course, this is after deducting the Amazon FBA fees.
Is Amazon FBA worth it?
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Now that you understand the vast majority of how to use FBA, let's now find out if using this Amazon Service is worth it. Below are questions and statistics that will help you decide whether Amazon FBA is worth it.
How Much Do Amazon Sellers Make?
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As compared to other business models, the Amazon marketplace generally makes higher profit margins. According to the Jungle Scout survey, most sellers earn a monthly revenue of between $500 to $5, 000 per month, but you will find prime sellers that make more money that can go up to $100,000 per month.
Additionally, the same report shows that one in five, which is around 19% of sellers, make annual sales of between $300,000 and $3,000,000, whereas 26% of Amazon sellers earn profits of $1,000/month in eCommerce sales. The same survey found that most Amazon sellers are selling with a healthy profit margin of more than 11%.
Actually, it's also reported that nearly 45% of amazon sellers make more than $50,000 in their lifetime. according to the Jungle Scout survey. Given that most amazon sellers use this as a side hustle, this amount of lifetime income is rather remarkable.
Is Selling Via Amazon FBA Profitable?
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Furthermore, other Statista state that more than 73% of top Amazon sellers in the U.S. use the Amazon FBA program. FBA has been found to optimize fulfillment for their sellers and increase customer conversion, especially because this program gives eligibility for Prime free shipping.
FBA sellers can actually get a high return on investment (ROI) via the fees they charge for their products and the shipping fees they receive from Amazon. As long as you can provide products that meet Amazon’s requirements and charge a reasonable price, there is a high chance that an FBA business will be profitable for you.
Let's look at a breakdown of how many FBA sellers profit from selling products on Amazon according to the Jungle Scout survey.
- Nearly 65% of third-party sellers have reported making profit margins higher than 10%
- Approximately 32% of sellers reported earning profit margins of more than 20%.
- 14% of sellers have seen lifetime profits of more than $100,000
- 50% of Amazon's fulfillment sellers make anywhere from $1,000 to $25,000/per month
- 13% of Amazon sellers sell products worth $25,000-$250,000/month
- 22% of vendors sell under $500/month
Verdict: Is Amazon FBA worth it?
With these numbers, we can tell that Amazon FBA is worth it. Seeing that it helps you gain prime status on Amazon, outsource the e-commerce fulfillment process, and earn an income for yourself is a plus.
Other Factors that will help you determine if FBA is Wort it
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Even though the numbers we discussed above show that selling on amazon via the FBA platform is profitable for other sellers, there are other factors you need to pay attention to. Here are some of these factors:
1. FBA Fees
To handle all your fulfillment and customer service, Amazon charges its users some fee. Amazon's FBA program fees include picking and packing orders, shipping and handling, customer service, and product returns. The fulfillment fees are mostly determined by the weights and sizes of your products.
In addition to the standard fulfillment fee, you will also have to pay an inventory storage fee. This fee is charged per cubic foot of inventory. The fees vary by the product size tier. In addition to the monthly fee, you will have to pay a long-term storage fee if your units have been stored in an Amazon fulfillment center for more than 365 days.
Apart from storage and fulfillment fees, you will also be required to pay referral fees to list your goods on the marketplace. Referral fees are charged by percentage and vary by product category.
2. Product Type and Size
Like other eCommerce businesses, Amazon FBA can bring in high-profit margins or losses. And product research is an essential part of any eCommerce business. To make sure you run a successful business you will need to conduct product research to determine which product works.
For instance, if you are selling large products that are low-priced may incur costly storage fees. Even worse if you don't sell fast due to low demand you may end up paying the long-term storage fee. Therefore, it will be worth using the Amazon FBA service if you are selling small items quickly, particularly if you are a new seller.
3. Your Work Schedule
Even though, Amazon FBA sellers view this business as a side hustle, it still needs some commitment. Letting Amazon handle fulfillment for you will take the hassles of running the eCommerce business by yourself. This frees up time for you to focus on other things. So if you are busy with other commitments, FBA is still worth it.
4. Sales tax concerns
Amazon's FBA business platform can make sales tax compliance tricky for sellers. All Amazon sellers need to pay sales tax to the state where their fulfillment center is. So if you are just starting up, you might need to pay more especially if amazon's fulfillment centers change locations.
The Pros and Cons of Amazon FBA
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The Amazon FBA business program is not free, but is it worth it? Yes, it is, to a considerable extent. However, In addition to all the factors we have mentioned above you can't really tell if it's worth it or not until you weigh its pros and cons.
What are the Advantages of Using Amazon FBA?
1. Thrive on Amazon’s reputation
Amazon is one of the largest online shopping platforms, with a large customer base and brand recognition. This makes it easy to get your products noticed and sell quickly. Besides making sales on Amazon, as an Amazon FBA seller, you get to leverage Amazon’s reputation.
2. Logistics support
Since Amazon FBA handles all of the logistics and shipping for sellers, delivering products to customers can be a simpler and less time-consuming process. With FBA, your clients are guaranteed fast and efficient shipping and customer service.
3. Automatic Prime eligibility
With this Amazon FBA program, not only are all your fulfillment needs taken care of, but your customers are also able to benefit from the program. Selling on amazon via the FBA service makes you eligible for the Prime badge and Seller Fulfilled Prime (SFP) program.
This means, you are made a prime seller and you get to sell to Prime customers and offer free same-day or two-day shipping. This gives you an edge over many sellers who do not use Amazon FBA.
4. Reduced business costs
The Fulfillment by Amazon model can also be cost-effective. As a seller, you will incur fewer business costs since you don't need to worry about renting or buying a shop, employing staff, and handling shipping logistics.
5. Frees up time
With packing and shipping done on your behalf, you will have more time on your hand to focus on other ways you can grow your business. And as long as your inventory is stocked you can run your business from anywhere.
6. Great Customer Service
Sometimes, customer service is a full-time job and might require you to hire someone to do the job for you. That's why using Amazon FBA comes in handy. Rather than consult you with every problem, Amazon’s customer-service specialists deal with your customers directly.
Not only does this save time, but it also gives the buyer more options. Even better, Amazon is available 24/7 via phone, chat, and email, meaning your clients can get help any time they need it.
7. Return and Refund Management
Even though you sell products that are of high quality, not all buyers will e satisfied with the product you sell. This means you are bound to receive a fair share of returns and refund requests. This translates to going through all of these requests and verifying them, which can take up much of your time.
Fortunately, using the FBA program make this easy for you. The Amazon FBA team will process everything from start to finish, including creating the shipping label and receiving the return.
What are the Disadvantages of Amazon FBA?
1. Costly FBA fees
As w have stated earlier, Amazon FBA is not free and will require you to pay some fee. For most new sellers or sellers on a budget, this may be an expensive venture. The FBA service may not be as expensive as having your own business, but in some instances, you might find that you pay more especially if you are selling large products.
2. Tedious product prep requirements
Even though the Amazon FBA warehouse will pick, pack and ship your products to the customer, tons of packing requirements need to be followed. Failure to adhere to these packing requirements can prevent your products from being dispatched on time.
Additionally, if you will need Amazon to help you will proper packaging you will require to pay an additional packing and prepping fee.
3. Limited brand identity
Orders fulfilled through Amazon FBA will line your branding opportunities because the products carry Amazon's packing and logo. Therefore if you are running a private label product, there are chances your client will not recognize your brand as much. As a result, you may have a slim chance of getting return customers.
Conclusion
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Many e-commerce businesses or individuals considering starting a business on Amazon wonder if the Amazon FBA program is still worth it or not. The simple answer is yes!
There are lots of complex business processes involved in operating an Amazon business. You will need to identify profitable products, generate relevant keywords, and optimize your product listings. Again you will need to manage your inventory and run campaigns if you want to grow your business.
Utilizing the Amazon fulfillment program and infrastructure will make the most demanding half of the process worth it in the end.
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