How Does Amazon FBA Work. Is Amazon FBA Worth it?

Many Amazon sellers prefer to avoid the hassle of packing and shipping inventory to customers. With FBA, Amazon can do this job for you for a fee. But how does Amazon FBA work, and is it worth it for your business? 

In this post, we'll look into the basics of Amazon FBA and how much it costs. This information helps you decide if FBA is the right choice for your e-commerce venture.

What Is Amazon FBA?

Amazon FBA, or Fulfillment by Amazon, is a service for sellers that lets you outsource the storage, packaging, shipping, and customer service of your products to Amazon, for a fee. FBA is a very popular fulfillment method because it helps quickly and easily set up and scale your business.

Breakdown of what FBA offers sellers

Storage

You send your products to Amazon's vast network of fulfillment centers around the world. This frees up space for you and allows Amazon to deliver products quickly to customers.

Fulfillment

When a customer orders your product, Amazon picks and packs it, and ships it to the customer.

Faster shipping

By using FBA, you can offer Amazon buyers fast shipping due to the extensive fulfillment center network close to your customers. With another option, Amazon Prime, FBA sellers can offer Prime members fast and free Prime shipping, which can essentially increase your sales.

Customer service

With FBA, Amazon handles customer service on your behalf. The FBA customer service team helps customers with order shipment questions they have and manages refunds and returns if your buyers are unhappy with the purchase.

How Does Amazon FBA Work

When you register a seller account on Amazon and select a product to sell, you must decide how to deliver it to the customer. You can either fulfill the order yourself or use FBA. 

If you want Amazon to fulfill your orders with FBA, you must prepare and deliver inventory to Amazon’s fulfillment center. Amazon stores the product until it’s time to ship it to the buyer.

When a shopper orders, Amazon staff packages and ships the item from the Amazon fulfillment center to the customer’s door.

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Amazon FBA step-by-step

Step 1. Add your inventory to FBA

To send your inventory to Amazon, you must add it to FBA in your Seller Central. 

• For the new products, choose FBA in the Offer tab;
• For existing products, in the Inventory > Manage All Inventory, click Edit and Change to Fulfilled by Amazon.

Step 2. Prep and send inventory

You'll need to prep your products according to Amazon's guidelines, which involve labeling and packaging. Product photography classes helps you to do great images for them. Then, you send your inventory to a designated Amazon fulfillment center.

• Prep, label, and pack your products; ensure you follow Amazon’s requirements to avoid fulfillment delays and extra costs; 
• Ship your inventory to Amazon using the Send to Amazon workflow in your Seller Central.

Step 3. Amazon stores your products

Amazon receives your products and stores them in their warehouses. You can track your inventory levels through your Seller Central account.

Step 4. A customer makes a purchase

When a customer orders a product you fulfill through FBA, Amazon receives the order in its system.

Step 5. FBA fulfillment

Amazon's fulfillment center staff locates, picks, and packages your product for shipment, and delivers the product to the customer. Amazon also handles customer service inquiries and returns for FBA orders. This includes things like processing returns, issuing refunds, and answering questions from customers.

Step 6. Payment

Amazon collects the payment from the customer and deposits it into your seller account after deducting any FBA fees.

Step 7. Manage inventory

Keep track of your inventory levels to avoid stock-outs on the one hand, and long-term storage fees, on the other. Effectively monitor, plan, and restock inventory.
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Pros and cons of Amazon FBA

Amazon FBA business has both benefits and disadvantages. On the one hand, it relieves you from fulfillment headaches and helps provide high-quality customer service. On the other hand, FBA service comes with a cost.

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FBA pros

Effortless delivery

FBA allows you to outsource the logistics to Amazon, freeing up your time and resources to focus on sourcing products, and growing your sales. This can be a big advantage, especially for new sellers or those with limited resources.

Fast and free shipping

When a seller enrolls products in FBA, they are eligible for a free shipping option. Also, FBA items are eligible for Amazon Prime free Same-Day or One-Day Delivery. Since many customers use Amazon because of the fast and free delivery, they will likely prioritize such products. That increases your sales.

Customer service

Amazon takes care of customer service on behalf of FBA sellers. The FBA customer service team manages customer order shipment inquiries and handles refunds and returns if your shoppers are unhappy with the products.

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Buy Box priority

All FBA sellers automatically qualify for the Buy Box (Featured Offer) which gives them better selling chances. Amazon prioritizes FBA sellers when granting the Featured Offer. When you use FBA, your item is more likely to win the Buy Box. It will also appear higher on the Amazon search results page hence more sales.

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FBA Cons

FBA fees

FBA comes with various fees that can eat into your profits. These include storage fees based on the size and weight of your items, fulfillment fees per item, and potential additional costs for oversize or hazardous materials. Make sure to carefully calculate the fees to see if FBA is profitable for your products.

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Long-term storage fees

If your inventory sits in Amazon warehouses for extended periods, you'll incur long-term storage fees. That can be an issue for seasonal products or those with slow sales velocity.

Strict product prep guidelines

Amazon FBA sellers are required to follow Amazon’s inventory prepping and labeling guidelines. They are very detailed, and you need to follow them exactly. If your products are not packaged and labeled according to Amazon standards, the product may be repackaged at your cost which will lead to delays in delivery.

Increased returns

Some sellers report a rise in returns when using FBA since Amazon's return policy is generally more customer-friendly than what some sellers might offer on their own. A shopper can return most items purchased on Amazon for a full refund within 30 days. Due to this simplified customer returns procedure, FBA sellers sometimes face increased return rates and extra costs.

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How Much Does FBA Cost?

FBA sellers pay Amazon four types of fees: selling plan fees (monthly or per-unit fees for selling on Amazon depending on the selling plan), referral fees (cost of selling per unit sold), FBA fulfillment fees (fees for packing and shipping orders to your customers), and storage fees (cost of storing goods in Amazon’s warehouses).

Below you can find the summary of key FBA fees.

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Selling plan fees

These are fees for having a seller account on Amazon. There are two options.

• Individual plan: Ideal for beginners with occasional sales, charged per item sold ($0.99);
• Professional plan: Suited for higher volume sellers with over 40 orders/month (monthly fee of $39.99), offers benefits like Buy Box eligibility and sales analytics.

Referral fees

A percentage of the total sale price (excluding tax) paid for each item sold. The rate varies by category (usually 8% to 15%, with some exceptions like electronics accessories at 45%).

referral

Other selling on Amazon fees

• Closing fees: Apply to specific categories like Books, DVDs, etc., charged per item sold ($1.80);
• High-volume listing fee: For sellers with over 1.5 million listings monthly, a small fee applies per listing ($0.001);‍
• Refund administration fee: When you refund a buyer, Amazon deducts this fee from the refunded referral fee ($5.00 or 20% of the fee, whichever is less).

FBA fulfillment fees

These fees are charged for customer order fulfillment and storage by Amazon and customer service.

• Order fulfillment fees: Paid for order picking and packing, shipping and handling, and customer service. Charged per unit shipped, based on size and weight (apparel vs. non-apparel, standard vs. non-standard sizes);
• FBA Inbound placement service fees: Optional fees for Amazon to distribute your inventory across fulfillment centers (minimal vs. partial shipment splits);
• Low-inventory-level fees: Charged for products with consistently low stock compared to demand (introduced April 1, 2024);
• Returns processing fees: Apply to products with high return rates (introduced June 1, 2024). Rates differ for Apparel and Shoes vs. other categories;
• Inbound defect fees: Charged for shipments not meeting Amazon's requirements or differing from the shipping plan.

FBA storage fees

These fees are charged for storing inventory in Amazon warehouses.

• Monthly inventory FBA storage fees: Based on the daily average space occupied by your products (includes basic storage fee and storage utilization surcharge);
• Basic storage fees: vary by product size and time of year (peak vs. off-peak);
• Storage utilization surcharge: applies to professional sellers with significant standard-sized inventory during peak times;
• Amazon Aged inventory surcharge: A long-term storage fee for products in fulfillment centers for more than 180 days (applied from the 18th to 22nd of each month);
• Inventory storage overage fees: Charged if your inventory exceeds storage limits (based on daily average volume exceeding limits);
• FBA product removal and disposal fees: Fees for removing or disposing of unwanted inventory from Amazon fulfillment centers (charged per item).

You can find the FBA fee rates here.

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How to Calculate FBA fees?

It can be difficult to account for all Amazon FBA fees, but it's crucial to have a clear understanding of these costs to ensure profitable sales. 

To ensure accurate FBA fee calculations, most Amazon sellers use FBA calculators. These tools consider various fees such as selling plan fees, referral fees, FBA fulfillment fees, and storage fees, allowing sellers to establish competitive prices while still making a profit.

You can simplify this process if you use Seller Assistant App’s FBM&FBA calculator. Seller Assistant App is a powerful product sourcing platform that helps easily choose products to sell on Amazon. 

Seller Assistant App’s FBM&FBA calculator helps you calculate your product profitability and Amazon fees right on the Amazon product pages and Side View Panel. It shows Amazon referral fees, FBA fees, and storage costs. You can add product preparation and shipping costs to your calculation. Costs for logistics can be configured in the settings. 

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What to Sell with Amazon FBA?

One of the challenging tasks of FBA sellers is to find profitable deals for Amazon FBA. To do so, you must conduct product research. You can do that effectively with Seller Assistant App — a popular product sourcing platform that helps find profitable products to sell on Amazon. Here’s what products to look for and how.

High-demand products

Identify trendy products that are currently in high demand and popular but have less competition. To do this, check the Best Sellers Rank (BSR), Buy Box offer, competition, and potential sales figures using the Seller Assistant App. These figures are displayed on the Amazon product and search pages for easy estimation.

The BSR must be low (below 100,000). Buy Box prices shouldn’t go up and down all the time to avoid intense competition. The Buy Box's current selling price must give you enough profit margin. 

The FBA seller count must range from 3 to 15 so that the product is not too competitive.

Ensure profit

To ensure a good profit margin, focus on items that can be sold for a higher price than you paid for them. Use the FBM&FBA profit calculator in the Seller Assistant App to determine the product profit, margin, and ROI. A product with an ROI of over 10% is suitable for selling.

Avoid IP complaints

Avoid selling products that have intellectual property or other complaints, which can lead to issues and financial losses. Check for IP complaints about the product and its type using the IP Alert feature in the Seller Assistant App. A red triangle icon indicates an IP complaint and a red lock icon indicates a restriction.

Stick to easy-to-sell products

Choose easy-to-sell products that are in high demand and simple to ship without special requirements such as oversize or meltable goods. The Seller Assistant App's alerts marked by corresponding icons provide information on such products.

Is Amazon FBA Worth It?

Amazon FBA is a convenient and efficient service, that can help you quickly start and grow business on Amazon. FBA helps newbies on Amazon start selling. Also, with FBA, seasoned sellers streamline and scale their business and efficiently set up shipping and delivery all in one place.

Amazon FBA can help you save time and money by handling the storage, shipping, and customer service for your products. However, it does come with fees and may not be the best option for all businesses. It's important to weigh the costs and benefits before deciding if Amazon FBA is right for you.

When is Amazon FBA right for you?

FBA is a valuable tool for some Amazon sellers. As long as your products are a good fit for FBA's system and you're comfortable with the associated fees, FBA can significantly streamline your operations and free you up to focus on growing your business. Below are the scenarios where Fulfillment by Amazon can benefit your business.

High-volume sellers

If you're a seller dealing with a large number of orders, FBA can be a lifesaver. Amazon's extensive fulfillment network efficiently handles picking, packing, and shipping, freeing you from the burden of managing a high order volume yourself. This allows you to focus your energy on sourcing new products, marketing your business, and growing your sales.

Hands-off approach

FBA is a great option for sellers because it eliminates the need to manage your own inventory storage and fulfillment. FBA takes care of everything from picking and packing to customer service for FBA orders. This frees up your time and resources to focus on other aspects of your business.

No existing 3PL partner

If you haven't established relationships with shipping carriers or lack the resources to manage your own shipping, FBA offers a convenient solution.  FBA leverages Amazon's established shipping network to get your products to customers quickly and efficiently.

Limited storage space

If you don't have the space to store your inventory, FBA eliminates the need for you to rent and manage a warehouse.  Amazon's vast network of fulfillment centers provides secure storage for your products, allowing you to scale your business without worrying about storage limitations.

Standardized products

FBA's fulfillment process is optimized for products with standard-size tiers.  If your products are generally similar in size and weight, they'll fit well within FBA's system, minimizing any potential storage or fulfillment complications.

Acceptance of FBA fees

It's important to understand that FBA comes with associated fees for storage, fulfillment, and potentially other services.  If you're comfortable factoring these fees into your pricing strategy and your products have healthy profit margins, then the convenience and efficiency of FBA can be a significant advantage.

FAQ

What is the FBA in Amazon?

FBA, or Fulfillment by Amazon, lets Amazon store, pack, ship, and handle customer service for your products, potentially increasing sales and freeing you up to focus on your business.  There are fees involved, but for many sellers, the convenience and efficiency outweigh the cost.

What is the difference between Amazon FBA and Amazon seller?

All Amazon sellers can sell products, but only FBA sellers use Amazon's warehouses and services to store, pack, ship, and handle customer service for their products. This convenience comes with fees but can free up seller time and potentially boost sales.

What is the concept of FBA?

The concept of FBA (Fulfillment by Amazon) is outsourcing the storage, shipping, and customer service of your Amazon sales to Amazon. This lets you focus on growing your business while Amazon handles the logistics for a fee.

Is Amazon FBA free?

No, Amazon FBA is not free. It's a service where Amazon handles fulfillment for a fee, including storage, packing, shipping, and potentially customer service.

Final Thoughts

Fulfillment by Amazon is a service that allows sellers to focus on sales while Amazon cares about their fulfillment. It helps newbies on Amazon start selling and experienced merchants streamline and scale their business.

However, this service comes with a cost. Amazon charges sellers many FBA fees, and properly accounting for all of them influences your product’s profitability.

Seller Assistant App can become your ultimate assistant in finding winning products for Amazon. This comprehensive product sourcing platform provides all the extensive features and tools necessary to find winning products for the Amazon Big Spring Sale.With Seller Assistant App’sFBM&FBA Profit Calculator, Side Panel View, Quick View, ASIN Grabber, UPC to ASIN converter, Stock Checker, IP Alert, Restrictions Checker, and other product research tools, you can automate product data collection. That will provide you with insights about product profitability, competition, demand, and other essential product information to select high-margin items for Amazon.

Try Seller Assistant Аpp now. Register for our 14-day trial. Grow your Amazon business with confidence.