Whether you are an established merchant with Amazon, or a fresh-faced business looking to start you might be asking yourself – should I become an FBA Seller? It’s a fair question – no business succeeds without asking itself hard questions about its business models every so often.
If being an FBA Seller is so good, why isn’t every merchant on the FBA program? Are you missing out on something?
Let’s take a look at the pros and cons of Amazon FBA. If you are an experienced FBA seller, feel free to jump to our pros and cons section. However, for those of you looking for a decent grounding – we’ll start from the very beginning.
Being an FBA Seller – The Very Basics
Amazon Fulfillment-By-Amazon (or Amazon FBA for short) is a service that Amazon offers to its sellers.
The name is self-explanatory, especially compared to the alternative option for third-party sellers, known as Fulfillment-By-Merchant (or FBM for short.) Essentially, FBA Sellers create the products and Amazon takes care of the sales and storage. As you can tell, they fulfill the sale of your products – hence the name!
Sounds like a dream come true. Well in some cases it is, but in others… it can become problematic.
There absolutely are benefits for FBA Sellers. These are because the FBA process lines up ideally with your business plan, your profit margins, your product type and many more variables.
However, there is always a cost. For some merchants the program doesn’t work and it can be costly. They choose the FBM option because it’s just right for their business.
But which one is right for your business? Well let’s take a look, shall we?
The FBA Process
- Your production line is optimised, or at least we hope so! You continuously manufacture(or source) your particular product that you want to sell on Amazon.
- You dispatch your products to the Amazon warehouse (or if you source your products from a manufacturer you can arrange to ship your products directly to the warehouse itself).
- Amazon handles orders, packages and ships from their storage facility right to the customer’s door.
- Amazon pays merchants like you for the sales of your product, while charging commission for their FBA services and adding on any other fees that crop up along the way.
Pros of Being an FBA Seller
Effectively, you actually have less work.
Once your products reach the storage facility – that’s it. All done, finito, ciao. You redirect your time and effort on other areas of your business that require your attention. This can be inventing new products, drawing up plans for fundraising rounds or just spending a little more time with your loved ones!
It puts the free time in your hands – what you do with it is up to you!
The Biggest, Qualified Marketplace in the World
There are currently over 200 million Amazon Prime members across the globe. These aren’t just common consumers with an occasional need to purchase something from Amazon. Prime members pay for their membership because they frequently order products.
Binge-buying Amazon-holics with a propensity for purchases? There’s no better target market.
Luckily all FBA Sellers qualify for Amazon Prime and your products gain pride of place in customer searches. It can lead to an enormous increase in sales.
Amazon Buy Box
You may have heard of the Amazon Buy Box, but do you know how to win the Amazon Buy Box?
It accounts for over 82% of all sales made through Amazon’s platform and is an enormous advantage to sellers with products in a saturated market. Due to the nature of the FBA program, FBA Sellers automatically receive a huge proportion of the metrics necessary to win the Amazon Buy Box.
Once you’re an FBA Seller – you’re already 70% of the way there.
Amazon is the name synonymous with business. They’ve carved out that reputation over years of hard work.
It’s not shameful to piggyback on their brand. With the FBA logo you become part of the Amazon family. This means that more often than not, customers follow through on their purchases.
Customers love Amazon because Amazon takes care of them.
Customer support is second to none, from express delivery and returns, to call centres ready to take care of irate, but misguided customers.
As an FBA Seller, you can be free from this burden. Their dedicated professionals handle complaints, returns and questions while you focus on profits, efficiency and growth.
Storage is expensive.
Not only that, but even if you pay for added storage space, you still need to organise the movement of inventoryboth to and from your storage facility.
As an FBA Seller your products are stored within Amazon warehouses and directly prepared for delivery from this locations. You can build a large inventory at your own convenience at a fraction of the cost and concentration it otherwise takes to manage it yourself.
Cons of Being an FBA Seller
It’s the world of business, nothing is completely free.
Your two primary FBA fees are
- Amazon Fulfillment Fees
- Monthly Storage Fees
And each of these are determined upon the size and weight of your products, as well as the sales channels. (View our Amazon Fee Chart for more information!) Other FBA fees include:
- Monthly Selling Fees
- Referral Fees
- Stock Removal Fees
- Amazon FBA Export Fees
Our guide to Amazon FBA Fees contains a comprehensive break down of each and every fee, with every single dry detail included. For now, we’ll just highlight the fact that these fees add up bit-by-bit and pound-by-pound.
In fact, they are the number one reason why merchants opt for FBM instead of FBA.
Lack Of Brand Building
Certain entrepreneurial merchants with a desire to grow their branding will be disappointed by being an FBA Seller.
While the benefits for your business are undeniable, the program can hamper your brand building efforts as all of the products sold via the FBA program will be branded with Amazon’s packaging. For high growth eCommerce startups trying to cultivate a unique reputation – this program may not be for you.
Those Amazon Prime members that make a fantastic target market? Well there is one issue with them.
Thanks to the Prime program, these consumers are entitled to make free returns. If your products are considered more impulse-buy items, then you may receive a greater-than-normal number of returns being made once you’re an FBA Seller.
So What Does FBM Look Like Instead?
For merchants who choose to remain with FBM, the scenario is similar to your standard eCommerce setup – you just use Amazon’s platform as a sales channel to host products on.
Merchants under FBM must:
- Pack each order
- Arrange individual shipping for each order
- Store inventory
- Provide attentive customer support
In comparison, FBA Sellers must:
- Maintain inventory at Amazon’s warehouse facilities
That’s it. Mind-blowing how many more work hours FBA Sellers have compared to standard merchants.
Financial planning and profitability margins are a vital skill for FBA Sellers.
You need to calculate monthly FBA fees as well as sales forecasts to maintain a decent supply of inventory, without spending too much money on storing surplus at Amazon warehouses for long periods of time.
To offset FBA fees, well highly recommend using an effective Product Comparison Strategy to effectively maintain your cashflow.
Things FBA Sellers Must Remember
Amazon is the undisputed king of eCommerce. While competition is tough, it is also the go-to place for consumers. In fact, 41% of all US eCommerce sales were made through Amazon in 2021. Your compset may be large, but the number of consumers is even vaster.
Amazon FBA reduces your overall workload. While the fees can be expensive without prudent business planning, it allows you to focus on tasks that you otherwise may not have a chance to tackle. Whether you want to reinforce your supply chains, or improve on other sales channels, you have the time to improve other key aspects of your business.
Marketing is easy to use with the Amazon FBA marketing tools. While other channels may require significant adaptations to your marketing efforts, you can set up your Amazon marketing tools via your seller dashboard with zero problems. It contains pre-built templates and dynamic widgets so that you can personalise your marketing to your target audience.
Becoming an FBA Seller is the easiest route to scale up your business.
Yes there are fees involved, but the increase in sales should more than offset any charges that Amazon place. Not only that, but your business is made of many moving parts. With the FBA Seller program you now have time to address issues that you normally never had time for.
But if you really want your business to experience skyrocketing growth, you need two things.
Automation and Analysis
Seller Central Connect is a tool with an entire array of useful business features for sellers.
It bulk uploads product catalogues, automatically optimises repricing and synchronises order metrics and customer data. Most importantly, it also comes with a built-in feature to provide a product by product feature of the Amazon FBA fees.
These in-depth reports compile all your business metrics and give you the opportunity to make informed business decisions.
While automation is a key time-saving feature, you may need more analysis for your pricing strategy, and that’s where Product Finder comes in.
You can validate potential products by scanning thousands of similar items in just a few keystrokes. Find out the current winning Buy Box price, compare profit margins, get a breakdown of all the Amazon fees and much more.
What is unique about this tool is regional isolation – you can plan your expansion into new markets ahead of schedule to maximise your profitability!