Ecommerce businesses require a lot of effort.
Whether you’re a sole proprietor selling discounted sporting goods, a small team crafting picture frames, or a large coffee maker manufacturer processing numerous daily orders, running an ecommerce business demands a lot from you. Regardless of your product or sourcing methods, you need to dedicate time to product development, marketing, and financial management, leaving limited time for inventory management, order fulfillment, and customer service. For businesses selling on or considering Amazon, Fulfillment by Amazon (FBA) offers a solution. A multi-channel ecommerce strategy is an effective ecommerce strategy. Download our free guide to Google Shopping and start spreading your brand today!
What is Fulfillment by Amazon?
Fulfillment by Amazon (FBA) is one of two primary fulfillment choices for Amazon sellers. The alternative is Fulfillment by Merchant (FBM), where sellers handle order packing and shipping directly to customers, essentially utilizing Amazon as a platform for reaching consumers and generating demand.
Amazon aptly summarizes FBA in Seller Central: “You sell it, we ship it.” Here’s a breakdown of how it works.
FBA Step 1. Send your products to an Amazon fulfillment center.
It’s crucial that the products you’re sending to Amazon are already listed in your Seller account. You wouldn’t want your inventory sitting idle in an Amazon warehouse. You’ll need to label all your products, either independently or through Amazon’s FBA Label Service. Then, you can choose to ship your inventory through Amazon or a different carrier.
FBA Step 2. Amazon manages storage.
Upon arrival at the warehouse, Amazon scans your product labels, weighs and measures each package, and stores them appropriately. You can track your stock levels using online inventory tracking and replenish inventory by shipping more to the warehouse as needed.
FBA Step 3. A customer places an order for your product on Amazon.
Amazon takes over the entire fulfillment process, picking the product from inventory, packing it for shipping, and delivering it to the customer. Moreover, Amazon assumes responsibility for customer service after the order placement.
How Much Does Fulfillment by Amazon Cost?
Calculating Amazon FBA costs involves considering several fee categories. Let’s delve into each category.
General Fulfillment Fees
The primary fees are general fulfillment fees, determined by your product’s size and total shipping weight. Standard products, like wallets, sweaters, or tea kettles, weighing a few pounds or less, fall into four tiers:
Small standard | Large standard | Larger standard | Largest standard | |
Weight | < 12 oz. | 12 oz. to 1 lb. | 1 lb. to 2 lb. | 2 lb. to 20 lb. |
| FBA fee | $2.41 | $3.19 | $4.71 | $4.71 + $0.38 per lb. over 2 lb. |
Small oversize | Medium oversize | Large oversize | Special oversize | |
| Weight | 20 lb. to 70 lb. | 70 lb. to 150 lb. | 70 lb. to 150 lb. | > 150 lb. |
Long Side + Girth | < 130 in. | < 130 in. | < 165 in. | > 165 in. |
FBA Fee | $8.13 + $0.38 per lb. over 2 lb. | $9.44 + $0.38 per lb. over 2 lb. | $73.18 + $0.79 per lb. over 90 lb. | $137.32 + $0.91 per lb. over 90 lb. |
Storage Fees
Amazon charges monthly storage fees based on the volume (cubic feet) your inventory occupies in the warehouse. For example, your September storage fee is billed a week or two into August. Fortunately, this calculation is straightforward:
Month | Standard products | Oversize products |
January – September | $0.69 per cubic ft. | $0.48 per cubic ft. |
October – December | $2.40 per cubic ft. | $1.20 per cubic ft. |
Order | Standard product | Oversize product |
Return | $0.50 | $0.60 |
Disposal | $0.15 | $0.30 |
Returns processing fee: For customer returns eligible for free returns, Amazon charges a returns processing fee equivalent to your initial fulfillment fee.
Long-term storage fee: Inventory remaining unsold in an Amazon warehouse for over six months incurs a long-term storage fee. You can request a return and pay the removal order fee if you anticipate a product won’t sell within six months.
The Advantages of Fulfillment by Amazon
Given the extensive discussion of fees, one might assume FBA solely benefits Amazon.
However, that’s not entirely true.
FBA Advantage #1: More Time to Focus on Business Growth
FBM requires you to manage inventory, labeling, packing, shipping, tracking, and customer service. For businesses operating from limited spaces, this can be overwhelming. By delegating these responsibilities to Amazon FBA, you gain valuable time to prioritize business growth activities such as product development, market research, keyword research, online advertising, SEO, and partnerships. Neglecting these aspects can hinder your business’s long-term sustainability.
FBA Advantage #2: Enhanced Consumer Trust
Amazon enjoys high levels of trust among American consumers. Customers value the reliability and convenience Amazon provides. As an FBA seller, your product listings prominently display “Fulfilled by Amazon,” instantly boosting shopper confidence and trust, ultimately leading to increased sales.
FBA Advantage #3: Automatic Prime Eligibility
Nearly two-thirds of U.S. households subscribe to Amazon Prime, amounting to nearly 85 million consumers who expect and prioritize Prime-eligible products. Prime members are unlikely to choose standard shipping (5-8 business days) over faster Prime shipping options. The Prime logo further reinforces consumer trust. Don’t miss out on this massive customer base by leveraging FBA.
FBA Advantage #4: Increased Buy Box Visibility
The Amazon buy box, located on the right side of a product details page, houses the “Add to Cart” and “Buy Now” buttons.
Essentially, it’s where sales conversions occur on Amazon. Approximately 82% of Amazon purchases of desktop sales happen through the buy box, with even higher figures for mobile purchases. While Amazon’s algorithm for determining buy box eligibility is complex, one key factor stands out: FBA sellers receive significant preference for the buy box.
The Disadvantages of Fulfillment by Amazon
While FBA offers numerous benefits, it’s essential to acknowledge its two primary drawbacks.
FBA Disadvantage #1: Potentially High Fees
As detailed earlier, Amazon FBA incurs various fees that can accumulate to a substantial amount. While these costs are generally justifiable, businesses with tight budgets might find it challenging to accommodate them alongside essential expenses like manufacturing and marketing.
FBA Disadvantage #2: Relinquishing Control
Entrepreneurs often view their businesses as personal endeavors they’ve nurtured from scratch. Handing over control over storage and shipping might not sit well with business owners who prefer direct oversight and control. If this resonates with you, FBA might not be the ideal choice.
So, is Fulfillment by Amazon Worth It?
The decision to use FBA depends on your monthly shipping volume, profit margins, and market niche.
To qualify for FBA, you need to ship at least 40 items monthly. If you barely meet this requirement, the effort and fees associated with FBA might outweigh the benefits, and handling fulfillment independently or through a smaller, more flexible company might be more cost-effective. FBA is not recommended for ecommerce sellers with low-profit margins. The added FBA fees could significantly diminish or even eliminate your profits. While self-fulfillment has its own costs, it might be more financially viable if it prevents incurring unnecessary fees. Sellers of highly niche products, like vintage zines targeting a specific subculture, might not benefit significantly from FBA. FBA’s main advantage, Prime eligibility, might not be a deciding factor for customers seeking such niche items. They are more likely to prioritize finding the product itself rather than expedited shipping. However, FBA presents a compelling investment for sellers operating in competitive markets with high sales volumes and healthy profit margins. It effectively frees up your time, enhances customer trust, and improves your chances of winning the buy box, ultimately leading to increased sales.