Are you an ecommerce retailer who sells products on the Amazon Marketplace? If so, you may be wondering if using Amazon’s fulfillment option is right for your business. Fulfillment by Amazon (FBA) may be the perfect option for your store, but without weighing the pros and cons of using Amazon FBA, how can you be 100% sure? First, for those that don’t know, let’s review what FBA actually is.
What is Fulfillment by Amazon?
Fulfillment by Amazon, or FBA, is a service that Amazon provides for its sellers to pick, pack, and ship new customer orders. To put it simply, with FBA, you sell your products and Amazon ships them to your customers.
Here’s how it works:
- You ship your products to an Amazon warehouse.
- Amazon stores your inventory for you.
- When a customer purchases your product, Amazon picks, packages, ships, and tracks the order.
- Amazon handles customer service, including returns and refunds.
- Amazon charges you for the service and pays you for your sales.
Now that you have an idea of what they do, let’s review the pros and cons of using FBA for your business:
Pros of Using Amazon FBA
- Amazon’s credibility – The Amazon logo and the “Fulfillment by Amazon” box next to your products goes a long way to establish trust with shoppers.
- Amazon Prime – When you use FBA, you automatically qualify for Amazon Prime – and Amazon Prime shipping. Having the Prime badge next to your product listing makes buying from you more attractive to customers who want their order fast.
- Multichannel options – FBA doesn’t just work with Amazon orders. It can also fulfill orders from your other sales channels, including stores on Shopify, BigCommerce, Magento, WooCommerce, and 3dcart with the Multi-Channel Fulfillment (MCF) program. That means that your orders for those platforms can also be fulfilled by Amazon. You just need to either manually send them customer orders or use a solution that integrates with FBA to automatically send those orders to Amazon.
- Buy Box Priority – Amazon’s algorithm for choosing Buy Box winners gives preference to FBA sellers. Winning the Buy Box increases the visibility of your products exponentially.
- Customer service – Amazon provides customer service for its FBA sellers. The marketplace is known for its excellent customer service and 24/7 availability. This saves you the time and hassle of having to manage it yourself.
- Low shipping costs – Perhaps the biggest advantage of using FBA for your order fulfillment is its low packaging and shipping costs. Amazon’s rates are usually substantially lower than other order fulfillment providers, depending on your products.
- Quick shipping – Amazon has hundreds of warehouses all over the world. When one of your customers places an order, Amazon automatically determines which fulfillment center is closest to the customer to ship from. Using their system means your customers will receive their orders quickly.
- No hassle returns – Not only does Amazon take care of your customer service, they also handle your returns and refunds, which saves you a ton of headaches.
- Nearly unlimited storage – Using Amazon FBA means that you don’t have to worry about finding additional storage as your business grows. Scaling is much easier because you’ll have their storage when your product demand increases.
Cons of Using Amazon FBA
- Cost – Having Amazon fulfill your orders definitely isn’t free. For the FBA service, you’ll pay for how much space your products take up in Amazon warehouses, as well as how long it’s there. You have to carefully consider how much these fees will cut into your profits before you begin using FBA. Here are 3 ways to lower your FBA fees.
- Reliance on Amazon – Because Amazon takes care of all picking, packing, shipping, and customer service for you, you have no control over any of those aspects of your business. This can be a con for those sellers who want full control of each customer interaction.
- No company branding – You also cannot include any branding for your business with orders fulfilled by FBA. All orders use Amazon branding, which makes it hard to grow awareness for your brand.
- No email marketing – Amazon doesn’t allow its sellers to build an email marketing list of Amazon buyers. Sellers will have a difficult time developing a relationship with their Amazon shoppers, leading to higher customer acquisition costs and lower lifetime customer order value.
- Competition – Amazon has 2.5 million active sellers and they’re adding over 3,000 new sellers every day. The chances there are no other merchants selling the same products as you are pretty much nil. That’s a lot of competition, which means it may not be worth it to sell on Amazon, even if you use FBA.
- Product prep – Amazon imposes strict rules on how FBA sellers should prep and ship their products to Amazon warehouses. This can be time-consuming and expensive for SMBs.
- Inventory errors – Due to the number of sellers FBA services, there are bound to be inventory mix ups. That can cause problems for your business.
- Excluded sales channels – Though Amazon’s MCF allows you to fulfill orders from other channels, all packaging is branded with Amazon’s logo. Other marketplaces you sell on won’t allow you to fulfill their orders with Amazon’s logo. For example, Walmart will not allow third-party sellers to use Amazon to fulfill their orders.
When Does Using FBA Makes Sense?
If you are already using Amazon and you are averaging over 40 products sold each month, then you should consider FBA for the following reasons:
- Amazon FBA is a better value than other fulfillment services.
- Customers that meet a certain minimum order amount are offered free shipping by Amazon FBA. This encourages customers to make additional purchases.
- FBA offers your Amazon Prime customers free 2-day shipping on your products.
- Customers trust Amazon’s brand, so knowing that Amazon is fulfilling their order instills confidence.
Note: You don’t have to list your products on Amazon to use FBA’s infrastructure, but you probably should. Amazon likes to “keep it in the family.” What I mean by that is the best FBA advantages are for those selling on Amazon. Before you decide to use these Amazon FBA tips for fulfillment for other sales channels, shop other fulfillment companies to see what is best for your budget.
What Are The Fees?
Amazon breaks the fees into a number of ways, from fulfillment by unit, size, and type, to the storage fees by cubic feet. We’ve added links below for both Amazon product fulfillment and multichannel product fulfillment:
- The typical fees to store and fulfill Amazon orders.
- The typical fees to fulfill multichannel orders.
Is Amazon FBA Right for Your Business?
Amazon FBA is a great order fulfillment option for many online businesses. While there are some drawbacks to FBA, many Amazon sellers feel that the good outweighs the bad.
If you’re new to ecommerce, then Amazon FBA can definitely provide you with an easy way to get your feet wet in a new market. Before you get started, check out these FBA product restrictions you may encounter.