If you sell on Amazon then chances are you’ve come across Fulfilment by Amazon (FBA), a storage and fulfilment service, which is designed to help sellers grow their Amazon business. Being able to expand your inventory without having to store it sounds like the perfect way to improve your profits, but is it too good to be true? We take a look at the advantages and disadvantages of using Amazon FBA for online sellers, and the costs involved.
What is FBA?
Fulfilment by Amazon allows you to send your product inventory to Amazon fulfilment centres where they are stored until someone places an order. Your products are then picked, packed and shipped straight from the warehouse to your customer. Amazon also provides customer service for all your FBA orders, as well as handling any returns.
How much does Amazon FBA cost?
Amazon charges for FBA on a pay as you go basis, with no setup charge or subscription fees - you pay a monthly storage fee as well as a fulfilment fee for every order that’s sent out.
- Fulfilment fee: A flat fee per unit based on dimensions and weight. There are two price levels depending on whether you're shipping from the UK and selling on Amazon UK, or selling on Amazon.de, Amazon.fr, Amazon.it, Amazon.es. Prices also vary according to the type of product: media, non-media and oversize.
- Storage fee: From January to September the storage fee is 30p per cubic foot per month, and from October to December it's 40p. For units that have been stored in an Amazon fulfilment centre for over a year a semi-annual storage fee of £25 per cubic foot is charged on top of the inventory storage fee (you can have 1 unit of each Amazon Standard Identification Number (ASIN) in your inventory without being charged this extra fee).
All of the fees exclude VAT and local Selling on Amazon fees apply for the market the order was placed through on top of FBA fees. You can also pay for extra services including removal, bubblewrap and disposal.
Find out more about Amazon FBA pricing here.
What are the benefits of FBA?
One of Amazon FBA’s main draws is that it allows you to grow your business without having a large amount of storage. There are also a number of other benefits to using FBA:
- Once you've prepared and shipped your items to Amazon's fulfilment centre then you don't have to do anything else with them, just monitor inventory levels and adjust your prices.
- Products listed using FBA are automatically eligible for Amazon Prime, which offers buyers a 1-day delivery that would be heard for an individual seller to compete with.
- FBA products are also often eligible for free delivery, another factor that encourages buyers.
- Amazon customers are actually willing to pay a little more for an item if it comes from Amazon or an FBA seller, they know they'll get their item quickly and trust the customer service.
- Using FBA allows you to compete with bigger, established sellers earlier on. You have more time to focus on monitoring and expanding your inventory, at the same time as not having to store all of your increased stock.
- Amazon FBA will deliver to UK customers, as well as to customers from other EU countries. They also offer multi-channel fulfilment; you can process your orders from other selling channels such as eBay, your own shop etc., through FBA (although you will be responsible for handling any customer service or returns for these sales, and the prices are different).
What are the downsides to FBA?
While Amazon FBA is a useful service for a lot of online sellers, it’s not without its risks and problems. Most of the issues arise from the lack of control over your stock once you’ve sent it off to Amazon:
- FBA doesn't work for all businesses. If you're selling low volumes of low margin products then using FBA probably won't be profitable. Products that don't sell fast could end up costing you a lot in storage fees if they're in the warehouse for over a year, or you'll have to pay to get them sent back to you (which can also be expensive if there's a lot of them) - it's really only worthwhile for items you know will sell fast.
- The storage fees for heavy or big and inexpensive items will also eat into your profits.
- Amazon handles the customer service for FBA orders, which more often than not is great, however, their priority is usually the customer. This means they allow customers to return items for any reason, for up to 30 days after they've received it and customers have 45 days from receiving it to send it back to the FBA warehouse.
- When a customer returns an FBA item it's up to Amazon to decide whether it's in a resellable condition and can be added to your stock. If they decide it can't be sold again then Amazon can destroy it or return it you. Find out more about how to deal with FBA returns here.
- Occasionally stock goes missing in Amazon's fulfilment centres, and you have to chase them for reimbursement. Find out more about missing FBA stock here.
Fulfilment by Amazon can be a great way to expand your ecommerce business, but it’s also not suited to everyone and there are some significant downsides that need to be taken into consideration. If you do decide to start using FBA it’s best to put in the research and planning to find out how you can make the most of it.