What are the pros and cons of Amazon FBA?
Running a business on Amazon may seem like a great way to quit your day job and make a living – and it probably is – but it is far from easy. Many people rush in anxiously to start selling on the largest e-commerce platform in the world, all the while being either unaware or not having enough knowledge around fulfillment methods which best suit their business and product needs.
From managing your seller account and optimising product listings, to dealing with customer enquiries, navigating through Amazon’s complex fee structure, and coming to grips with Amazon’s intricate policies – there are many challenges sellers face on a day-to-day basis.
This is where FBA (fulfilment by Amazon) can help sellers free up time and resources so that they can focus better on growing their business.
What is Amazon FBA and how does it work?
FBA or fulfilment by Amazon is a service which allows 3rd party sellers to outsource all aspects of packaging, storage, and shipping to Amazon for a fee. So, that means no hiring staff, renting expensive storage warehouses, or paying for transportation and, hence, being able to market and sell your products better.
Whether you’re selling on Amazon UK, US, Canada, or Australia, the process is more or less the same:
- Sign up for a Seller Central account.
- Create your product listings via the drop-down menu on the top-left corner of your dashboard. Select ‘Catalogue’, then ‘Add Products’, and then ‘I’m choosing a product not sold on Amazon’.
- Follow the on-screen steps and fill in the required details. Once you have completed your product listing, mark it to be sold through FBA.
- Place an order for your first inventory batch and send it to one of Amazon’s designated fulfilment centres for packaging and secure storage.
- Advertise your product(s) on Amazon. Once orders start flooding in, Amazon will take care of the shipping, allowing customers to have the items in a timely fashion, where they will also handle customer support and returns on your behalf.
What are the pros and cons of Amazon FBA?
If you’re considering FBA as your standard fulfilment method, then it’s worth understanding some of the pros and cons as you’d want to know ahead of time what you’re getting into:
Pros of Amazon FBA
Sell more easily – Not using FBA means you are responsible for storage of your products in a secure warehouse, which includes packaging them properly as per Amazon’s requirements, and transporting or shipping them without delay once orders start to flood in.
This can require a lot of physical and mental commitment on your part, and especially resources, not to mention the sheer amount of customer queries or product return requests which you’ll be dealing with.
FBA offers you peace of mind because it takes care of all that in a professional and timely manner, allowing you to dedicate more time to, for example, advertising and marketing campaigns or brand building.
Take advantage of Amazon’s name – Amazon today is among the world’s largest online marketplaces, probably the largest, if we’re being fair; in 2023, its annual web sales were $412.1 billion which was an increase of 10.5% from 2022.
People trust Amazon and when they buy anything on the platform, they already know that if their purchase does not turn out to be as expected or advertised, or if it is faulty, they can claim a refund, along with free returns, in many cases. So, it’s not surprising that millions of people trust and buy from 3rd party sellers on Amazon.
Starting an Amazon storefront for the first time, learning how to generate traffic and building trust with your audience require putting in time and effort into how e-commerce works and then putting that knowledge into practice. When you’re enrolled in FBA, you’re not just leveraging Amazon’s beaming reputation but also saving yourself months, perhaps, even years of effort.
Faster shipping at lower rates – Amazon is known for operating one of the most sophisticated and efficient shipping networks in the world, one which spans across all major continents. Not only that, but it collaborates with the world’s largest, most well-known shipping firms, which ultimately means the benefits pass on to you: ultra-fast delivery times and satisfied customers.
In terms of shipping alone, FBA offers two key benefits:
- Lower shipping rates. Even though you are paying a charge to get into the FBA program, in many cases, FBA is a cheaper option when compared to other fulfilment methods or self-fulfilment.
- Reach more customers. FBA products automatically qualify for Amazon Prime, a service allowing people to buy and have products delivered straight to their residential address within 24 hours. This makes you a far more attractive option to buyers (compared to FBM or self-fulfilment), and there’s no extra fee involved either.
Improve sales and visibility – Amazon almost always prefers sellers fulfilling orders via FBA and that’s understandable. But what’s truly worth noting here is that this automatically offers sellers increased visibility, thus, ranking them higher on Amazon’s SERPs (search engine results pages). This is so because the more sellers there are in FBA, the higher Amazon’s revenues will be.
Another major benefit of going with FBA is that you have a higher chance of winning the much coveted Buy Box – that’s the portion on the right-hand side of your product listing where ‘Add to Cart’ and ‘Buy Now’ is displayed. When sellers retain the Buy Box, they effectively receive all customer orders, not missing a single one. Therefore, whoever manages to retain the Buy Box for the longest time, essentially makes more sales, something which is only made possible by enrolling into FBA.
Boost your ranking and popularity on Amazon – FBA can potentially boost your product’s search rankings on Amazon’s SERPs as it is classified on price only, unlike non-FBA products which are classified according to total price including shipping costs. Naturally, when customers see that they don’t have to pay shipping (due to you being an FBA seller), they will save every pound and penny possible and buy your products vs. another product that’s similar or even the same but priced higher due to shipping costs.
Little to no customer queries – Since Amazon offers dedicated 24/7 support to FBA sellers, they provide around-the-clock support and assistance to their customers as well. So, whether it’s general enquiries, returns-related questions, shipping issues, fulfilment issues, or other questions, Amazon will handle it for you, leaving you with lots of extra time and energy to focus on establishing your business.
Cons of Amazon FBA
Not enough control – While there are some very obvious benefits to fulfilling orders via FBA, as Amazon handles nearly all aspects of storage, packaging, delivery and fulfilment, one major downside is that Amazon will be solely handling the fulfilment process from start to finish. Why is this a potential disadvantage?
If you want to control and/or customise any aspect of the shopping experience, you simply can’t, because FBA prevents you from doing so.
Very strict packaging requirements – Amazon has traditionally maintained strict packaging requirements and that will likely not change anytime soon (or ever). This requires sellers to adhere to a highly specific criteria revolving around proper labeling, packaging materials, and bubble wrapping, for example.
Not meeting requirements like failing to send inventory to Amazon’s fulfilment centres as per their criteria can easily lead to your shipment being returned or even you being charged extra packaging fees.
Reduced profit margin – Amazon FBA is not free. You are required to pay a percentage-based fee for every sale you make. This may initially not be a big deal to you, considering all the benefits FBA offers, but if you’re a new seller on Amazon and your sales aren’t gaining as much momentum as you’d like, then FBA’s monthly inventory storage fee is something you’d want to think over as it can quickly start to cut into your profit margin.
No control over inventory organisation – When you sign up for FBA, you are at the mercy of Amazon’s fulfilment methods which, at some point, might make managing stock more difficult. You may have your own way of organising inventory, after all.
Some sellers, in fact, prefer to organise their inventory in a way that’s almost the exact opposite of Amazon’s “organised chaos”. So, this is something you’d carefully want to consider as you will literally have no control over how your inventory is organised, stored, packaged, or delivered.
Laborious product preparation – FBA demands that you package and label your products a specific way before they can be taken into one of the fulfilment centres. If that criteria is not met, Amazon will outright refuse to let any goods enter its warehouses. This can be very time-consuming, cumbersome, and often at times, downright tedious.
Sales tax complexity – If you’re selling on Amazon US, then sales tax must be accounted for at the state level. It’s often confusing for sellers to know which sales tax rate to use if their business is in one state but Amazon’s fulfilment centre is in another.
At E-Commerce Intelligence, we’re here to take all the complexity and hassle out of FBA, helping you make the most of it to grow your business and better serve your customers. Get in touch now to better understand the advantages and limitations of FBA, and how it can benefit you: (+44) 01743 816191.
