Fulfillment by Amazon (Amazon FBA) is a service where you will sell a product to a customer, and then they will ship out the order for you. There is no question that Amazon has one of the most advanced fulfillment networks in the world today. You will store your inventory in the fulfillment centers run by Amazon with this service, and then they’ll pick, pack, and ship each order. The company will even manage customer service issues for you with this service, allowing you to scale your business correctly and reach more potential customers.
When you choose Amazon FBA, then all of your qualifying items are eligible for Amazon Prime. That means your items become part of the free two-day shipping program that customers enjoy with this e-commerce platform. There are several other benefits to consider as well, including the opportunity to have the Prime logo displayed with your item.
As you continue to grow your competitive edge as a business working with Amazon, then you can increase your chances of winning the Buy Box. When you register for a seller’s account in the United States, your items will sell in Canada and Mexico as well without your company dealing with the shipping issues that might be present.
If you are looking for a way to grow your business, then these are the Amazon FBA pros and cons you will want to review.
List of the Pros of Amazon FBA
1. Amazon FBA is a pay-as-you-go system.
When you decide to start using Amazon FBA, then you are charged for storage space and the orders that they fulfill on your behalf. Since the cost of shipping is included in your fees, with no extra charge for Amazon Prime, you can get noticed by more customers who want what you have. There ae some fees for the actual sale and optional services that get tacked on with the FBA program, but the convenience of this system and their takeover of the customer service issues that can occur during shipping more than make up for the expanded costs.
2. You get access to the entire customer base of Amazon with the FBA program.
Amazon matters because there are over 300 million active customers on this platform. There are over 90 million Prime subscribers who are in the United States. When you join the Amazon FBA program, then you can specifically target these customers with your products. The average customer already spends about $700 per year on this e-commerce platform. If you can connect with a Prime member, then those people can spend nearly double. That means you have an opportunity to make even more money.
3. The Amazon FBA program is a simple, straightforward process.
When you enroll in the Amazon FBA program, then you can let them do all of the work for you through a process that is rather simple. Amazon has more than 100 warehouses across the United States, with some of them having more than 1 million square feet to use. You’ll tell them what the products are that you’re sending, and then Amazon tells you where to send the items.
Then Amazon sorts and stores your items, adding them to their inventory. The products stay there safely until a customer purchases your entire. Amazon takes care of the entire transaction, accepting payment and updating your inventory automatically. Then they ship your product, and you get paid every two weeks after your seller fees are deducted from the process. If something happens while your items are in Amazon’s possession, then you receive reimbursement for the issue.
4. You can outsource the most time-consuming tasks to Amazon.
If you have ever tried to manage your own fulfillment tasks and shipping chores, then you know how time-consuming this work can be. When you have more sales come through, then that means you have more time to spend on the packing and shipping process. When you can’t do all of the work by yourself, then you need to spend money on hiring someone who can help you out.
You’ll spend less to get into the Amazon FBA program than you would with a full-time hire. You can take advantage of Amazon’s experience and expertise to create more efficiencies in your sales process as well. That means you can do more, sell more, and work less in the area of logistics.
5. The Amazon FBA program allows you to pay for discounted shipping rates.
Because of the sheer size of Amazon, they have contracts with most major shipping carriers in North America and around the world that provide them with steep discounts. That means it costs less for them to send any given package because they provide services in bulk. These savings get passed along to your company when you join the FBA program. You’ll receive reduced shipping prices when sending your inventory to Amazon, and then your customers get to benefit from the Prime free two-day shipping option.
You can also have your products become part of a customer’s Amazon Day when all ordered items for the week arrive. This advantage creates an incentive that is challenging to ignore. Since this advantage applies to even furniture and other large-ticket items, you can do more for less.
6. Amazon will manage your returns as part of the FBA program.
Customer service can take up as much of your time as the logistics do when you have a high level of sales. Processing a return can become a headache because you’re dealing with an upset customer over an issue as well. Then you need someone who can inspect the return, handle the administrative processes of it, and reduce the emotional response to a situation that might not be under your control.
When you choose the Amazon FBA program, then they will manage of the customer inquiries for you. That includes any return shipping labels that are necessary, completion of the reverse logistics process, and other issues that might come up. You’ll pay a processing fee for this service, but the actual cost compared to the benefit is quite high. Your customers can speak to you through Amazon around-the-clock via chat, email, or phone.
7. There are no inventory minimums to worry about with the FBA program.
When you decide to use the Amazon FBA program, then you no longer need to worry about how much storage space you have for your products. That’s because you are no longer paying for a warehouse that might be sitting half-empty. You get to pay for the exact space that you use, and there are no inventory minimums for you to worry about with this program. Some sellers will provide only one product to be part of the Prime process.
If your products earn a high inventory performance score because they sell so quickly, Amazon may reward you with unlimited storage so that you can grow as fast as your customers allow.
8. Amazon FBA can provide you with a faster delivery.
The logistics of the Amazon FBA program include how to fulfill the order from a customer in the fastest possible time. Once a customer checks out, Amazon works to figure out what the closest fulfillment center is to that individual. Then the order will ship from that location to ensure that the individual receives their order within a couple of days. There are hundreds of these centers placed all over the world, some offering 1-day solutions, so that you can have happy customers who love your items while Amazon does almost all of the work for you.
9. You have access to multi-channel fulfillment options with Amazon FBA.
Amazon offers sellers access to a multi-channel fulfillment service (MCF) that allows you to sell products on multiple channels while still having Amazon handle the logistics of the transaction. When you download the FBA shipping app, you can even automate the processes for free to save even more time. Then you can spend your time review the analytics of your Amazon accounts to know if there are any specific demographics that you should start marketing efforts toward in the future.
10. The Amazon FBA program helps to automate your sales tax problems.
Every state in the U.S. has a different rule to follow for the collection of sales taxes. If your business only operates in one state, then you file based on local rules. Because Amazon offers fulfillment centers in almost every state, your inventory can shuffle between different warehouses consistently. That means you are almost forced to collect the tax on every transaction in some states to ensure that your responsibilities are covered. You can also ask for a ruling from your local government to see what is necessary.
If you are unsure of what your responsibilities in this area are, then a tax partner like Avalara can help you to further automate the complex rules that you must follow when selling products to customers all over North America.
11. You can co-mingle your products with those of other buyers.
One of the ways that Amazon promotes a higher efficiency level is to give you the option to pool your products with the same items from competitors on this e-commerce platform. If you decide to accept this proposition, then you can save some time on the labeling and prep work that your products must go through during the sales process.
This advantage can become a problem if you end up having an unscrupulous seller sending in counterfeit items or damaged products. There have even been issues where legitimate sellers received negative reviews or were banned from selling on Amazon because of the structure of this option.
List of the Cons of Amazon FBA
1. Amazon does not alert you of low inventory levels.
The Amazon FBA program will keep track of your current inventory levels. You can see what is currently available in the warehouse at any given time. What the program doesn’t provide is a notification that your inventory is low. Once you’ve chosen which products you want to sell, then it is up to you to keep your inventory in stock. It is up to you to check on the numbers regularly to ensure that you can keep earning sales.
2. The storage fees that you pay can be extensive.
On the 15th day of each month, the Amazon FBA program conducts an inventory cleanup. On this date, every inventory item that has been in storage for 12 months incurs a long-term storage fee of $6.90 per cubic foot or a $0.15 per unit fee, whichever is greater. There is no longer a long-term storage fee charge for items that have been in storage for 6-12 months. Then there are the seller fees and other costs associated with the fulfillment program to consider as well. The best way to avoid many of these costs is to sell items that you know will move quickly.
3. There is no marketing activities included with the cost of fulfillment.
The Amazon FBA program allows you to outsource a considerable amount of work so that you can focus on other tasks, but it will not cover your marketing efforts. Since there are over 350 million products in Amazon’s catalog at any given time, you cannot rely on simple search mechanisms alone to ensure your products are found. There must be online and offline efforts to grow your brand awareness.
If you do not have the internal capabilities of managing this task, then you could outsource it to another firm. That means another cost to manage, which might not be possible with your budget after signing up for the Amazon FBA program.
4. The seller’s fees can be very high on some product categories.
It’s not just the storage fees that will get you as a small business owner with the Amazon FBA program. There can be problems maintaining your margins because of the percentage that Amazon takes from the total sale price. The rate can be as high as 45%, which means making a profit could be rather difficult – especially when you combine the other costs that come your way. Make sure to look at the entire expense profile if you are considering this program so that you can know what your profit levels will be.
5. There can be problems with inventory delays and lost products.
There have been instances with the Amazon FBA program where a series of delays from the warehouse has caused some products to fall to ship for few days – and sometimes several weeks. That means your customer doesn’t receive their product as expected, leading to a potential drop in your seller ratings, canceled orders, and negative hits on your overall reputation.
Even if the delay does not adversely impact your customer, it means your product sat on a pallet on a loading dock for some time, locking up your capital without the chance to earn more money. If the item gets lost in the supply chain, then it is up to you to file a complaint with the FBA program to get a reimbursement.
6. The reimbursement amount from Amazon might not be reflective of your costs.
If Amazon loses one of your items, then there is no guarantee that they will pay your claim even if you file all of the appropriate paperwork to do so. That means your lost item becomes a revenue loss without anything you can do to stop the issue. If they do decide to grant a reimbursement, then it could be based on their internal valuation of your item instead of what it is worth to your bottom line. That means you might not even break even on that transaction. If this happens more often than not, then you could be out your product and your profit with no way to recover.
7. All of the branding goes toward Amazon instead of your business.
The exterior branding of all of the fulfillment processes are for Amazon instead of your company, even though there wouldn’t have been a sale if you didn’t make the product in the first place. You do get to have your business name on the shipping label, but that rarely makes an impact on the customer or an observer. All Amazon FBA boxes ship with the Amazon logo. You don’t even have the option to include a personal note from you to the customer.
You will receive multi-channel fulfillment with Amazon FBA, but any orders from your website or other platforms still get sent in those Amazon boxes. This issue can create some confusion for your customers, reduce the quality of your relationships, and eliminate the idea of having a strong brand presence.
8. There are no customization options available to you.
If you want to customize a package that gets sent to a customer, then you cannot make that happen through the Amazon FBA program. Handwritten notes or gift-wrapping must go through the e-commerce platform, which means you don’t have a say in the final presentation of your item unless you go through that entire presentation process before shipping the item to the Amazon warehouse.
The goal of this program is to create efficiencies in the process. That’s why it may be better to use a third-party fulfillment provider that can add personalized marketing materials, inserts, and other items to each order while using branded boxes to help improve brand recognition.
9. Having access to easy returns can mean more returns happen.
It is not unusual for sellers to see a higher rate of returns on their products when they start using the Amazon FBA program because it is easier to process one. That means you’ll get hit with more of those return fees while the profits from your items go away. Even if the item isn’t returned in a sellable condition, Amazon might decide to offer a refund anyway which could come out of your bottom line. You might see test buys and impulse purchases from customers as well, adding another layer of potential disadvantages to this issue.
10. There are strict product preparation guidelines to follow.
The Amazon FBA program has strict guidelines which you must follow when preparing your items to ship to the warehouse. Each product must be correctly entered into the Amazon database, have the correct labels, and then be sent to the designated warehouse. If you get any of the elements wrong, then the order may be rejected, and you’re stuck with the shipping cost.
That means your items remain out of inventory until you now their final disposition, so selling on multiple channels can be problematic because you might not know the exact status of some items for 1-2 weeks if an error occurs.
Verdict on the Pros and Cons of Amazon FBA
The Amazon FBA program allows almost anyone to list an item for sale on Amazon. You can do so if you’ve purchased the item at wholesale, made the item by yourself, or you have something that you no longer want. By enrolling in this option, you can automate the order fulfillment process through the advanced shipping and fulfillment services, earning more sales from the coveted Prime demographic.
Approximately 50% of all sales on Amazon right now come from a third-party seller. Out of the top 10,000 sellers active on this e-commerce platform right now, about 2 out of every 3 of them are using the FBA program.
If you want to expand your online sales presence, then moving to Amazon makes sense. When you don’t want to manage the shipping or fulfillment process for your customers, then this option makes sense. It may come at a cost, but the time you save can help you to scale your business like never before.
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