Amazon FBA: How It Works – Pros & Cons, How to Get Started
- First, you deliver your goods to an Amazon fulfillment center. Before being shipped, your goods must be prepared and packaged in accordance with Amazon's requirements. As an alternative, you can pay to use the Amazon FBA Prep Service.
- After your goods are delivered to the fulfillment center, warehouse staff will scan, organize, and store them.
- Next, the warehouse staff will pick and pack the goods from the inventory that customers have decided to buy.
- Then, Amazon delivers the package to the customers.
- Finally, Amazon handles other after-sales services, including returns, refunds, and product exchanges.
- Inventory storage fee: It is charged for all products kept in an Amazon fulfillment center based on your daily average inventory volume and measured in cubic feet.
- Long-term storage fee: All items kept in the fulfillment facility for more than 365 days are subject to this monthly charge. Yet, the facility will keep your inventory in good condition and prevent paying long-term storage fees.
- Fulfillment fee: Your orders' picking, packaging, shipping, handling, customer support, and product returns are all charged per unit. You can sample your fees and predict them using the Amazon FBA revenue calculator.
- Unplanned services fee: It will occur when inventory doesn't appear at a fulfillment center prepared or labeled properly, necessitating unanticipated services.
- Removal order fee: For an amount per item, you can pay Amazon to return or get rid of your inventory in a fulfillment facility.
- Returns processing fee: It is charged on orders that Amazon offers free return shipping to a customer.
- Choosing and sourcing the products you offer: You should search for products with a high demand, little competition, and a healthy Amazon profit margin when deciding what to offer on Amazon FBA. These products can ensure steady sales and substantial profit.
- Upkeeping of a fully filled inventory: Amazon does not manage your inventory on your account; rather, it simply stores it in its warehouse. It is your duty to monitor store levels to prevent running out of supplies.
- Promoting your products: You can reach a sizable customer group by selling with FBA, but you still need to promote your products. The proper marketing strategies will broaden your audience and help new customers find your products.
- Keeping track of your profit: You need to closely track all costs and revenue, collect data and generate reports to get insights into how your business is doing. However, the problem with manual tracking is that even your most updated spreadsheets are outdated. When you've gathered data from 10+ sources to calculate your Amazon profit, you're looking at past data. A smarter way is using a real-time profit margin calculator to always know where your business stands.
- FBA customer support: Day or night, customers can reach out for support by phone or email. You won't be charged extra for this service with the only exception of the Returns Processing Fee for certain product categories.
- FBA returns: They will take care of all customer service related to the fulfillment of your FBA goods for orders placed on the Amazon.com website that Amazon fulfills.
- FBA only: 57%
- FBA and FBM: 34%
- FBM only: 9%
- Fulfillment by Amazon (FBA): A method of selling on Amazon that we have discussed above.
- Fulfillment by Merchant (FBM): A method of selling on Amazon in which a seller lists their products on Amazon, but manages all storage, shipping, and customer support themselves (or through another third party). This is the same as Dropshipping. However, you will be entirely accountable for the packaging, delivery, and customer service in this form.
- Amazon FBA sellers have higher profit margins while FBM sellers have more sales: 33% of FBM sellers generate a monthly income of over $25,000 compared to 26% of FBA sellers. In contrast, 37% of FBA sellers have profit margins of over 20% compared to 32% of FBM sellers.
- FBM sellers get started on Amazon more quickly than Amazon FBA sellers: 51% of FBM sellers launched their Amazon businesses in under six weeks compared to 34% of FBA sellers. Meanwhile, 28% of FBM sellers made a profit in less than three months compared to 20% of FBA sellers.
- Step 1: To set up Amazon FBA, create an Amazon selling account and enter into Seller Central. Individual and Professional are the two selling options that Amazon provides. With both options, Amazon FBA is compatible.
- Step 2: Create a product listing for the items in your inventory. Once you finish adding products to the Amazon catalog, specify FBA inventory.
- Step 3: Prepare and package your products in accordance with Amazon's packaging requirements, shipping and routing requirements for safe and secure delivery to a fulfillment center.
- Step 4: Build a shipping plan, make labels with the Amazon shipment ID, and send packages to the Amazon fulfillment facilities. Customer purchases can be made after Amazon gets the goods at the fulfillment facility.
Leah Tran
Content Executive at TrueProfit & eCommerce Content Specialist
Leah Tran is a Content Specialist at TrueProfit, where she crafts SEO-driven and data-backed content to help eCommerce merchants understand their true profitability. With a strong background in content writing, research, and editorial content, she focuses on making complex financial and business concepts clear, engaging, and actionable for Shopify merchants.
Leah Tran is a Content Specialist at TrueProfit, where she crafts SEO-driven and data-backed content to help eCommerce merchants understand their true profitability. With a strong background in content writing, research, and editorial content, she focuses on making complex financial and business concepts clear, engaging, and actionable for Shopify merchants.
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