Is Fulfillment By Amazon (FBA) Worth It?

By Tami Ben-David
Published on April 11, 2016 | 37249 views

Fulfillment By Amazon

You’ve sourced all your goods and are ready to start selling them on Amazon. But what’s the best way to do so? What’s more worthwhile? For you to fulfill your orders yourself (FBM) or get Amazon to do all the hard work for you (FBA)?

The advantages of FBA are many

  1. Let Amazon do all the hard work

Why work extra hard when you don’t have to? Let Amazon’s fulfillment centers store your products and do all the legwork for you. When you receive an order, let Amazon’s employees pick, pack and ship your products, plus they’ll deal with all the customer service queries and returns.

  1. Enjoy the Amazon elite status

With FBA, your products are eligible for Super Saver Shipping, Amazon Prime and Buy Box Eligible status. These tend to lead to a higher conversion rate.

  1. Sell more stuff

Many argue that having the Amazon name attached to your status inspires trust in shoppers, since they know they can expect excellent customer service and speedy delivery. FBA could therefore result in more Buy Box wins, more sales, and ultimately more profit in your pocket.

The advocates of FBA say:

Despite the many fees Amazon charge for storage, order handling, pick & pack, weight handling, and commission, it’s still worth it. Selling via FBA makes you a far more desirable seller, which can make a massive difference to your bottom line.

In this video, multimillion-dollar seller Michael Ward describes the impact that selling with FBA had on his business:

 

But the question is, is FBA worth it for you?

While FBA is considered one of the most influential levers third-party sellers can utilize to improve marketplace performance and get ahead of their competitors, without a proper FBA analysis, many sellers will see their profitability fall short of projections.

So… should you use FBA?!

It’s the million-dollar question! And the answer is? Well, it depends.

It depends what you sell

Although some of the fees associated with FBA change according to product size and weight, the pick & pack handling fees are fixed. What this means is that if your items tend to be small(ish), not too heavy, and higher priced, it makes the FBA fees more manageable.

For example, the fees associated with a $10 item that is large and heavy will represent a large percentage of your profit margin, whereas the fees for a small and light item that sells at $30 will represent a much smaller percentage. Legendary Amazon seller and selling guru Skip McGrath gives the examples of a bracelet, gun holster, and Bluetooth speaker as examples of small, lightweight, high-priced items that win the Buy Box nearly every time.

Popular items that sell quickly are also great for FBA. It doesn’t make sense to send slow-selling items to Amazon, as these are likely to languish in storage, racking up storage fees. Some sellers dispute this, however, claiming that low sales rank items are ideal to sell via FBA, since their chances of selling improve with FBA due to their Amazon Prime teaser.

It depends how much you sell

If you’re a big seller, then physical storage space could be an issue. By sending your inventory to Amazon, you don’t have to worry about where to store it at your house or office. And with more storage space, you can sell more items. You’ll also have more time to focus on growing your business.

On the other hand, if you’re a small seller, you may also want to leverage FBA, since you likely don’t have an efficient fulfillment system of your own in place and or want to risk the potential negative effects that a poor customer experience could create.

It depends how much manpower you have

FBA could also prove extremely useful if you lack the manpower to cope with an overabundance of orders. To fulfill an item yourself will involve a trip to the post office, and with people expecting quick shipping, you need to be ready to fulfill their order within a day or two. If you receive a lot of orders, this could prove difficult.

You could take on extra employees at busy times, but this would involve managing a team, as well as knowing how and when to anticipate the busy times. It can be difficult to judge when you’ll have an influx of orders, and therefore hard to prepare the necessary manpower in advance. Whereas Christmas may be an obvious one, other times of year may not be, and you don’t want to find yourself stuck.

It depends how much you value Amazon’s reputation

At the end of the day, both FBM and FBA sellers have proven to be extremely successful.

However, there is certainly a strong school of thought that says that customers are more likely to buy from Amazon themselves, due to the strong level of trust that the company inspires in them. It always goes back to reputation. If something goes wrong, people know that Amazon will take care of it. They also know Amazon has mastered the distribution process and will send the item quickly.

Note: The official launch of Seller Fulfilled Prime in August 2016 indicates that the rules may be changing somewhat. Since the Prime label can now be bestowed on FBM sellers with excellent ratings, it’s an incentive for sellers to fulfill orders themselves yet simultaneously benefit from the Amazon name.

There’s also the argument that FBA sellers can sell for more because they have the Amazon name attached to them. Indeed, many Amazon lovers pay $99 a year for Amazon Prime, which entitles them to free 2-day shipping and other benefits. Since FBA items become Prime eligible by default, the free shipping works in your favor.

For example, say you had 10 boxes of coffee to sell, and were selling them from home at $42 + $8 for shipping. You’d have to go to the post office and pay to ship each sale individually, including the materials to put the coffee in. On the other hand, if you were selling FBA, you could ship all the boxes to Amazon in one go and then list them at $50 each with free shipping. So, the cost to the customer would be the same, but as an FBA seller, you’d be making more profit.

So, is FBA worth it for you?

The answer is that you need to really know your business. To work out which method to use for which items, you need to have an in-depth knowledge of your inventory and invoices. It takes smart thinking and playing your cards right, but once you’ve figured out which is the most profitable route for you, it will make the entire selling process a whole lot smoother.

For a more in-depth discussion about FBA and to learn how you can leverage the FBA infrastructure, check out The 2016 Guide to Fulfillment by Amazon.

Here’s a sneak peek inside the FBA eBook.

What is Fulfillment by Amazon?

“A common misconception is that sellers should either be 100% FBM or 100% FBA, yet most professional Amazon sellers are an FBA/FBM hybrid. Not every product a seller offers will be a good candidate for FBA for a variety of reasons, mainly size, sales performance, and margin.”

Product Discoverability & Buyability

“Discoverability is the ability for a product listing to be found on Amazon. From a consumer’s point of view, Amazon is essentially seller gnostic, focusing search results on products rather than the sellers of those products. Buyability is focused on converting that traffic into orders.”

 2016 FBA Fee Updates

On top of the existing Marketplace referral and variable charges, Amazon charges multiple fees to sellers who wish to use the Fulfillment by Amazon service. FBA fees are added in addition to the typical Marketplace fees for a seller’s product category.”

 The Pros & Cons of FBA

“The decision of whether or not to fulfill through Amazon should not be made on a whim. Sellers must evaluate many different factors in their decision-making process, since what may be right for one seller may not be the correct way to go for another. Sellers may also decide that some of their products may be suitable for FBA but others are more appropriate to fulfill themselves.”

 Inventory Management

Amazon provides sellers with an option to skip the label process by selecting the option of stickerless, commingled inventory. Commingling on Amazon has gotten a considerable amount of flak from both sellers and consumers. Some businesses have noted that fake products can get mixed in, which leads to negative brand perception, negative reviews, and potentially even unwarranted product returns.”

Amazon Seller Fulfilled Prime

“The objective of the Amazon Seller Fulfilled Prime program is to provide Prime shipping privileges to Amazon sellers that have established their ability to ship merchant-fulfilled orders and meet Amazon’s high performance levels (through FBA).”

 

 

 

Sources:

http://www.theonlineseller.com/2013/04/05/is-fulfillment-by-amazon-fulfilling/

http://www.ecommercebytes.com/C/abblog/blog.pl?/pl/2013/1/1357234497.html

About the Author

A British ex-pat, Tami been writing and content-strategizing for Israeli tech start-ups for the last 5 years. When she's not writing nerdy content, you can find Tami on open water charity swims or traveling to far-flung countries.

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