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What Is Amazon FBA and How Does It Work?

What Is Amazon FBA and How Does It Work?

Is FBA worth it for Amazon sellers? We take a look at the pros and cons of Fulfillment by Amazon for your business.

When becoming an Amazon seller, you have two options. You can store and ship the products yourself (Fulfilment by Merchant) or opt for Fulfilment by Amazon (FBA), which is a service that enables online merchants to use Amazon warehouses to store and ship the goods they sell on the Amazon website.

FBA is an option preferred by many, as it can help your online business grow without the need to invest large sums of money into storage facilities and staff. But what exactly is Amazon FBA, and what does it involve?

How does Amazon FBA work?

Amazon FBA provides sellers with storage, packaging, and shipping assistance. This means the seller no longer has direct responsibility for these areas of their business, leaving them to focus their efforts elsewhere. Once signed up to the program, sellers ship their merchandise to an Amazon fulfilment centre where it will be stored in an Amazon warehouse. Once an order is placed with the seller, Amazon employees will prepare, package, and ship the product(s) to the customer.

The Amazon FBA process is a straightforward one. For those who sell on Amazon, it’s very easy to set up, and once your products have been added to the FBA section of your Amazon seller account, Amazon takes care of the rest.

Not only does Amazon pack and ship the products from their Amazon fulfilment centres, they also deal with the majority of customer service tasks, including refunds and returns, and everything related to the transaction itself, from payment to updating your inventory. They also handle all correspondence with the customer, including emailing to let them know that their order has been dispatched.

As the seller, you’re responsible for keeping the stock up to date and creating the product listings, but once you’ve shipped your stock to the Amazon warehouse, they’ll look after the shipping and payments. For this service, there are various Amazon seller fees payable, depending on the plan you choose. Any profit made will be paid into your bank account every two weeks.

Is Amazon FBA worth it?

There are many benefits to Amazon FBA for ecommerce businesses, but it should be remembered that there are downsides too. Here are a few pros and cons to consider before making a decision one way or the other.

The advantages of Amazon FBA

Amazon’s reputation can help your business

Amazon is a trusted brand, and because of that, buyers are reassured when they purchase a product associated with the Amazon name. This kind of quality guarantee is invaluable for any business, and the advantage of Amazon FBA is that you can benefit from it without having to spend time independently building a reputation for quality and reliability.

Fast shipping with subsidized fees

Orders are processed and dispatched quickly at Amazon’s highly efficient Amazon fulfilment centres, probably faster than you would be able to do. And because Amazon has formed close relationships with the shipping companies it uses, sellers will receive discounts on their shipping costs. Sellers using FBA can also offer free shipping on orders that qualify for Amazon Prime or FREE Super Saver Shipping.

Higher ranking and better visibility

When you’re signed up to the Amazon FBA program, your products appear higher in the search results. This is because they’re listed by price only, whereas non-FBA sellers have their items listed by total price (the product and shipping costs).

Reduced overheads

Without the need for storage, employees, or administration, FBA sellers can reduce their overheads and save money. With the merchandise stored in an Amazon warehouse, the packing and shipping done at an Amazon fulfilment centre, and the inventory and customer service looked after by Amazon, your overall business costs will be lower.

Time saved

Because with Amazon FBA you don’t have to deal with all the packing, shipping, and administrative tasks that usually come with being an online merchant, you can focus on increasing your productivity and profits instead. Just think of how much better you can use your time when not standing in line at the post office or dealing with a customer service problem.

The disadvantages of Amazon FBA

FBA fees can be costly

Of course, Amazon doesn’t offer these services out of the goodness of its heart. They’re running a business too and therefore charge FBA fees; all of which you need to take into consideration before deciding if Amazon FBA is right for you. Fulfillment and storage fees can add up over time, particularly if you’re not moving your stock as quickly as you’d hoped. Also, sellers are charged removal fees and disposal fees for unsellable inventory.

Strict product guidelines

The guidelines for preparing and shipping your products to the Amazon warehouse are strict. If the products fall below Amazon’s specific requirements, they’ll be rejected when they arrive at the warehouse, which can mean delays and extra work for you. So be sure to read the instructions carefully. Alternatively, you can have Amazon prep your FBA products for a per-item fee.

Can’t use your branding on product packaging

Orders dispatched by Amazon FBA will have Amazon’s branding on the packaging rather than yours, which can make it difficult to build brand awareness. This is something you’ll need to weigh up against all the advantages and disadvantages of registering as an FBA seller. If brand awareness is a priority, the Amazon FBA program may not be the best solution for you.

Mixing of FBA products

If you have FBA products that are the same as another seller, they will be stored together in the Amazon warehouse. This mixing of inventory means, potentially, poor-quality products from less reputable sellers could end up being pooled with yours.

Returns are more common

Thanks to the easy returns process at Amazon, you may find more of your products are being returned once you’re registered with Amazon FBA. This can be mitigated by ensuring that your FBA products are of the highest quality, but there will always be customers who return a product due to buyer's remorse or because it was an impulse buy.

Is Amazon FBA right for me?

If the majority of your business is through Amazon, then FBA is a good option. It takes away the day-to-day stress of fulfilling orders, dealing with returns and refunds, and unhappy customers. With everything being taken care of from the Amazon fulfilment centre, you can get on with sourcing new products and expanding your business. As with anything, though, do your homework first before committing to Amazon FBA.

To find bespoke solutions for your business, optimize your VAT costs, and reach millions of new potential customers, email us at mycompliance@taxually.com and we’ll arrange a free call with one of our VAT experts.

December 9, 2023
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when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries
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