I’m asked all the time about FBA (Fulfilment by Amazon) and what the advantages are. Many sellers that are used to selling on eBay, or Shopify think the fees are too high, or they wait until their business grows large enough that they can no longer handle the shipments themselves, before switching to FBA. These people are leaving a lot of money on the table.
If you’re still doing the majority of the grunt work, you don’t have a business, you’ve just created a job for yourself!
I encourage selling on multiple platforms and distribution channels, instead of relying on just one source for your sales. But the reality is, Amazon get way more traffic than any other eCommerce site and are often the first place consumers go when searching for products. Just think of your own recent online purchases. I bet a good majority of them came from Amazon?
If Amazon get the most traffic, then why not just list your products there and self-fulfil orders as they sell? Aren’t the fees lower this way? Well you could, and this does still make sense for certain products that are really heavy, large, high value, or restricted by Amazon’s warehouses. But for the vast majority of products, it’s not a good business decision. Why is that? I’ll explain below.
- Amazon Prime customers pay for products because they value reliable, 2 day free shipping on their orders. This opens up an opportunity to you as an FBA seller to sell to these customers and make more profit. Prime customers are also the fastest growing group of buyers on Amazon, and they’re adding more every day.
- FBA handle all shipments to the customer. You don’t have to spend your money on packaging materials and boxes for individual shipments
- No more expensive shipping costs to customers – FBA ship all of your orders for you
- No more touching packing tape and running to the post office to ship individual orders. Huge time saver.
- FBA handle all customer service inquiries and product returns – No more dealing with customer complaints and negotiations. – Major stress relief.
- Massive storage ability – Amazon’s warehouses are huge and you can scale your business as large as you like without needing your own warehouse space
- You can still sell products stored at FBA from your own eCommerce store, or eBay and they’ll pick, pack and ship your products to the end user for you! It’s less expensive than shipping yourself too!
Some hard facts On Costs and Fees
Here are some scenarios for various ways you could sell your product.
Option 1 – Sell on eBay
Let’s say you have a product you’re currently selling for $25.00 with Free shipping on eBay. Ebay and PayPal would take 13% roughly of your sell price. leaving you with $21.75. Assuming this is a smaller item, and your average shipping cost is about $7.00. You’re left with $14.75 Then you have to supply a box, bubble wrap/air cushions, and print out a shipping label (Let’s assume $1.00 cost for materials), leaving you with $13.75. This doesn’t include eBay listing fees, or the cost of your time and gas to package, drive to the post office and print shipping labels etc.
Gross Profit Option 1: $13.75
Option 2 – Sell on Amazon as MF (Merchant Fulfilled – You ship it yourself)
Same as above, but you sell on Amazon as MF (Merchant Fulfilled) for the same $25.00 with Free Shipping. Amazon take a 15% commission leaving you with $21.25, less postage ($7.00), packaging etc ($1.00) = $13.25
Gross Profit Option 2: $13.25
Option 3 – Sell on Amazon FBA
Amazon Prime customers pay a higher price than regular customers and are the fastest growing group of buyers on the platform. They value quick, 2 day free shipping over saving a couple of bucks and waiting longer to get their stuff. As a result, you could likely realistically sell your same product to Prime customers for $29.99 or higher. Once it sells, you’d pay Amazon about 30% in fees, leaving you with $20.99 profit. You’d have to get your products to Amazon’s FBA warehouses initially before you could list as FBA. So there’s inbound freight costs you’ll need to factor into your cost. But the good news is that you get to use Amazon’s deeply discounted UPS account, where the average cost is $0.40 per lb. Let’s assume your product weighs about 2 lbs, and you’re shipping a box 50 in at once. You’re cost per unit for freight works out to about $0.80. You’re left with $20.19.
Gross Profit Option 3: $20.19
So in the examples above, you were able to make an additional $6.44 profit per unit sold using FBA over eBay and and additional $6.94 using FBA over Amazon MF! And you didn’t have to touch any packaging tape, boxes, deal with customers, or run to the post office! Your time savings make this even more profitable when you factor that in as well. It truly frees you up from doing the grunt work, allowing you to focus on growing your business.
I hope you can see how selling with Amazon’s FBA program can greatly benefit you and your business? There are some caveats you need to be aware of however before jumping in.
- You can’t ship certain products to Amazon FBA Warehouses. Here’s a list of current products that are restricted: http://www.amazon.com/gp/help/customer/display.html?nodeId=201790610
- Some product categories require Amazon’s approval before you can sell them. They include Grocery, Clothing/shoes, DVD/BlueRay, Luggage, Sunglasses, Automotive, Health & Personal Car, Beauty, Jewellery to name a few. A complete list can be found here: http://www.amazon.com/gp/help/customer/display.html/?nodeId=14113001
- Certain brands are restricted on Amazon and you’re not allowed to sell them. A list of many of the known restricted brands can be found here: http://www.smartfbaincome.com/amazon-restricted-brands/
- If you store a product for over 6 months, they assess long term storage fees. This is to prevent people from abusing their warehouses to store slow moving items.
- FBA doesn’t work well for oversized or heavy items. They charge a lot for these types of products, and you’d likely be more profitable storing and shipping yourself in these cases.
- You ideally want use FBA only for products that sell for at least $15, ideals $25 or higher. This is because FBA have certain fixed fees that as a percentage eat into profits significantly for lower priced items.
- You don’t get to control how/when refunds are issued to customers. Amazon pride themselves in customer service, and they have a very liberal return policy. There are times they’ll refund a customer for an order, and a damaged product gets returned back. Sometimes they’ll reimburse you, often they will not. It’s a cost of doing business, so go into FBA knowing this and remember that YOU don’t have to deal with angry customers yourself any longer. It’s also a reason you may want to reconsider sending valuable items to FBA.
- Amazon charge $0.50 per item to have it removed and shipped back to you from the FBA warehouse. If your account were ever suspended, or a listing became restricted, the cost to ship all of your inventory back could be significant.
If you’re interested in learning more about Amazon FBA, consider joining 4,900+ people in our Seller Academy.
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