As more and more sellers are joining the Amazon marketplace, there is the lingering question of “Should I use FBA?”. Another one is “Will FBA fees put a strain on my business?”. And of course, “Are Amazon FBA fees worth the cost?”. If you have considered starting a business in recent times, then you have most likely asked several other variations of these questions.
And to tell you the truth, there is no one-size-fits-all answer for this. Every person’s risk tolerance is different, and what may be worth it for some people isn’t acceptable to some. However, there are always hard and fast rules regarding how you should deal with your online marketing business. And in this article, what we want to give you is a guide giving you the pros and cons of using FBA for your business. We’ll discuss the in-and-out of FBA and also show you tips on how you can reduce your costs.
This brings us to the one question that answers all other questions, “Are Amazon FBA fees worth the cost?”. You will find out about this and more in the next sections. So let’s dive right in.
Table of Contents
What Is Amazon FBA?
Before we ask “are amazon FBA fees worth the cost?”, the first thing we should understand first is how fulfillment in AMZ works. In AMZ, you are given two ways to fulfill your orders. The first one is Fulfillment by Merchant (FBM), which is often the usual way of handling things for third-party sellers.
Under the FBM method, sellers are the ones who pick, pack, wrap and ship the orders to their customers. They might have their personnel who are assigned to do this task. But they don’t employ AMZ and its subsidiaries to help in fulfillment. While this makes the setup a lot more flexible, it can also be taxing. Imagine having to ship and fulfill hundreds of orders during the holidays? How about a thousand orders during Black Friday or Thanksgiving? It can be really hard for small companies without their personnel to do this. This is why FBA was introduced.
Amazon FBA is the platform’s Fulfillment option for third-party sellers. FBA simply means Fulfillment by Amazon, which means that AMZ will take care of order fulfillment. Third-party sellers who choose this option will have an easier time getting their products delivered to their customers. By leveraging AMZ’s vast network of shipping partners and logistics, sellers will have more time on their hands. All you have to do as a seller is make sure that you send your products over to AMZ’s fulfillment centers.
When you choose to use FBA, AMZ personnel will handle the storage, packaging, and shipping of your products. They will also provide Customer service for your business, which means they also handle refunds, replacements, and returns. However, all these services come at a price that you will have to pay. From the bubble wrapping of your orders to the use of packaging tapes, you’ll have to pay AMZ for every little thing.
But before we ask “are Amazon FBA fees are worth the cost”, how exactly does FBA work?
Related: Is Amazon FBA profitable in 2020
How Does Amazon FBA work?
FBA follows a simple procedure. The major part is that sellers have to be responsible for making sure their products are available. What we mean by that is you have to always keep your inventory filled. Since it takes time to send your products over to AMZ, as well as AMZ receiving them, you need to ship them in advance. You need to have a feel for your inventory and know when you are going to be sold out.
Based on the history of sales, and barring a sudden increase or decrease in orders, you can easily estimate this. So for example, if you feel like you are going to be sold out within 5 days, you should wait. You should already get your next batch of inventory ready to be shipped and received in AMZ’s warehouse.
Before you ship your products over to AMZ, you also need to make sure that you are following their standard guidelines and procedures. Inventories that don’t follow AMZ’s rules will be refused and returned to their sender. This is something you don’t want to happen because it will waste lots of time and money on your end. You can verify here all of Amazon’s packaging and preparation requirements for inventories.
After making sure your products follow AMZ’s requirements, the next step is to get your products delivered to the fulfillment center. Your products will be sent to AMZ and can be tracked through their tracking system until they’re received. They then take note of your customer’s orders, then proceed to pick, pack, and ship the items ordered. They will also provide tracking details, customer service, and return management when necessary. With this, you won’t have to worry about dealing with grumpy customers anymore.
FBA is not restricted to third-party sellers alone, it can be used as a stand-alone fulfillment option (Multi-channel fulfillment) especially for sellers who have stores across several other marketplaces.
However, fees vary depending on how you intend to use it. Regardless of the fees, the benefits of a service are a more concrete reason to decide whether or not you want to use it.
Benefits Of Using FBA
So you want to ask “are Amazon FBA fees worth the cost?”, right? To show you if the cost of the fee is worth paying, here are some of the benefits of using this service.
- Easy Order Fulfilment
Sellers often worry about order fulfillment, the hassles involved can be exhausting especially for beginners. However, with FBA, sellers no longer have to worry about storage, packaging, shipping, and customer service. They will take care of these order fulfillment processes giving the sellers room to focus on other tasks.
- Higher Chance at Winning Amazon’s Buy Box
A seller’s dream is to get their product into the Buy Box, which could bring them more sales. In many cases, it’s the first interaction a customer has with a product they’re interested in.
Nobody other than Amazon is aware of the exact algorithm used to determine who is given a buy box. However, it is well known that free or quick shipping will sway the decision. It is said to prefer FBA sellers since they can be assured that the orders will arrive on time. So are Amazon FBA fees worth the cost? If it makes you win the Buy Box consistently, then probably yes. Because winning the Buy Box consistently means you are making more money in the process.
- Lower Business costs
Sellers who opt for FBA will not have to worry about storage and packaging. If you’re just starting to sell online and do not have the resources to store your products, FBA is the cost-saving option for you.
- Customer service and return processing
With their fulfillment service, AMZ also offers customer service and return order processing services for your business. This way you will be rest assured knowing that your customers will have access to excellent customer service and a seamless return process without you having to spend extra time offering both services.
So are Amazon FBA fees worth the cost? Let’s find out in the next section below.
What are Amazon FBA Fees?
The fees sometimes vary from seller to seller depending on what selling plan you’re on. They charge $0.99 per sale for sellers on the Individual plan and a $39.99 flat rate for sellers on the professional plan. So if you want to know “are Amazon FBA fees worth the cost?”, this is the section you should pay attention to.
To determine your FBA fees, here’s what to do:
- Decide whether your item is apparel or not.
- Take note of the size of your product, which can be standard or oversize.
- Calculate your product’s weight.
To calculate your product’s weight, you will need to be sure of its dimensions and specific item weight. Once this is done, Amazon’s chart for FBA fulfillment fees will help you arrive at an estimated cost for the product.
This chart will show you the fees for your product based on its size and specification. The fees are often classified depending on if the product is apparel or non-apparel, and depending on its weight. So, standard size, small-weight items typically cost less than oversize items with large weight.
After concluding on the cost of the item based on size and weight, the next thing to do is to add the cost of storing your inventory monthly.
If you use FBA for Multichannel fulfillment, your costs will be different from those who sell only on the AMZ platform.
When calculating your FBA fees, there are a couple of other fees to consider, although you may not have to pay all of them depending on the kind of products you sell. These fees include Labelling, prep service, repackaging fee, long-term storage fees, returns processing, unplanned services, removal order, and oversize items.
They understand the need for you to know what you’re getting into, so their fees are mostly not hidden. And there are several resources to help you calculate your FBA fees based on your product specifications. So are Amazon FBA fees worth the cost? It’s only you who can answer that. If you think that the resources offered by AMZ save you a lot of time, then the answer is probably yes.
These resources include:
- FBA fees
- Multi-channel fulfillment fees
- Monthly storage fees
- Complete list of fees
If you are not too good with numbers, you can check out software that contains tools to help you calculate your fees. Their Fulfillment by Amazon revenue calculator is one that you can use, although it requires a professional account to use it.
Reviews their fees annually, so be sure to always keep up with whatever changes they make.
Amazon FBA Disadvantages
FBA may offer some essential benefits but the service isn’t without its disadvantages. So are Amazon FBA fees worth the cost? Or are there too many cons and disadvantages to consider using it, especially for a new seller? To help you decide, dere is a few you should be aware of:
- Product Mismatch
AMZ usually has warehouses in different locations, and they often try to minimize costs by shipping orders from the location that is closest to the buyer. So if a buyer orders a product from a seller whose products are not in the same location, the product will be shipped to the buyer but from another seller’s inventory.
More often than not, the quality of the products differs. So if the products that end up being shipped are of bad quality, the seller whose original products weren’t shipped will still have to bear the brunt.
- Prolonged Storage Fees
Charges you more when you have your inventory sitting on their shelves for longer than 365 days or during peak seasons like Christmas.
The more stale your inventory is, or if it has a long shelf life, the more rent you’re paying to store it. Even if it’s not going to sell, it still adds up. It is more difficult to track your inventory when you have many products to store.
- Shipment Hassles
They will handle shipping and packaging your orders to your customers, but you must make sure your inventory gets to warehouses promptly.
Sellers who have large inventory may struggle to deliver their products to AMZ’s fulfillment centers promptly. Shipping products and having them carry out future deliveries on your behalf can be very stressful and at the same time be cost-intensive. If you are a beginner seller, it may not be your best bet.
How to Lessen Your FBA Costs?
Even if we have already answered the question “are Amazon FBA fees worth the cost?”, sometimes it is not enough. Some sellers still find the fees too high, which is why we are writing this section about how to lessen your costs. As a third-party seller who is just starting without too much capital, this is an important thing.
To help you out, we have listed below some of the ways that you can do to lessen FBA fees.
Avoid overstocking
We already know that AMZ charges people who use their fulfillment service a monthly fee to store their inventory. But did you know that AMZ charges you a fee whenever your products aren’t sold within 365 days? Yes, you heard it right. This fee, also known as “long-term storage fees”, are charged to sellers whose inventories reach more than 365 days in fulfillment centers. So if you want to avoid these fees, make sure that you don’t send too many items that you can sell to the fulfillment centers.
Keep packaging light and small
Avoid the fancy packaging that consumes a lot of empty spaces. As you might have known by now, AMZ calculates its fees by checking the size and weight of products. If you ship a heavy product with a lot of space in packaging, it might spike up your fees. If you can keep packaging light and small for your products, that would be the best compromise. Just make sure to protect your items with bubble wraps or sturdy boxes to avoid damage.
Prepare and Pre-pack Your Products If You Can
AMZ doesn’t offer its services for free. It will charge you with every little thing that it uses to pack your products. This means packaging tapes, bubble wraps, gift wraps, and even boxes need to be paid for by you. And while the costs of these are only pennies and cents worth, they can surely add up. Imagine having to bubble wrap 1000 items for around $0.20 each? That’s already $200 that you could have saved if you just bubble wrapped on your own, right?
You can easily cut some of these costs by preparing and pre-packing your products whenever possible. This is one of the most underrated by effective ways of reducing your fees.
Conclusion: Are Amazon FBA Fees worth the Cost?
Deciding whether or not FBA fees are worth the cost is largely dependent on what your priorities are and what strains your business can accommodate.
If you want to be able to carry out prompt delivery and gain more credibility from customers, then you certainly shouldn’t mind shouldering the costs that come with Amazon FBA. Also, sellers who are just starting and cannot afford to store or ship their products to buyers individually will find FBA useful.
Even if we already addressed the question “are Amazon FBA fees worth the costs?”, sometimes it is just not doable. If your business cannot take the strain of too many costs yet, then you may want to consider other fulfillment options. If you have storage and can afford to store your products and ship when needed, you can also do FBM.
With Amazon FBA costs, it is not a one-size-fits-all approach. If it’s the best option for your business, then it is worth the cost. But if you don’t have a lot of capital to start with, self-fulfillment might be the way to go. So are Amazon FBA fees worth the cost? It’s up to you to answer this. If using the service saves you a lot of time that you can convert into productivity, then you should probably consider it. After all, time is gold, right?