Have you ever considered diversifying your income sources? Then you must have thought of starting a business. Nowadays, selling is easier than ever before. This is because you do not have to run typical brick-and-mortar businesses, marketplaces like Amazon have made this easier. Amazon is rated the best marketplace to sell on. But beyond the glowing reviews that you see online, it also has its drawbacks. Only a few people talk about these. Hence, in this post, we will discuss 8 pitfalls of Amazon FBA. First, what is FBA?
Fulfillment By Amazon (FBA)
Selling online involves fulfilling and shipping orders. AMZ offers two fulfillment options to its third-party sellers.
- Fulfillment by Amazon (FBA)
- Fulfillment by Merchant (FBM)
The former is our focus in this post. Amazon FBA allows sellers to outsource certain business processes to AMZ. They will handle storage, shipping, and fulfillment on behalf of sellers. Sellers who choose this option will not have to worry about storing their inventory. AMZ will store, package, and ship orders. They will also provide customer service on your behalf.
As you may have already guessed, under the FBM option, you will be responsible for these processes. In this post, we will show you 7 pitfalls of Amazon FBA that you’ve probably never heard of. This is not to say that FBA has no benefits, it sure does. Here are a few that may interest you.
Amazon FBA: Benefits
Multi-Channel fulfillment services
Using FBA affords you the opportunity to sell across many marketplaces. Fulfillment by Amazon can also be used to fulfill orders on other marketplaces. Once you store your orders in AMZ’s fulfillment centers, you can sit back and make your money. Amazon will handle fulfillment from start to finish. In summary, you can sell on other marketplaces and still outsource fulfillment to AMZ.
Lesser Shipping Fees
Selling on FBA means that you’re no longer responsible for shipping orders. Hence, you will not have to bear the cost involved in sending orders to various locations. Although FBA is not a free program, the cost is considerably lower. So if you want to cut down costs, then you can opt for this fulfillment option.
AMZ not only stores, packages, and ships your products. They also take care of all customers’ concerns on your behalf. Even the most dreaded return and refund management aspect is not left out. AMZ will manage all returns and refunds for you. The return service is free for most categories. But some other categories may need you to pay some fees.
Now that we have talked about the good sides. Let’s move on to the drawbacks that you’re most likely unaware of.
8 Pitfalls Of Amazon FBA
No Control Over Your Brand
Most entrepreneurs love to have control over their brands. But if you sell on AMZ through FBA, you’re may have to relinquish this control. You no longer get to run your business as you like. This is because AMZ stores and ships your orders following their own procedures.
FBA fulfilled orders come in a box that carries AMZ’s logo. Under the FBM option, you can decide to send personalized notes to customers. But this is impossible under FBA. Customers trust Amazon, so if your products carry the companies logo, you enjoy some of this trust. Still, if your aim is to build a brand, you may have to rethink it.
Building a brand on AMZ will be a bit difficult. Since your products are packaged by AMZ, they carry the company’s logo. Hence, customers may not know who the manufacturer is.
Long-Term Storage Fees
Amazon likes to help you store your products. But it does not like when your products stay too long in its warehouses. As a result, if your products don’t sell out quickly, you will incur extra costs. The cost of long-term storage isn’t a deal-breaker. But you’ll need to include it in your business budget to make sure that these extra costs do not catch you unaware.
AMZ also doesn’t store products that are not listed for sale. If you send these products to fulfillment centers, it may harm your business. If you have products like this, you can arrange to have them shipped back to you.
Customer Service Glitches
Customer service is a major aspect of every business. As a matter of fact, it is what determines whether your customers come back or leave bad reviews. FBA takes the burden of customer service off your shoulders, still, it is not as smooth as you might expect.
You’re AMZ’s customer since you sell on its marketplace. Hence, you may have to reach out to them to resolve complaints. Sellers have complained about AMZ’s slow, almost inexistent customer service. Surprisingly, buyers do not have the same issue. Also, if you want a personal feel to the way your customers are treated, FBA may not be the perfect option for you.
FBA inventory lag has been a complaint from some sellers. AMZ may take days or even weeks to fill your inventory into their system. The time frame is not certain, so it may be a long wait. Your customers’ shipments may be delayed as a result. If that happens, you may get bad reviews and miss out on future orders.
AMZ’s supply chain is quite long and disorganized. So, there is a chance of your products being misplaced along the line. If you experience this, you can file a claim with Amazon and they will compensate you for the loss. While the compensation process is ongoing, your sales will be on hold, so you’re not making any money. To make it worse, AMZ will compensate you based on their estimation of your product’s cost. Hence, the repayment you get may be lower than what your products cost.
Also, some sellers have reported having excess inventory. This usually occurs after sending their products to fulfillment centers. Remember that customer service can be bad sometimes? As a result, resolving this issue may be another roller coaster. The marketplace is not run by robots. So, no matter how perfect and organized it looks on the outside, you must remember this.
Higher Return Frequency
Returns are normal, but too many returns can hurt your business. Many FBA sellers have reported getting more returns. Why?
Amazon stores similar products together. So, your products will be stored with similar products from other sellers. When a customer makes an order, AMZ picks any of these products and sends it to them. The product in question may or may not be yours, but no one can tell. What this means is that the quality of your products may end up being compromised. As a result, your ratings may suffer and you’ll end up losing potential customers.
Amazon’s easy return policy also plays a major role in this. AMZ handles returns for FBA sellers, but this does not mean it won’t harm your business. in the past, AMZ’s traditional return policy required sellers to make arrangements for returns. Now, they will directly return items to your facility.
FBA Fees and Cost of Free Shipping
Products sold through Amazon FBA are Prime eligible. What this means is that sellers can sell to Prime subscribers. But they’ll have to offer free same-day or two-day shipping. While this may be a strategy to gain more customers, it can also cause a strain on your finances.
Some products cost too little to be eligible for free shipping, but you don’t get to choose. No matter how much profit you have on an item, Prime orders cost you shipping. Are you planning on signing up for FBA? Be sure to consider the costs of the service as well as the extra expenses associated with free shipping.
If you’re a new seller, you must find every way possible to minimize costs. FBA may be a very useful service, but it is not free. Some sellers consider Amazon’s fees too expensive, so be sure that you can bear the cost. If you can’t afford it yet, FBM may be a better option for you. Also, if the majority of your products are lightweight, you may want to reconsider. This is because FBA fees may not favor you. You can use an FBA calculator to estimate the fees before getting into it.
Having nexus with a state means that you must pay taxes there based on your physical presence in that state. Let’s take Jim for instance, he runs a clothing company. As a Houston-based company, he has sales tax nexus with Texas. As soon as a customer in Texas places an order, he must add sales tax and remit it to the state.
If Jim’s products are stored in a warehouse in another state, he may have sales tax nexus outside of Texas. If Jim uses FBA, he may encounter some issues with the sales tax nexus. This is because AMZ has fulfillment centers in many states. Keeping track of the exact locations of these centers can be difficult. According to AMZ, it is not their policy to divulge this information.
As a result, Jim will have no idea where his inventory is stored. AMZ may move his fabrics from one warehouse to another. Only by looking at shipping locations can he learn where AMZ stored them. Jim would then have difficulty collecting sales taxes.
The state handles regulating sales tax. You might not know which tax rate to use if your business operates in different states. The good news is that there are tools that help automate various tax situations and rules. So that you can figure out what to charge. Also, the marketplace can handle most of that for you.
Product Prep Requirements
As part of its Fulfillment process, AMZ has a set of requirements for its products. You must ensure that your products are prepared according to their requirements. Follow AMZ’s packaging and shipping guidelines before sending your products for storage. Some of the requirements may be confusing, so be sure to read up first.
Is FBA Worth It In 2021?
Selling online through FBA is not a bad idea. As a matter of fact, it is one of the easiest business models you will come across. But like every other business model, it has its pros and cons. If you ask us, the pros far outweigh the cons.
Here are some other reasons why we think selling via FBA is still a good idea.
- Seamless shipping and prompt order fulfillment
- Great return management system
- Fewer operational costs
- Passive income source
The drawbacks are not a tactic to discourage you from selling on AMZ. Rather, the aim of this post is to help you fully understand what you’re getting into.
Scaling an AMZ business is the next hurdle you will have to face. Product research, keyword research, and listing optimization are the core of your business. These processes are usually a hassle but it should be a breeze for you since you read to this point.
All you need is software to automate these processes on your behalf. Sellers, especially new sellers, need access to many seller tools. So if you are a new seller, you need all-inclusive software for your business. ZonBase is the best AMZ software for sellers who want to scale their businesses.
Related: Are FBA Fees Worth The Cost?
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