Amazon’s FBA program enables any business, regardless of its size, to:
- showcase their products in front of millions of potential buyers,
- take advantage of the largest fulfillment network in the world,
- leverage Amazon’s first-class customer service and storage capabilities.
While there certainly exist a segment of merchants that have successful online businesses based in the Amazon marketplace who do not use Amazon’s FBA program, many sellers would argue that this is by far and away from the exception, rather than the rule.
In fact, the overall sentiment amongst the vast majority of sellers is that FBA (Fulfillment by Amazon) has become an indispensable part of any Amazon business wishing to survive in today’s ultra-competitive environment.
Regardless of where you stand in terms of how you deliver your product(s) into your customer’s hands (the exception or part of the majority), it’s important to have a solid understanding of the pros and cons of the program, as well as how FBA fees are determined.
A clear understanding of the often complex nuances of how FBA Fees are determined can be the catalyst for those sellers who are currently not participants in the program to reconsider, and for those sellers that do use the program in their businesses, to gain powerful insights that can help them to save a significant amount of money over time.
The Pros and Cons of Using FBA
Pros:
Convenience – Amazon will take care of all the shipping and storing logistics which will free the seller up to source items and grow his or her business. FBA allows sellers to outsource the entire process, taking advantage of their expertise and experience.
Higher selling price and volume – once an item is fulfilled by Amazon, the seller can sell it at a higher price. (Consumers love the Prime service and will pay more for it). Sellers will also be able to sell more items compared to self-fulfillment.
Search result placement – Amazon’s algorithm favors FBA users. As a member of the FBA program, the seller’s products will appear higher in search results on Amazon and may sell a higher quantity of products as a result.
Consumer confidence – a seller offering their product(s) to consumers under the FBA umbrella provides buyers with a sense of trust and confidence that their items will be shipped in a timely and professional fashion.
Quick delivery – Amazon has hundreds of fulfillment centers all over the world. So, no matter where a seller’s customers are located, they can reliably get products delivered to them within just a couple of days.
Customer support – Amazon provides volume customers with customer support 24 hours a day and deals with the logistics of returns.
Discounted shipping rates – Amazon’s contracts with the major shipping carriers give them steep discounts on shipping costs. They pass those discounts on to sellers in the form of reduced shipping prices when they send their inventory to Amazon.
Cons:
High costs – Amazon charges a monthly fee as a basis for having an Amazon seller account and roughly 30% of each product’s value in addition. This percentage is based on how long the item sits in Amazon’s storage facility and based on the item’s dimensions.
No customer email list – When using FBA Amazon does not allow a seller to build an email list of previous customers in order to maintain a relationship and remarket to them.
Branding – a seller when using FBA may lose out on large branding opportunities when it comes to the shipping boxes and labels because all boxes are marked with Amazon logos. (If you feel like this is a big part of how you communicate your brand and foster a relationship with your customers FBA may not be for you.)
Prep time – product prep can be difficult because of Amazon’s strict guidelines on how to prepare and ship items to them.
Delays – During extremely busy times such as the holiday season, due to the high volume Amazon deals with, sellers may experience delays which can temporarily result in an item being ‘out of stock’, despite having sent in more merchandise which has yet to be processed.
Tracking inventory can be difficult – it can be challenging to stay on top of what products are available, what needs to be ordered, and what’s not selling when everything is out of view.
Sales tax can be difficult – every state in the US has different rules for sales tax collection. It’s simple if your business operates in just one state, but Amazon has fulfillment centers in virtually every state, and they shuffle inventory between warehouses on a regular basis.
Sellers are often left confused about whether to collect sales tax for the state just for where their business is located, or for every state Amazon operates out of. There’s no easy answer.
The FBA process…
1. Sellers send their products to Amazon. The seller tells Amazon which items they’re sending, and Amazon informs them as to which warehouse(s) to ship their products to.
2. Amazon will then store those items in their warehouses. Once Amazon receives the items, they’ll sort and add them to their inventory. On the off chance that anything gets damaged in the warehouse, Amazon will reimburse the seller.
3. When a customer orders one of the seller’s products, Amazon picks, packs, ships and tracks the order for them. They accept payment and update the seller’s inventory automatically. Once the customer receives the item, Amazon follows up to make sure they’re satisfied with the shipment.
4. Amazon handles returns and refunds. As for any feedback the seller may receive on the product, it’s up to the seller to respond and to take any appropriate action.
5. Every two weeks, Amazon totals up all of the seller’s sales, deducts seller fees and deposits the seller’s profits directly into their bank account.
There are two primary categories for FBA Fees
1. Fulfillment Fees are charged for order picking and packing, shipping cost, packing boxes, and inner packaging, returns processing (though not for items in categories with free customer returns).
FEE DECRYPTION:
To assign fulfillment and storage fees, FBA breaks products into 2 overall size categories, and sizing includes packaging such as shoe boxes, blister packs, or retail packaging.
This too is divided into two categories, each with subcategories:
A. Standard-size: items that weigh less than 20 lbs. and measure less 18″x 14″x 8″ or less, fully packaged.
Small (10 oz or less) $2.41 Any packaged item that is 12 oz or less with its longest side 15 inches or less, its shortest side 0.75 inch or less, and its median side 12 inches or less.
Small (10+ to 16 oz) $2.48 Any packaged item that is 12 oz or less with its longest side 15 inches or less, its shortest side 0.75 inch or less, and its median side 12 inches or less.
Large (10 oz or less) $3.19 Any packaged item that is 21 lb. or less with its longest side 18 inches or less, its shortest side 8 inches or less, and its median side 14 inches or less.
Large (10+ to 16 oz) $3.28 Any packaged item that is 21 lb. or less with its longest side 18 inches or less, its shortest side 8 inches or less, and its median side 14 inches or less.
Large (1 lb. to 2 lb.) $4.76 Any packaged item that is 21 lb. or less with its longest side 18 inches or less, its shortest side 8 inches or less, and its median side 14 inches or less.
Large (2 to 3 lb.) $5.26 Any packaged item that is 21 lb. or less with its longest side 18 inches or less, its shortest side 8 inches or less, and its median side 14 inches or less
Large (3 to 21 lb.) $5.26 + $0.38/lb. above first 3 lb. Any packaged item that is 21 lb. or less with its longest side 18 inches or less, its shortest side 8 inches or less, and its median side 14 inches or less
B. Oversized: items that weigh over 20 pounds or are larger than 18″x 14″x 8” including packaging.
Small oversize (71 lb. or less) $8.26 + $0.38/lb. above first 2 lb. Any packaged unit that is 71 lb. or less with its longest side 60 inches or less, its median side 30 inches or less, and its longest side plus girth 130 inches or less.
Medium oversize (151 lb. or less) $9.79 + $0.39/lb. above first 2 lb. Any packaged unit that is 151 lb. or less with its longest side 108 inches or less, and its longest side plus girth 130 inches or less.
Large oversize (151 lb. or less) $75.78 + $0.79/lb. above first 90 lb. Any packaged unit that is 151 lb. or less with its longest side 108 inches or less, and its longest side plus girth 165 inches or less.
Special oversize $137.32 + $0.91/lb. above first 90 lb. Any packaged unit that exceeds one or more of the following: Over 151 lb. (dimensional weight or unit weight), over 108 inches on its longest side, or over 165 inches when longest side is added to girth.
In addition, products that are determined to require special handling or delivery will be designated as special oversize.
- Amazon may verify the weight and dimensions of a product using representative samples.
- Amazon’s information about a product’s weight and dimensions will be used to calculate fees if there is a difference between Amazon’s information and a seller’s information.
- Amazon may change its information about a product’s weight and dimensions occasionally, to reflect updated measurements.
- Fees based on the weight and dimensions of a product are calculated using Amazon’s information about the weight and dimensions of that product at the time the fee is calculated.
2. Monthly Storage Fees are the costs related to storing a merchant’s products in Amazon’s warehouses. (Inventory storage fees are based on the space occupied by the products in Amazon’s warehouses, measured in cubic feet).
FEE DECRYPTION:
Charged per cubic foot for all units being stored at an Amazon fulfillment center based on the month and the daily volume of product moving through the facility. The volume measurement is based on unit size when properly packaged and ready to ship in accordance with FBA policies and requirements.
- Fees are charged by cubic foot, so overall storage fees for standard-size products may be less than those for oversize products, based on volume.
- Although standard-size products are smaller than oversize products, they require more complex and costly shelving, drawers, and bins for storage.
A. Standard-size:
January – September = $0.69 per cubic foot
October – December = $2.35 per cubic foot
B. Oversized:
January – September = $0.48 per cubic foot
October – December = $1.15 per cubic foot
- Monthly inventory storage fees typically are charged between the 7th and 15th day of the month following the month for which the fee applies.
- FBA storage fees increase dramatically in October thru December (something to be aware of when using FBA). This fee increase is a major reason why some volume sellers rarely use FBA as their sole storage option.
Often, these power sellers store the bulk of their inventory themselves in a company warehouse or cheap storage units. They then periodically ship just enough stock to FBA to cover a range of forecasted sales.
Other Costs to Consider Associated with FBA
FEE DECRYPTION:
Labeling Fee – Amazon has strict barcode label specifications for all stock a seller ships to FBA. If not labeled properly, he or she may be assessed a labeling fee.
FBA Prep Service and FBA Unplanned Prep Service – FBA has strict product packaging and prep guidelines. A seller can opt to have Amazon package and prep products for a fee, but if the seller sends improperly prepped products, they’ll be assessed an unplanned prep fee.
Returns Processing – Basic returns processing is free for many categories, but not for categories with free customer returns. In these, FBA collects a return processing fee equal to the original fulfillment fee. Also, if returned products need repackaging for resale, Amazon charges a repackaging fee.
Long-term storage – if a seller’s stock sits unsold for longer than 6 months, Amazon charges a long-term storage fee.
Stock Removal Fee – FBA charges a removal fee if you want to pull inventory from Amazon or dispose of unsold stock.
When debating whether or not to go with FBA, it’s important to check into how much it would cost to ship items yourself. Other fulfillment providers may offer better deals, so do your research before blindly signing up with Amazon.
FBA has plenty of advantages that are worth the money, and often it turns out to be the cheapest option. The important thing is that you do the necessary math beforehand, so you know for sure. A lot of your fulfillment answers are in the numbers.
Up Next:
Decrypting FBA Fees Part 2 –
Strategies to Reduce Your Monthly FBA Fees
