Is Fulfillment by Amazon (FBA) Worth It?

Article by: John L. Ghiorso

September 19, 2018

• Operations,
• Strategy and Thought Leadership

Selling through Amazon offers a number of options for sellers–including the “Fulfillment by Amazon,” or FBA, option. Many sellers find that this is an effective and efficient way to distribute products to their buyers. Unfortunately, it’s not always that easy.

Is Fulfillment by Amazon really worth it? Can sellers still get their money’s worth when they choose the FBA option for their products? Before you decide how you want to handle selling your products, it’s important to deepen your understanding of FBA.

What is FBA?

When you opt for Fulfillment by Amazon for your products, you choose to store your products in an Amazon distribution center. When a sale is made from your product listing, Amazon employees will pack the product and ship it to your customers. Amazon will also handle returns, complaints, and issues with products instead of sending customers directly to you.

What are the Benefits of FBA?

With Fulfillment by Amazon, you’ll get to experience all the benefits that go along with it. These include:

• Easier returns. Instead of dealing with you directly, customers can go through Amazon for returns and refunds. Often, this means happier customers who are less frustrated when there are problems with their items–and it means that you know your customers are getting great customer service.
• Products are eligible for Prime shipping. Many Amazon customers choose to place their orders primarily with sellers who offer free two-day, one-day and sometime sameday prime shipping. When you choose FBA for your business, you’ll get the confidence that your products won’t be overlooked–and that they’ll be in your customers’ hands as soon as possible.
• Grow your business faster. In many cases, your business will grow faster than you can keep up. You have the ability to create the inventory, but you don’t have the staff needed to ship individual orders. Unfortunately, this can make it difficult for you to satisfy your customers. Your business may not be able to sustain its rate of growth due to those challenges. When you opt for FBA, on the other hand, your business is able to grow as fast as you’re able to produce your products. That means more sales, and ultimately more profit, for you.
• Free up warehouse space.  Whether you need more space in your warehouse for other items or you’re working out of a small business area where space is at a premium, using the Fulfillment by Amazon option will allow you to easily move your items out of your space and keep them in the Amazon warehouse instead. While this won’t prevent you from paying a fee for that space, it’s often more affordable than expanding your warehouse or renting another storage area during busy shopping seasons.

What are the Drawbacks of FBA?

While Fulfillment by Amazon has clear benefits, there are also a few drawbacks to keep in mind. Before making the decision to go with FBA for your products, make sure you’ve carefully considered the ramifications.

• You’ll communicate less with your customers. When customers have problems or concerns, you won’t get to talk to them directly. Amazon doesn’t know your products like you do, and their customer service representatives may not be able to clearly define the problem, much less explain steps customers can take to fix it. This can lead to lower customer satisfaction in some cases.
• Amazon is the one responsible for your customer service. While Amazon provides great customer service to most of its customers, if something does go wrong, you won’t be able to fix it. Not only that, you may not even know about it–and that may mean losing customers through absolutely no fault of your own.
• Inventory management is very important. As we’ll note below, there is a storage fee associated with using FBA. If you overstock your inventory then you will cut into your profits paying for inventory sitting in a warehouse. If you don’t provide enough inventory you’ll risk selling out of an item resulting in lost sales and potentially increased shipping costs sending items more frequently to the Amazon fulfillment centers. Professional sellers are also giving an Amazon Inventory Performance Index based on their historical inventory levels. If the index drops below 350, then Amazon will limit the number of items you can store in their fulfillment centers.

What are the FBA Fees You’ll Have to Pay?

The fees associated with Fulfillment by Amazon are twofold:

• Fulfillment Fees: Fulfillment fee are for Amazon to take care of everything associated with selling your item. This includes all the services and costs that are part of the FBA package: shipping, customer service, picking and packing the box, and any packaging necessary to send your product through the mail, including padding and other items used to help protect your items during shipment. Fulfillment fees vary based on the size and weight of the product, as well as an additional fee for clothing.
• Storage Fees: The monthly storage fee is calculated based on the daily average volume your items take up in the Amazon fulfillment center. This fee is designed to encourage you to have better inventory management and for Amazon to reduce the warehouse space they need to maintain. Storage fees vary based on the size of the product and time of the year. Storage fees go up quite a bit during quarter four holiday shopping season.

Should You Be Using Fulfillment by Amazon?

The answer depends entirely on your business. Many sellers have found that Fulfillment by Amazon is well worth the associated fees. It decreases effort, increases storage space in their facility, and ensures that their customers are getting high-quality customer service while significantly decreasing the amount of time they have to spend on those tasks.

While other sellers, however, find that they prefer to handle those tasks internally, at least for the time being. It’s important to carefully consider both the benefits and the drawbacks to FBA before you decide whether or not this is the right choice for you. If you need help with making that decision, then reach out to the FBA consultants at Orca Pacific who can provide strategic consulting, as well as day-to-day account management of your Amazon business. Contact us today!