Unless you’re living under a rock on the moon, you’re well aware that Amazon is the ecommerce success story of the century — not only for Amazon itself, but for thousands of independent sellers who take advantage of its marketing reach and customer confidence. Amazon’s FBA (Fulfillment by Amazon) program goes a step further: it gives smaller ecommerce businesses the clout and convenience of its warehousing, shipping and customer service facilities.
So if you use FBA, you do less than half the work of the transaction: listing your product on Amazon and getting your merchandise shipped to an Amazon fulfillment center. They take care of the rest: merchandise storage, order processing, picking, packing, shipping and shipment tracking.
A fundamental decision any third-party seller on Amazon must make is whether to use FBA or its own fulfillment facility. Here are some things to consider:
Which will be more profitable: paying for your own warehousing, packaging materials, and staff to do the picking, packing and delivery to the shipper; or paying the FBA fee to have Amazon do all that for you?
Amazon makes it easy for you to compare the numbers with this Fulfillment by Amazon Revenue Calculator. Fill in the item price and your costs, then click “Calculate” to see the FBA costs for the same item, and which is your best option in terms of net profit and net margin.
The more you sell, the more time fulfillment takes out of your day. Time that should be spent on management and development, not putting items in boxes. In fact, this is often a major roadblock to scaling your business.
Sales tax obligations.
When some or all of your inventory is stored in and shipped from Amazon warehouses, you may be required to collect and remit sales tax in the states where those warehouses are located.
Amazon Prime eligibility.
Only third-party sellers who use FBA are Prime eligible, and many say that this is their number one reason for doing so. When customers see “Fulfilled by Amazon” on the product page, they have confidence that:
- Their purchase will be delivered in just 2 days
- They are getting a better deal because shipping is free
- They will receive excellent shipment tracking and customer service
Even Amazon shoppers who are not Prime members often choose to buy from a seller who is Prime eligible rather than one who isn’t. This gives FBA sellers a huge advantage over those who do their own fulfillment.
Each business must weigh the pros and cons of Amazon FBA in relation to its needs and goals. But we think that in 99 cases out of 100, the advantages far outweigh the costs. It’s certainly worth a try.