If you have landed on this blog post, we know you're trying to find an answer to the burning question: is Amazon FBA worth it?

Tons of entrepreneurs and aspiring online sellers are asking the same thing—it's no surprise, really.

After all, Amazon is the largest marketplace in the B2C space. It touched $575 billion in net global sales revenue in 2023, cementing its place as one of the most valuable brands worldwide. That's a tempting opportunity for anyone looking to start or grow an online business. 

But it's not all smooth sailing. There are fees to deal with, tough competition, and Amazon's constantly changing rules. 

So, is it a good idea to invest time and money in this service? That's what we're here to figure out. We'll break down the good, the bad, and the ugly of Fulfillment by Amazon (FBA).

We'll also look at how it works, share some stats, and give you tips to make the most of it if you decide to jump in.

What is Amazon FBA?

Amazon FBA, or Fulfillment by Amazon, is a service that handles the entire fulfillment process for products sold on the platform. You send your inventory to Amazon's warehouses, and they handle the rest—storage, packaging, shipping, and customer service. 

Let's say you're selling handmade candles. Instead of keeping boxes of candles at home and running to the post office every time you get an order, you can opt for FBA.

When someone orders, Amazon's fulfillment team grabs it off the shelf, boxes it up, and sends it out. This allows you to focus on product development and marketing without worrying about logistics.

Then again, convenience comes at a cost. Amazon charges fees for storing and shipping your products.

You'll need to keep a close eye on your inventory to make sure you don't run out (or send too much and rack up storage fees).

Pros of Amazon FBA

Amazon FBA has its ups and downs. Here's a detailed breakdown of the key benefits first.

1. Streamlined customer service and returns

Amazon handles customer service tasks, including returns, for FBA orders.

While sellers are still responsible for addressing pre-purchase questions and product-related inquiries, the volume is significantly low compared to self-fulfillment models. This allows vendors to spend more time on research, strategy, and product optimization.

Prime eligibility, leading to higher visibility and sales

Products fulfilled through FBA automatically receive the Prime badge, making them eligible for Amazon Prime's fast shipping options.

Additionally, FBA products often rank higher in search results, leading to increased visibility.

That's because Amazon prioritizes them in search algorithms, driving more traffic and potential customers. 

According to Statista, almost 71% of Amazon US users are Prime subscribers, and they're the most active and loyal customers. Imagine getting your product in front of such a massive audience with little effort—that's a win in our books.

2. The "Buy Box"

FBA sellers have a better chance of winning the Buy Box, which is crucial for maximizing sales on Amazon. According to Data Feed Watch, almost 82% of Amazon sales occur through the Buy Box.

Using FBA enhances your eligibility for this feature because of the reliable fulfillment metrics inherently associated with the Fulfillment by Amazon service.

3. Cost-effective shipping

Despite what you might think, FBA can actually save you money on shipping.

Amazon claims FBA costs about 70% less per unit compared to most other fulfillment options. This is because of the platform's massive scale and negotiating power with shipping carriers.

For small to medium-sized businesses, it's often impossible to match these rates on your own.

4. Reduced operational burden

By outsourcing logistics to Amazon, you can focus more on marketing and product development.

You won't need to allocate a lot of funds for operations. Instead, you can use it to implement result-oriented strategies for promotions, advertising, and seasonal inventory management, further driving sales.

5. Access to the global market

FBA enables sellers to reach customers in other countries through FBA Export without the complexities of international shipping logistics.

Currently, Amazon operates in over 50 countries, with dedicated websites for approximately 20 of them. It also provides fulfillment services to over 100 countries—that's a massive opportunity up for grabs.

Cons of Amazon FBA

There's no denying that the benefits make Amazon FBA an attractive option for many sellers.

However, like any business strategy, it's not without its drawbacks. Here's the other side of the coin—the challenges you might face with this service:

1. Fees can add up quickly

While FBA can be cost-effective, the fees can eat into your profits.

There are storage fees, fulfillment fees, and potential long-term storage fees for slow-moving inventory. For low-margin products, these costs can significantly impact your bottom line and your regular cashflow.

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2. Less control over inventory

When you use FBA, your products are in Amazon's warehouses. This means you have less direct control over your inventory. Mistakes in shipments or inventory counts can happen, and resolving these issues might take time.

3. Stringent packaging and labeling guidelines

Amazon has specific guidelines for how sellers must package and label their products before sending them to fulfillment centers.

‍These requirements, particularly for those new to the scene, can be burdensome in terms of time and cost.

4. Complex tax implications

Storing inventory in various Amazon warehouses can create a nexus in multiple states, potentially complicating your tax obligations. This can lead to additional costs (for example, hiring an accountant or investing in accounting software).

5. Regular checks and optimization

Amazon evaluates how well you manage your inventory using an IPI (Inventory Performance Index) score.

A low rating can result in storage limits or additional fees, adding unnecessary pressure to maintain efficient product management practices.

But don't get disheartened—these challenges aren't insurmountable. Many successful eCommerce businesses attest to the fact that the benefits of FBA outweigh its drawbacks. The key is to consider how each of these factors might impact your specific business model.

Customer demands keep changing with advancements in technology and the abundance of options.

Stay in the loop with our latest webinar on emerging eCommerce trends.

Fees associated with Amazon FBA

Selling on Amazon through the FBA program comes with a set of expenses. Understanding these costs is crucial for calculating your profit margins.

The core FBA charges include:

• Referral fee: a percentage of the item's sale price, varying by product category. This covers Amazon's platform fees, marketing, and customer service.

• Fulfillment fee: the charge for picking, packing, shipping, and customer service per order. It's based on product size and weight.

• Storage fee: the cost for storing your inventory in Amazon's warehouses. It varies based on product size and storage duration, but peaks during holiday seasons.

On top of these three, there are other miscellaneous charges:

• Inbound transportation fees: costs associated with shipping your products to Amazon's fulfillment centers.
  

• Removal fees: if you decide to remove unsold inventory, you'll be charged a removal fee.
  

• Inbound placement service fee: a fee for standard and large bulky-sized products to cover the cost of distributing inventory to different Amazon warehouses.
  

• Long-term storage fee: charged for items stored in Amazon storage centers for more than 181 days.
  

• Low-level inventory fee: this applies to standard-sized products with consistently low inventory relative to customer demand.

Our tip: use Amazon's revenue calculator to estimate your total costs and factor them into your pricing strategy.

Does Amazon FBA really work?

Yes, it definitely works for many eCommerce companies. Amazon FBA is a streamlined process that takes the stress out of supply chain management. It empowers small and medium eCommerce businesses to engage in international trade, that too, in an extremely organized manner. 

But don't just take our word for it. The numbers speak volumes: Jungle Scout's State of the Amazon Seller 2024 report indicates that nearly 23% of Amazon's $574 million came from third-party sellers. The most striking part? 82% of these vendors use Amazon FBA—clearly, many people see value in it.

Is Amazon FBA profitable?

According to Jungle Scout, 44% of small and medium eCommerce businesses selling on Amazon have a profit margin higher than 15%. So, yes, Amazon FBA is profitable. However, this profitability depends on several factors, such as product selection, pricing strategy, and overall cost management. 

How much does the average Amazon FBA seller make?

Jungle Scout's market report reveals that in 2023, 40% of Amazon vendors sold products worth almost $1,000 to $25,000 per month. Out of these, 57% achieved profit margins greater than 10%, and 28% made at least 20%—not a bad figure, if you ask us.

How much money do you need to get started with Amazon FBA?

The initial investment for Amazon FBA can range from a few hundred to several thousand dollars. While it's possible to start with a small amount ($500 to $2,500), most established eCommerce retailers suggest investing between $2,500 and $5,000 to accelerate growth. 

To give you a general idea, here are some estimates:

• Low investment: $500-$2,500 for testing a product or starting with a small inventory.
  
• Medium investment: $2,500-$5,000 for building a more substantial product line.
  
• High investment: $5,000+ for launching multiple products or investing in inventory for seasonal items.

Disclaimer: these are just estimates. We recommend you create a detailed budget based on your specific product and business plan.

Tips to get the most out of Amazon FBA

Maximizing your Amazon FBA venture involves a combination of strategic planning, product selection, and operational efficiency. Here are some key tips:

Conduct thorough product research

Identify high-demand products with low competition. It's best to focus on a specific category or target audience. Check out top-selling products to spot opportunities, then offer something unique to stand out from the crowd.

Optimize your listings

Your product listings need to shine. Invest in professional photos and create compelling descriptions that highlight your product's best features. Look at your competitors' listings and those that rank high in search results to get an idea of what works and what doesn't.

Increase your product's visibility with our highly actionable, free guide on SEO strategies for your eCommerce store. 

Analyze and forecast

Monitor your numbers. Predicting demand can help you keep the right amount of stock on hand. Regularly analyze slow-moving products and adjust for seasonal trends. Competitive pricing is key, so always research what others are charging. Use your sales data to spot trends and tweak your strategies.

Utilize tools and software

Make your life easier with the right tools. Use inventory management software to track stock levels and dynamic pricing tools to adjust prices based on demand. Dive into the resources on Amazon Seller Central—they offer free learning materials to help grow your brand.

Check out the best artificial intelligence (AI)-powered tools that can help take your eCommerce business to the next level.

Double down on digital marketing

Get your products out there with a solid digital marketing strategy. Promote your products on social media and collaborate with influencers in your niche. Build an email list to keep in touch with customers and use Amazon's advertising options, such as Sponsored Products, Sponsored Brands, and Sponsored Display ads, to boost visibility.

Bootstrap your Amazon FBA venture with our innovative financing

Running an Amazon FBA business comes with its fair share of fees, which can be a major roadblock for small and medium eCommerce businesses. And with Amazon no longer offering new loans to sellers, finding the right financing has become even more challenging.

Traditional funding options can't keep up with the speed, complexity, or potential of modern businesses. That's where we come in. At Stenn, we offer invoice-based and revenue-based financing that considers all your income streams, including transactional revenue.

Here's how we roll:

• You apply online (takes a few minutes).
• We get back to you within 24 hours with a decision.
• We give you a cash advance of up to 150%, depending on your revenues.
• You repay a slice of your sales each week.

And the cherry on top? We offer flexible terms tailored just for you and a fixed fee of only 6% to 9.5% per transaction. Now, that's what we call a sweet deal.

So, go ahead; it's time to rake in some serious dough via Amazon FBA. With us by your side, you no longer have to worry about cash crunches slowing you down.

‍Apply for Stenn financing today and take your eCommerce empire global.