Amazon reached an estimated $258.22 billion in sales by 2018, which is half of the online sales worldwide and around 5% of retail sales happening around the US. Naturally, medium and small businesses utilize this as an avenue to reach a massive number of shoppers that were unaccounted for previously. In fact, third-party sellers make up for almost 58% of annual gross merchandise sales for Amazon.
So what makes Amazon such a lucrative marketplace for shoppers and sellers alike? A vital reason for this is free shopping, which is often the first stepping stone when it comes to making a decision to buy a product online.
However, what makes repeated customers out of casual shoppers is the entirety of the delivery experience. A majority of shoppers say that they will actively avoid buying from a brand which has a history of poor delivery experience.
Amazon has recognized this as a legitimate business need and cornered the market through its custom delivery fulfillment program. FBA or Fulfillment by Amazon provides the sellers an opportunity to reach shoppers in the fastest, most efficient way while retaining an affordable pricing model that customers demand.
Sellers can not only boost business through the ecommerce giant but also leverage a multitude of customized business solutions created by top experts to enhance their sales numbers.
So before diving in, let’s break down Amazon FBA to understand how this works towards bolstering your business.
Fulfillment by Amazon: What is it?
Fulfillment by Amazon is exactly what it says - the order is fulfilled by Amazon. When you opt for this program, you no longer have to worry about shipping, packaging, returns, and shipping. All this is managed by Amazon, of course for a fee. FBA has various advantages - it provides you an edge over other sellers who have not opted for FBA. It also allows you to focus on other important tasks. We will discuss more about the advanatges of FBA later in this article.
For now, let's understand how this process works.
- You send a predetermined unit of products to the Amazon fulfillment centers to be stored.
- Amazon enlists your product in their inventory. At this point, you are able to track the product status through a tracking system in the Amazon Central Dashboard at your convenience.
- A customer buys your product through Amazon.
- Amazon packs and ships the item through the desired shipping method of the customer and provides them with a tracking number.
- Amazon handles all customer return requests as well as customer service associated with the entire delivery process.
To summarize, you sell a product and Amazon ships it to the customer (all the while taking away the hassle of maintaining entire customer service and courier handling department).
Amazon FBA Fees: Is it worth the price?
To a small or medium-sized business owner, fulfillment by Amazon fees might seem steep at first, and therefore, the only deciding factor becomes - whether it is cost viable for the business at a glance. But the entire process of buying and selling in ecommerce is not as simple as a brick and mortar shop where you sell to customers directly.
Let’s consider the case of Anna and Jack. Anna is a small business owner who has hired Jack for the sole purpose of packing and shipping the products ordered by customers. Jack also oversees the storage of products, customer care, and support, and ensuring a seamless experience for customers so Anna has happy, repeat customers.
This would be quite straight forward if Anna owned a business that sells only one product, and the number of products moved remained constant throughout the year, so Jack had a predictable operating process. Since this is rarely ever the case with very small-scale businesses, if Anna ever wanted to start expanding her business, the process would become much more complex for Jack to handle by himself.
The increasing likeliness of errors and mishaps will occur as Jack struggles to handle packaging, dispatch, customer service, return and experience all by himself. At this point, Anna can choose to delegate these duties to Amazon for a fixed pricing solution by paying FBA Amazon fees.
Not only Anna now has an unlimited amount of resources at her disposal, but she can also leverage this opportunity to scale up the business by reaching the entire customer base of the world’s largest ecommerce conglomerate.
The Amazon FBA process can be set up online, through the tools Amazon provides. Anna can access and configure the process to her interest in the Amazon Seller Central dashboard. Even tracking and monitoring processes can be done at the same place.
Here’s a breakdown of the main six categories of Amazon FBA fee :
- FBA fees
Once you send your product to an Amazon FBA fulfilment center, the products are handled, packed, shipped and maintained by the fulfilment team. The FBA fees cover all the works and come down to only a few dollars, which is a lot less than an individual seller would pay for doing the work through a third-party shipping system.
- Individual seller fees
For non-professional sellers, there is a flat $1 fee for all Amazon FBA products that you want to sell.
- Subscription fees
If you are a professional seller on Amazon, there is a flat fee of $39.99 per month for selling products on Amazon. So, if you are selling over 40 products on Amazon per month, we suggest opting for the professional seller package to get lower seller fees.
- Referral fees
Once you sell a product on the Amazon platform, you have to pay a referral fee. This is usually a varied rate based on the category of the product, however, it is mostly less than 15% of the price that the product sold for.
- Storage fees
Through Amazon’s fulfillment centers, you are accessing millions of acres of warehouse that are built to store your product in stellar conditions. So, there is a storage fee involved depending on the amount of product you choose to store.
This ensures sellers do not take advantage of the FBA system by leaving slow moving items for too long on the shelf.
- Variable closing fees
DVDs, books and other media related products have a flat fee for storage.
- Returns Processing Fees
For many products, FBA provides return processing free of cost. But there are some categories that are exempt and if you decide to start selling you should understand if your product falls under this category as Amazon may charge a fee per return shipment of the product. There might also be a repackaging fee involved if the returned product is going to be resold.
- Stock Removal
FBA storage is not free. So if you have items sitting on shelf incurring charge, it might be a good idea to pay for stock removal fees so Amazon can send unsold products back to you instead of sending recurring storage charges.
- Single Place Inventory Placement
Your entire inventory can be sent in a single fulfillment center of your choice instead of being divided among various centers based on Amazon’s stocking algorithm. To do so you have to pay a fee that will place all your product at one place, making tracking easier for you.
- Exportation fees for International Sales
Through Amazon, you can now reach a worldwide array of customers, which means international shipping. Depending on how vast your business reach is, Amazon FBA might include a fee for export services.
That seems like a lot to take in. but bear with us while we take you through the detailed accounting of how these fees are entirely manageable if you are using the system correctly.
In the end, the goal is to earn stellar revenue by placing your products on Amazon website. And these fees are in fact an aid that can help your business reach that goal.
What am I getting out of the Amazon FBA Program?
If you are intimidated by the FBA fee structure, and confused if you should choose to go for it - relax. We are here with everything that you need. Let us present to you the benefits this program brings so you can decide if Amazon FBA cost justifies the means.
- FBA does the heavy lifting
As a seller, the only thing you are responsible with Amazon FBA is procuring your own products and sending them to your nearest fulfilment centre. From there on out, Amazon takes over the entire process of ensuring your product reaches your customers at a lucrative price at a lightening fast pace. For the FBA fee, you own an entire network of Amazon agents working tirelessly for you.
- Reaching a record number of customers
Every month, 2.64 billion customers visit Amazon in search for products. Amazon has spent the last 25 years building a reputation that is unparalleled in the online shopping industry and has achieved success other ecommerce platforms can only dream of achieving. And you get to reach all these customers by paying a nominal fee every month.
- Shipping experience that your competitors cannot match
By affording Amazon FBA, all your products are eligible for quick shipping through Amazon Prime. And this is just the tip of the iceberg. Your product will feature the logo of Amazon prime. It has the benefit of reaching a much wider audience than your competitors without the branding.
- Ease of Scalability
With Amazon taking care of the logistics, you can shift your entire focus on growing your business. As you start getting more and more orders, the monthly subscription fees become a nominal amount that is way below your profit margin.
- Access the best searchability
As customers look for products, your product gets priority viewing. As a FBA seller, your product will always be picked up by Amazon’s algorithm and be listed with much better ranking than non FBA sellers. This garners your products a much wider audience, more views and ultimately more sells.
- Unparalleled Customer Service and Easy Returns
One of the first things buyers look for is product return condition. This can often be expensive for the seller as the logistics get more complex and costly with each return. Most of the times, customers will avoid buying products that do not have easy shipping options. Amazon ensures a truly unique customer service experience that assures buyers to go for a product without much hesitation.
Amazon FBA Pricing Simplified
Here is how the fulfillment by Amazon fees pricing of a product is determined, based on three crucial factors:
- Product weight : Weight and volume of the product to be sold
- Product size: Dimensions of the product (affects storage and shipping)
- Product Selling channels: The platform where buyers are buying the product, Amazon, or another site
The following table highlights the size and volume and puts it into size category based on which FBA pricing is determined, based on each unit.
Amazon FBA fees for Various Platforms
Not only does Amazon FBA cover the logistics, but there are various third party sellers that avail the Amazon shipping system. So even when you opt to sell your merchandise through another platform, you can avail the same benefits that comes with choosing FBA. However, the fee structuring for FBA varies depending on whether you are selling in house or externally. Here’s a detailed breakdown of the same.
FBA Fees for selling products through Amazon
If you are a regular seller on Amazon, chances are you already know about the benefits of Amazon FBA program. This is the entire package that provides the best logistics team in the world for your product. And the Amazon FBA fees are factored in based on easy categories.
We have already explained the sizing system for storage, now let’s take a look at the cost of shipping for that.
FBA Fees for selling merchandise through third-party channels such as personal website (any platform other than Amazon) – Multi Channel Fulfilment
Even if you do not sell products on Amazon, you can still use the FBA facilities. If you have a third-party platform that sells your product or even a dedicated website owned by your business, FBA can fulfil your shipping needs. This process is known as Multi Channel Fulfilment or MCF. The only difference between these two categories is that MCF tends to be higher than Amazon when sold in bulk.
Depending on customer’s choice, Amazon categorizes shipping speed into Priority (Same or Next day shipping), Expedited (2 days shipping) and standard (shipping within 3 to 5 days).
The chart below demonstrates the shipping fees for the same sizes that we explained for Amazon FBA.
(All the prices mentioned here are per unit of product for standard shipping)
The pricing for Expedited and Priority is costlier than the standard model. However, it is evident that the higher the units of product you sell, lower the shipping cost gets through MCF. This is also true for Amazon FBA, but as the MCF costs are relatively higher we cannot stress the importance of understanding your business needs before accessing the program.
The difference for selling any ordinary item other than clothing, such as a coffee mug which weighs less than a pound would incur a $2.41 charge with fulfillment fee from Amazon. However, when you sell through the same channel but sell more than 5 units, the same charge would be $2.20. Depending on the number of units you sell on average, choosing the right channel to sell is a major contributor to the bottom line for your business.
Monthly Storage Price for Amazon FBA
The fastest way to reach your clients is to store your products in the fulfillment centers. So, instead of you sending the package after a customer has ordered it, you can have it shipped instantly, saving days in the process. If your products are popular and there is a high demand for quick shipping, this option is particularly important.
Here’s what Amazon charges for storing your products on a monthly basis per unit. Remember that year ends are a high time for shoppers frequenting the websites looking for holiday gifts, so Halloween to new year’s, storage costs get higher than the rest of the year. At this time products move at a much faster rate, so chances are you end up paying much less than the advertised storage price because shelf life of the product is going to be relatively low.
It’s advisable to take inventory of slow-moving products beforehand and removing them before peak pricing hits. That will reduce storage costs even further, however, there is a storage removal free involved. So do your own risk assessment before making any major inventory changes and consider all these points to ensure you benefit from FBA.
Summarizing the Bottomline
Let’s wrap up the entire pricing model down to a core product. A coffee Mug. Anna sells coffee mugs through Amazon FBA and Jack sells coffee mugs through third party websites, hence pays for MCF. Both of them sell the mugs for $20 and have accessed similar offerings under the FBA. Here’s a comparison of how much they end up making after the fees.
Let’s consider the coffee mug’s cost price to be: $6-$6.5. Based on the selling price of $20, Anna would incur a total fee of $8.9 and make a profit of $5.1. Jack, on the other hand, will incur a total fee of $8.14 and make a total profit of $5.16.
In this example, we are only considering the profit margin for selling a single unit, so Jack comes out on top as he does not incur the referral fees. So, it may seem like selling through external channels is much more profitable than selling through Amazon.
But before making that decision, you must consider your scalability. As the number of units sold goes up, the shipping and storage costs come down much more significantly in Amazon FBA that that of MCF. You should take that calculation into account before making a business decision.
The general rule of thumb states that Amazon FBA will prove to be a profitable deal for you if you sell a large number of units. However, it could prove to be an extra expense if you are just starting up. In either case, you will want to do simple mathematics to calculate your expenses and determine how things work.
For more information, you can visit Amazon official website that has the complete list of referral FBA Amazon fees.
Whether you choose to opt for amazon FBA or Multi Channel Fulfillment, the Fulfillment by amazon is a brilliantly designed program that can take your business to new heights. It is far superior in terms of outreach and customer experience than selling locally or outsourcing through third party shipping companies.
The fulfillment rates have been designed to be highly competitive to these individual shipping companies and are majorly targeted to specific areas. So irrespective of whether you live in a metro city or a rural area, or where your target base of customers live, you can avail the best price in the market for shipping services.
However, before investing, do your own research and calculate the FBA vs MCF benefits based on your customized business needs.
To understand the pricing model better, you can also get in touch with Amazon. And remember, even though the process sounds lengthy, it is a one-time setup cost that will establish your business model to reach millions of customers worldwide. Your local business will tap into Amazon’s unlimited resources, flawless shipping algorithms, expert care agents and the best customer service in the industry.
All in all, Amazon FBA could prove to be the right choice for you if you have already established yourself. If you are just starting up and testing waters, you might want to analyze how things turn out, how many sales you make and then decide accordingly.
What are your views on this? Have you ever tried Amazon FBA? How was your experience? Let us know in the comments below.