If you’re new to selling on Amazon, or if you haven’t even begun your journey as an Amazon seller yet, the sign-up process can feel overwhelming. And that’s before you get to all the options you have in front of you.
Retail arbitrage, online arbitrage, or wholesale? Books? Grocery? Beauty? Individual plan or professional plan? What does it mean to get ungated?
Of all the questions we get and we get a lot! There’s one that we hear most frequently: Is Amazon FBA worth it?
Our answer is a resounding yes.
Here are five reasons why now is a great time to choose Amazon FBA.
Why Should You Start Amazon FBA Today? My Top 5 Reasons
You might not be totally convinced if Amazon FBA is worth it nowadays.
I get it, it almost sounds too good to be true, but there are so many reasons to seriously consider it.
But why is now the perfect time to start selling on Amazon FBA?
1.| There are more online shoppers than ever before.
Global e-commerce continues to grow exponentially, and Amazon continues to dominate the market. Digital buyers increased from 1.66 billion to 2.14 billion between 2016 and 2021.
Meanwhile, Amazon has a 45% share of the US e-commerce market, Amazon’s quarterly net sales recently topped $125 billion, and on average small businesses sell 4,000 items per minute on Amazon.
Don’t you want in on all that action?
2.| Mobile shopping has overtaken traditional e-commerce for the first time in history
When my wife tells me she needs more toilet paper, I immediately pull my phone out and order it from Amazon. It’s quick, easy, and I don’t have to be around my computer all of the time.
This is the power of mobile shopping. I can buy things on the fly and not have to worry about remembering it later.
When you sell on Amazon Fulfillment by Amazon (FBA), you have the ability to be in the pockets (literally) of millions of people in the USA. If you have the products in stock, they can buy it with just a few taps and swipes on their phone.
3.| Amazon FBA helps online retailers scale quickly and efficiently
So you now know why Amazon is amazing, but let’s take a moment to dive a little deeper into the benefits of opening an Amazon FBA seller account.
Who wants to store a bunch of inventory in their garage or, worse, open up their own warehouse? Amazon FBA is the best way to grow your business quickly without having to pay for more real estate, which is going up all over the US.
Since Amazon already has the infrastructure in place, you can piggyback on their systems to make your life even easier. You ship the items to Amazon and they handle the rest.
4.| Amazon FBA helps online retailers reach more potential customers
When you use Amazon FBA, you get special access to Prime members. And this is an audience of customers who LOVE to buy items on Amazon. The latest research shows that there are 150 million active Amazon Prime members who each spend over $1,000 annually on the platform.
More than double what their non-Prime counterparts spend.
One in three Americans has a Prime membership, and 20% of Amazon Prime members shop the platform several times a week.
It’s a no brainer to want access to this group of customers. And using Amazon FBA gives you that access by allowing you to sell your items with Prime shipping.
5.| Amazon FBA guarantees the customer experience
This is a big one. When clicking the Buy Box, most online shoppers assume they’re buying from Amazon and expect the Amazon experience. 89% of online shoppers say they trust Amazon and choose it more than other online businesses.
Why reinvent the wheel?
When you use Amazon FBA, Amazon handles the customer service for you. This makes the headaches go away and gives you time to spend on growing your business.
Overview Of Amazon FBA
At its most basic, FBA, also known as Fulfillment by Amazon, is an optional warehousing and delivery service that Amazon provides for its third-party sellers.
If you choose to use Amazon FBA, you get the benefit of Prime Delivery, an automated workflow, Amazon marketing services (and their excellent customer service), reduced shipping rates, and storage.
In other words, once you’ve purchased your products and shipped them to a regional warehouse, Amazon will handle the rest, from customer questions to packing and shipping your orders and managing returns and exchanges.
At this point, Amazon FBA might seem like a no-brainer. Of course, the flip side to this convenient program is higher Amazon seller fees, including fulfillment fees, pick and pack fees, referral fees, and long-term storage fees.
Still, even with the increased fees, most online sellers find that Amazon FBA is a great fit for their business model, enabling them to scale their e-commerce business more quickly while meeting customer expectations.
Amazon FBA Vs Amazon FBM
Perhaps the best way to explain Amazon FBA is to compare it to your other alternative: Amazon FBM, or Fulfilled by Merchant.
While both programs provide online business owners with a proven way to sell profitable products on a platform with quality traffic, there are some notable differences between the two.
Let’s break down the benefits and drawbacks of each program before we explain why we think Amazon FBA is the best choice for most online sellers.
Fulfillment by Merchant (Amazon FBM) is a method of selling and fulfilling online orders yourself. In other words, you’ll have to store and manage every product you list, and you’ll be responsible for shipping and customer returns for every unit you sell.
While some Amazon FBM sellers partner with a third-party fulfillment center to manage their inventory, most pack, ship and handle customer returns themselves.
Why Do Sellers Choose Amazon FBM?
Still, even with all the responsibilities, there are some legitimate reasons to choose Amazon FBM. First, listing products on FBM is faster and easier than listing on Amazon FBA.
Using the Fulfilled by Merchant program can be a great way to get started with selling on Amazon without investing a lot of time or resources into inventory. It’s a low-risk way to learn the basics of e-commerce, and there are fewer fees.
In addition, some sellers choose to list items through Amazon FBM when they want to have more control over their inventory.
For example, an online retailer might choose FBM for items that are rare, delicate, that have a high rank, or that are selling out faster than they can send shipments to Amazon’s warehouses.
Many sellers who primarily use Amazon FBA will also occasionally list products through FBM under these circumstances.
Pros And Cons Of Amazon FBM
- Faster and easier upfront
- Lower fees (and fewer fees)
- More control over inventory
- Good for long-tail inventory, rare inventory, and delicate inventory
- Sometimes better for extremely popular items
- More time-consuming on the fulfillment side
- Seller responsible for all fulfillment
- Seller responsible for all customer service
- Less likely to win the Buy Box
- Price points are lower for most Amazon FBM items, no Prime bump
- Customers expect Prime or 2-day shipping
Amazon FBA is by far the more popular choice for online retailers. Of all third-party sellers on Amazon, 92% use FBA for some of their products and 57% use Amazon FBA exclusively. In contrast, only 9% of sellers use FBM exclusively.
If almost all third-party sellers use Amazon FBA at some point and over half use only FBA—there must be a good reason! Let’s see why.
Why Do Sellers Choose Amazon FBA?
So many sellers choose Amazon FBA over FBM because of the greater overall convenience, the greater selling opportunities, and the higher prices they can command for their products.
First is the convenience. Even though selling through Amazon FBA requires the seller to create their own SKU labels and pack and ship products into Amazon’s warehouses, after all of this upfront work is completed Amazon handles the rest.
That means that you can work your regular job, go on an extended vacation, or attend your daughter’s ballet recital without having to worry about rushing to the post office to ship out orders under a tight timeline.
You can relax and let Amazon handle all fulfillment.
Secondly, online sellers experience greater selling opportunities with Amazon FBA. Generally speaking, only FBA sellers are eligible to win the Buy Box on most products. This is a real problem for FBM sellers, because 82% of Amazon sales happen through the Buy Box.
That percentage is even higher on mobile devices, and mobile shopping will account for over 50% of all e-commerce sales in 2021. Do you want to give up access to 82% or more of all Amazon buyers? Didn’t think so.
Finally, while it may be true that the fees and upfront costs are higher for Amazon FBA, the program also allows online sellers to charge more for their products.
This is known as the Prime bump. For better or worse, customers are used to 2-day shipping and willing to pay for the convenience.
There are now 150 million Amazon Prime subscribers, and they’re typically looking for Prime products to make their membership worth the cost.
Pros And Cons Of Amazon FBA
- More convenient
- Amazon responsible for all fulfillment
- Amazon responsible for all customer service
- More likely to win the Buy Box
- Access to a greater number of potential customers, including Prime shoppers
- Able to sell at a higher price point
- More time-consuming upfront
- Higher fees upfront
- Less control over your inventory and your business
Costs To Consider for Amazon FBA
One of the main reasons new sellers shy away from Amazon FBA is the associated fees. While it is true that new sellers need to be aware of the fees Amazon charges for its FBA program, it’s not always true that it’s more expensive to sell on Amazon FBA.
Let’s take a look:
Fees All Sellers Pay
All e-commerce businesses that want to sell on Amazon have to pay Amazon’s referral fees, individual seller per item fees (or a subscription fee), closing fees (for certain products), and a returns processing fee.
You can check out the full list of Amazon’s current seller fees on their site.
Fees Only Amazon FBA Sellers Pay
Amazon FBA sellers are also charged FBA fees, storage fees, and long-term storage fees.
Even though these seem hefty at first glance, the truth is that it doesn’t take a lot of money to get started, and the huge opportunity to sell to more customers more than makes up for the extra costs. Let’s break it down below:
Amazon FBA Fees
This fee is also sometimes called the “pick-and-pack fee” because it covers the cost of finding your inventory on the warehouse shelves, packing it up, and shipping it to your customer.
The FBA fee is based on your item’s weight, and currently it begins at $2.16 for items weighing six ounces or fewer and maxes out at $10.78 for standard-sized items weighing 20 pounds.
There are also special rates for oversized items, but that doesn’t apply to the majority of FBA sellers. You can see the current list of Amazon FBA fees here. I don’t know about you, but these prices seem like a bargain since they cover time, supplies, and shipping fees.
My time alone is worth more than a couple dollars.
Storage Fees and Long-Term Storage Fees
These are the fees you pay to store your products in Amazon’s warehouses, and they can be broken down into monthly storage fees and long-term storage fees. Monthly storage fees are charged by the cubic foot. The storage costs go up in the fourth quarter when space is at a premium in Amazon’s warehouse.
Long-term storage fees apply to any inventory that has been sitting in Amazon’s warehouses for over 180 days.
Why Amazon May FBA Cost Less Than FBM In The Long Run
It’s true that the upfront fees are higher for FBA, but selling through Amazon’s fulfillment program can be less expensive overall.
Let’s look at a quick example.
If I’m selling a textbook for $30, my referral fee would be $4.50 plus the $1.80 closing fee no matter which fulfillment program I use. For a book between two and three pounds, I’d then pay a $5.68 Amazon FBA fee that would cover the shipping cost and packaging materials.
If I was selling the same product as an Amazon FBM seller, I’d need to account for the cost of packaging ($2.00 to $3.00) and shipping (around $4.00).
Even if my book sits on the shelves for a couple of months and racks up some storage fees, my profit margin is still better as an FBA seller.
And that’s before I factor in my time.
Not only is Amazon FBA worth it, now is the best time to begin an e-commerce business. Amazon FBA is still the best way to scale a new business quickly, automate your sales process, reach millions of customers, and provide top-notch customer service.
To maximize your profitability on Amazon FBA while minimizing storage fees, use a software like Tactical Arbitrage to source fast-selling products that fly off the shelves.
Is Amazon FBA a pyramid scheme?
Running an Amazon FBA business is not a pyramid scheme. While it’s not a get-rich-quick scheme, and it does require a lot of work upfront, Amazon FBA is a legitimate way to make money while being your own boss.
Of course, a sophisticated, smart software solution like Tactical Arbitrage can help flatten your learning curve and improve your chances of success.