The Pros and Cons of Amazon FBA
When deciding whether to sell on Amazon sellers are faced with making a crucial inventory fulfillment decision: To choose between operating under the fulfilled by Amazon “ Amazon FBA” model or the merchant fulfilled model.
But while there are many benefits of Amazon FBA, there are also some distinct disadvantages of Amazon FBA. In this article, we will take a look at both to help you make a balanced decision on whether Amazon FBA is the right choice for you.
What Is Amazon FBA?
FBA is an acronym that stands for Fulfilled by Amazon.
Traditionally when a seller makes a sale they would assume 100% responsibility for getting the product to the customer including organising all packaging, shipping, returns, refunds and post sale customer service.
However, under the Amazon FBA model once a seller has sent in their inventory into Amazon warehouses, Amazon assumes total responsibility for the product from that point onward.
Literally, everything is left up to Amazon, including the storage, packaging, shipping, and any necessary post-sales customer service or refunds.
So as you can imagine this takes away A LOT of the headaches when starting to sell online.
What Is Merchant Fulfilled?
Merchant Fulfilled or MFN, is where you as the seller or merchant are responsible for fulfilling your own orders and arranging your own logistics once the sale has been made.
If you choose to fulfill your own orders, you must be super vigilant; late dispatches can cost you severely as Amazon punishes sellers who provide poor a customer experience.
With MFN you are simply a business that uses the Amazon platform as another sales channel to advertise, promote and sell your inventory.
The Advantageous Of Amazon FBA
The greatest part of using FBA is that Amazon will as mentioned before, literally do all the work for you!
Amazon will provide you traffic, store your goods, and ship the goods out to your customer.
This is a huge advantage as it means you can focus on building a business without first having to learn numerous different skillets and time zapping tasks.
No more worrying about fulfillment logistics or having to provide customer service as Amazon will take care of this for you.
Instead, you can simply focus on what’s important: Sourcing products, developing brands and growing your business.
Did you know that FBA isn’t just for selling on Amazon? In fact, you can also integrate FBA into your other sales channels like your own site such as your own self-hosted Shopify store or other eCommerce platform.Your customers can enjoy flexible shipping options like one-day, two-day, and standard delivery times.
This way your customers can enjoy the flexible shipping options provided by Amazon.
Using the Amazon fulfillment network and getting the “Fulfilment by Amazon” logo next to your items can go a long way with customers, boost your credibility by leveraging of the Amazon brand and giving customers a reason to trust you.
Access To Prime Shipping and Amazon’s Established Fulfilment Network
When you sell through Amazon FBA you automatically become eligible to have your goods fulfilled through Amazon’s Prime shipping network.
A network that currently has a whopping 85,000,000 subscribers who use Amazon as their first point of call to make a purchase.
This advantage alone can be the difference between you winning a sale compared to a merchant fulfilled seller or a non-Amazon seller.
If the same item is available from two different sellers but only one is a Prime seller who can get their order to the customer by the next business day, it’s highly likely that the buyer will purchase from the Prime seller.
As let’s face it: People just love the convenience of Amazon’s next day Prime Shipping.
Buy Box Priority
Ever wondered why some products/sellers are higher up in the buy box than others?
Ever wondered why products fulfilled by Amazon are higher up in the buy box than cheaper products, despite you supposedly tweaking your setting to display items from lowest price to highest?
It’s because Amazon’s algorithms favour sellers who use the fulfilled by Amazon service!
Why? We believe Amazon prefers these sellers because they know that the customer will be receiving great customer service and therefore, more likely to make a repeat purchase on Amazon.
Yep! You guessed it. Because Amazon is providing the customer service!
This again is a huge advantage as it results in your product being shown more to customers and increase your chance of a sale. Again, another huge benefit of Amazon FBA.
Customer Service and Return Management
Amazon FBA also gives you access to Amazon’s renowned customer service. Including customer support by phone or email both day and night. You’ll know you’re providing the best service you can. And, you won’t have to spend hours providing it, instead, you can focus on managing your business’s operations.
This even includes the handling of customer returns without you having to be burdened with the difficulty of reverse logistics anymore.
The Disadvantages of Amazon FBA
High Costs and Charges By Amazon
While Amazon FBA is phenomenal! if you think Amazon would provide this service for free, then think again!
If you think Amazon will store your goods in their warehouse free of charge? Definitely not!
Amazon charges you storage fees depending on how much space your inventory takes up in their warehouse, as well as how long it’s going to be stored in Amazon warehouses.
This is in addition to the per unit fulfillment costs and fees that Amazon charges every time you use the FBA service.
As a rough guide for new sellers, this will often approximate 30% of the sales price every time you make a sale!
Ultimately, you need to do the maths. You need to work out how much you need to sell in order to offset the shipping and storage costs in order to make a decent profit.
Luckily Amazon provides free calculators to help sellers gauge the profitability of a product.
Additional Prep Required
As a rule, Amazon requires your goods to be prepped to a certain standard if you want to store your goods in Amazon warehouses which can be time-consuming and costly.
Amazon impose strict rules on sellers to ensure that goods stored at their warehouses will not harm or damage other seller’s products
Since you’re playing by Amazon’s rules you have no choice but to obey: Either you package your goods or Amazon will do it for you and charge you.
Complete Reliance on Amazon
Using Amazon FBA ensures that you are completely reliant on Amazon’s capability to receive and process your inventory shipments into Amazon warehouses and then ship them out to the customer quickly.
However, during festive seasons there can often be delayed which may result in you running out of stock.
However, using Merchant Fulfilled and using your own logistic networks can give you more control and power when it comes to getting your product to the customer and not be dependant upon Amazon.
Using Amazon FBA it’s very hard to build a reputation and develop a close relationship with customers, simply because you haven’t got a brand identity.
There is minimal ability to influence the customer experience with personalised product branding like shipping boxes etc.
The first experience a customer will see is Amazon branding all over their boxes.
If branding matters to you, this will be a big disadvantage of Amazon FBA as you will have to rely on Amazon’s default Amazon branding which is effectively marketing to build the Amazon brand instead of strengthening your own personal brand.
Inability to Build An Email List
Selling on Amazon does not allow you to build up customer email lists to re-market to existing customers.
This can lead to high customer acquisition costs, low life time customer order value, as well as an inability to develop and build relationships with the customer.
There is no getting around the fact that competition on Amazon is huge. If you’re to succeed on Amazon FBA, you’ll need to be prepared to stick around for the long haul.
Every man and his dog are on there trying to sell something, and as you’ll have already noticed there are always numerous sellers trying to sell the same thing.
Sure, you’ll get access to the buy box. But so will others who have paid for Amazon FBA. Who’ll come top of the buy box? Often this is determined by two main factors Price and Amazon’s ever-changing algorithms to decide.
Alternatives to Fulfilment by Amazon
If you’re not sold on using FBA, what most people don’t know that there are other third-party fulfillment services like Shipwire or Corefulfilment who offers the same type of services as FBA. You can compare prices for your items and choose the one that makes the most sense for you.
So, Amazon FBA or not? While there are undoubtedly cons of Amazon FBA, most sellers new to eCommerce will probably feel that the pros outweigh the cons.
If you’re new to e-commerce without a doubt the Amazon FBA service provides an excellent way to learn the ropes of selling online.
It’s a great way to make some money on the side, gain some experience in eCommerce without having to spend a fortunate or countless hours figuring out logistic, fulfillment headaches.- and it could even turn into a full-time job.
Now if you have learnt from this article and want to keep up to date with more money-making tips, then do not forget to join our mailing list and we’ll even give you a complimentary enrollment into my Four Day Fast Starter Mini Course where you’ll learn the following:
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Day 1 – The Amazon money making system;
Day 2 – What to buy;
Day 3 – Where to buy; and
Day 4 – Scaling & Growing
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Video 1 – How to make money selling on Amazon;
Video 2 – How to register your seller account;
Video 3 – How to list inventory on Seller Central; and
Video 4 – How to prepare Amazon inventory shipments