The Pros And Cons of Joining the Amazon FBA program

Last updated on June 5th, 2023

Written by Mohamed Aden

What is FBA?

FBA or Fulfillment by Amazon is a service that allows you, as an online seller, to use Amazon's massive warehouses to stock and distribute the items you sell on the platform. The Amazon FBA program is an easy and efficient method that can help your online store expand without needing to spend thousands of dollars in storage facilities and personnel.

How Does It Work?

• You take the goods to one of Amazon's warehouses.
• Amazon securely stocks the goods in their warehouse.
• Customers buy the items, and Amazon handles the whole process, from billing to inventory updates.
• Amazon will package and mail the order to the consumer.
• Amazon meets the rest of the customer service needs, including returns and refunds.
• Amazon transfers your revenue earnings directly into your bank account after two weeks.
• So Amazon FBA is essentially the same as making your stock, pickers, and packers!

Amazon's staff will dispatch all of the shipments, handle all of your customer calls, inform them that their item has been dispatched, and handle delivery and payments; all you have to do is supply them with the stock and collect the cash. Amazon charges a premium for their FBA service, but the prices are reasonable, and the postage savings are essential.

These prices and policies are prone to changes so be sure to keep up with Amazon FBA News.

Here are a few things you have to contribute as a participant in the Amazon wholesale business:

1. Choose your products: Amazon will handle the back end, but you will also need to investigate and source what to offer.
2. Ensure your inventory is still up to date: Amazon will notify you when your stock numbers are down, so you must replenish stocks if required.
3. Create your product listings to advertise your products: Amazon is a big platform with many competitors, so it's essential that you write compelling product listings with high-quality images for customers to see.

The Pros and Cons of Participating in the Amazon FBA Program

One of the most challenging problems for selling wholesale on Amazon is fulfillment. There are several moving parts to remember, and inefficiencies can result in high costs and issues such as delivering to the wrong address. Unfortunately, vendors may not have much leeway to make errors. With only one lousy delivery encounter, 84 percent of customers said they would not return to a company. As a result, many Amazon vendors use software like FBA to manage delivery. You can satisfy consumer needs while still lowering the prices, among other significant advantages.

From here on, we're going to help you decide if being an Amazon FBA seller is for you or not:

Pros

1. You Can Use Amazon's Prestige to Your Advantage.

Amazon is trusted by people all around the world. They know they will get a product when they order it. They also understand that they can return it if necessary. This has a significant impact on buying intent.

2. You Acquire the Opportunity to Deliver Lightning-fast Operations.

Amazon's one-of-a-kind online shopping system provides quicker loading and delivery. As a result, they can distribute goods to your clients quicker than you can.

3. You can boost your Amazon ranking and popularity.

Your product would show higher in the search results if you use the Amazon FBA program. Products from vendors that do not use FBA are classified by total price (price of the product plus shipping costs). However, as an FBA seller, your products will be classified solely by price, putting them at the top of the search results.

4. You Have a Higher Chance of Getting the Buy Box.

The Amazon Buy Box is the large 'Add to Basket' icon that appears on all Amazon product lists. If you and Amazon are offering a similar commodity, they will have the Buy Box. Since FBA is one of the factors Amazon looks for in your delivery processes, you’ll likely win the buy box on the other product listings.

5. You Can Provide Customers with Free Shipping.

Your consumers can get free shipping on your stuff if they have an Amazon Prime membership. This is unquestionably advantageous for you over vendors who do not use Amazon seller services such as the FBA program. During the busy shopping season, prime buyers choose to buy a wide variety of products. After all, who doesn't enjoy free shipping? By hitting these vendors via Amazon FBA, you obtain a huge benefit.

6. You Can Lower Operating Costs

You won't have to worry about storage, staff, or management thanks to FBA, and you'll be able to concentrate on delivering more goods and increasing your earnings!

7. You can take advantage of Amazon's incredibly efficient systems.

One of the most significant advantages of FBA is improved efficiency. With Amazon handling customer support, refunds, packaging, packaging, and shipping of your goods, you can focus on growing your market and avoiding a suspension.

8. You can have work flexibility

As an Amazon FBA vendor, you can be located anywhere in the world and still generate steady revenue. Amazon can handle all of your orders 24/7.

9. You won't have to contend with too many client inquiries.

Amazon FBA will handle all of the customer service requirements. If a buyer has a problem with their order, they can call Amazon's customer service department rather than you dealing with it. This saves you precious time, tension, and irritation. It also eliminates the need for you to communicate directly with clients.

Cons

1. Cost

With those just starting, money is everything. FBA is a handy utility, but it is not free. That is money that some people may not afford right now. Because of the way fees are assessed, this program is not suitable for low-cost goods, so you can be careful with the things you participate in. Amazon has a useful FBA calculator that will assist you in determining if it is a good step.

2. Increased Returns

In many instances, vendors have recorded a spike in the amount or volume of returns. This is attributed, in part, to Amazon's no-questions-asked return policy. Previously, Amazon would mail returns back to you, and you would have to pay for them to be returned to you; but now, the platform is making adjustments for returns to be sent directly back to your warehouse.

3. Long-Term Storage Fees

Amazon dislikes keeping supplies on hand. As a result, you'll pay extra for items that sit for a more extended period. Long-term storage costs can be a deal-breaker, so you'll need to work them into your ongoing budget to ensure that FBA is still financially viable for your company goals. They don't like storing items that aren't aggressively selling, so they'll bill you for them and adversely change your metrics. You can see all your inventory metrics in your vendor console. Also, you can plan for goods to be returned to your warehouse.

4. Product Preparation Requirements

Amazon has its own set of specifications for goods entering the warehouse to be met by FBA. You must ensure that all of the goods are properly packed and labeled before shipping them to Amazon. Any of the specifics can be challenging.

5. Sales Tax 

Sales tax is administered at the state level. If your company resides in one state but has its inventory warehoused in another, you will be unsure which tax rate to use. Fortunately, some resources help automate different tax circumstances and laws to assist you in determining whether to owe, and Amazon will do the majority of this for you.

6. Payment for Amazon FBA Fees

There is no postponing what you owe Amazon. You cannot use the proceeds from the subsequent sale to cover the costs of the last one. Before making the payment to you, Amazon will subtract all payments owed to them. And what if you don't have enough money to pay the fees? To pay off the outstanding debt, you must have a credit card.

Final Say: Should I go with FBA or fulfill orders myself?

If you want to draw on the lucrative Prime user base but don't want to pay the FBA fees, you can open a Seller-Fulfilled Prime (SFP) account and sell and execute your goods and orders. Essentially, you get to use the Amazon Prime name and delivery instructions, but you have to do all the logistics yourself.

You must now handle all refunds and account for all delivery charges. Although FBA charges storage and delivery fees that could be fractional in contrast, Seller-Fulfilled Prime requires you to cover all shipping expenses, which will cut into your earnings. However, these prices are usually set and may not fluctuate significantly. FBA customers are at the whim of Amazon, which has designed the service so that their delivery fees will adjust at any moment.

Since seller-fulfilled prime needs a lot of effort, small labels and retailers do best with the FBA scheme. However, whether you have low-cost products, oversized items that will incur heavy Amazon storage fees, or a mature distribution operation, SFP is a perfect way to get the "Prime" badge while keeping the costs low.

Finally, you avoid all the hassle by hiring an established team of experts who know the ins and outs of Amazon to manage your FBA business for you. An Amazon FBA account manager can guide you throughout the supply chain, from product research to a reliable wholesale supplier. Get the facts today by shooting us an email at [email protected].