Amazon FBA (Fulfilment by Amazon) has revolutionised the way ecommerce business owners operate, offering a convenient solution for storing inventory and streamlining the fulfilment process.
By creating opportunities to tap into Amazon's vast customer base and leverage their logistics infrastructure, FBA can be an enticing opportunity for ecommerce entrepreneurs looking to establish a successful online business and expand it overseas.
However, before you jump right into the FBA program, it’s crucial to understand the realities of Amazon FBA and make sure you’re not signing up based on any false assumptions. In this article, we’ll explore some of the most common misconceptions about Amazon FBA, and shed light on all the key things you should consider before starting your journey with Amazon FBA.
Let’s start by establishing what Amazon FBA is:
What is Amazon FBA?
Amazon’s FBA program lets ecommerce owners store inventory in Amazon's fulfilment centres, with Amazon itself taking care of the entire fulfilment process - from picking, packing and shipping orders, to handling customer service and managing returns.
A significant advantage of Amazon FBA is that it grants your products eligibility for Prime shipping, which can incentivise more customers to buy from you. Plus, Amazon's comprehensive international shipping and customs clearance services allow you to expand your reach and sell your products in a range of different countries.
Amazon FBA fees: What should I expect to pay?
While Amazon FBA may offer a huge amount of convenience and opportunities, this service doesn’t come without a cost. Understanding Amazon’s FBA fees upfront will help you make informed decisions and ensure that your pricing strategy aligns with your financial goals.
When you sign up to Amazon FBA, you’ll need to pay storage fees for housing your inventory in Amazon's fulfilment centres, as well as picking and packing fees for each unit sold, and shipping fees for delivering products to customers.
Inventory storage fees are charged monthly based on the daily average volume (measured in cubic feet) for the space your inventory takes up in Amazon’s fulfilment centres. You may also face long-term storage fees for any inventory that remains unsold for an extended period, so it's important to factor this in when assessing the potential profitability of your FBA business.
These fees will only be charged for products that you have listed specifically under the Amazon FBA service, and will cover the cost of storing, picking, packing and shipping your products using FBA.
But remember - these fees will all be on top of the regular fees you pay as an Amazon seller to have products listed and sold on the Amazon website. This includes Amazon’s regular referral fee, which is a percentage of the total price of your product (excluding any taxes).
The exact cost of using Amazon FBA will depend on the nature of your business and the products you’re selling. You can use Amazon’s UK Seller Fee Calculator to find out exactly how much Amazon FBA will cost your business each year.
But pricing’s not the only thing you should be up to speed with before signing up to Amazon FBA. Let’s break down some of the common assumptions and expectations ecommerce sellers have around Amazon FBA:
Amazon FBA: Expectation vs. Reality
Expectation #1: Amazon will handle everything for you
One of the prevailing assumptions about Amazon FBA is that once you join the program, Amazon will take care of all the operational aspects, leaving you with minimal responsibilities. This is likely due to Amazon’s strong reputation for efficient logistics and great customer service.
While Amazon does provide fulfilment and customer support services, successful FBA sellers understand the importance of actively managing their businesses. This involves strategic inventory planning, pricing optimization, promptly addressing customer inquiries and complaints, and staying informed about Amazon's policies and guidelines. Being proactive and responsive is essential for maintaining a thriving FBA business. And if you do need a little extra help with things like payments or disputes, it’s worth looking into working with an MoR (Merchant of Record).
Expectation #2: Easy and immediate profitability
Another common misconception among ecommerce business owners joining Amazon FBA is that they’re guaranteed to make money instantly. Many believe that the moment their products are listed on Amazon, they'll start seeing substantial profits.
However, this isn’t always the case. Achieving sustainable profitability requires careful planning and execution. From the start, you’ll need to invest in product sourcing, inventory, branding, and marketing, and even then it will take time to gain traction and build a loyal customer base.
You'll need to conduct thorough market research, identify profitable product niches, and develop a comprehensive marketing strategy. Building a strong foundation for your business is crucial to long-term success. Patience, a long-term perspective, and reinvesting your earnings to scale operations are often vital components of success in the FBA realm. It may take months before your business becomes profitable, and reinvesting your earnings to scale your operations is often necessary.
That said, many sellers do make a lot of money within the first few months or years of joining Amazon FBA. In fact, nearly a quarter (22%) of sellers launching their brand say it took them just 3-6 months to turn a profit, while 10% said it took them 1-2 years. And Amazon FBA sellers across the board are seeing significant profits, with the majority (70%) making over $1,000 a month, and 25% making over $25,000 per month. So, while profitability isn’t always instant, it’s very achievable.
Expectation #3: Minimal competition
Some aspiring FBA entrepreneurs believe that their chosen niche is untapped and that competition won't be a significant challenge.
However, the reality is that Amazon is a highly competitive marketplace. While there are opportunities to carve out profitable niches, competition is fierce. To succeed, you'll need to differentiate your products, provide exceptional customer service, and continuously innovate. Staying ahead of the competition requires staying informed about industry trends and adapting your strategies accordingly.
So, is Amazon FBA worth it for beginners?
In short, yes - it really can be. Amazon FBA offers tremendous opportunities for entrepreneurs to build thriving ecommerce businesses. However, it's important to approach it with realistic expectations, and make sure it’s the right step for your ecommerce business based on the time and resources you have available.
How to get started with Amazon FBA
Getting started with Amazon FBA as a UK business owner is a fairly straightforward process. You’ll just need to make sure you’ve created an Amazon Seller account (which you can do here on Amazon’s website), and you’ll then be able to set up FBA in the Seller Central.
Whenever you list a new product, you’ll have to specify that you want to use FBA to fulfil your orders. From there, you’ll just need to prepare and send the specified products to Amazon’s fulfilment centres, being sure to follow Amazon’s packing guidelines and shipping requirements.
You can find out how to use Amazon FBA in more detail on Amazon’s FBA sign up page.
Running a successful Amazon FBA business requires time, effort, and continuous learning. But by understanding the reality behind the expectations, you can better prepare yourself for the challenges and take proactive action to overcome them. Just remember, while FBA can be a fulfilling and profitable venture, it's not a get-rich-quick scheme!
As you embark on your FBA journey, surround yourself with a supportive network of ecommerce business owners and industry experts who can offer you guidance and insights. Keep up to date with the latest trends, consumer behaviour and Amazon policies to stay ahead of the competition. Most importantly, be patient and persistent. Building a profitable FBA business takes time, but with the right mindset and a well-executed plan, you can achieve your ecommerce goals.
Best of luck on your FBA adventure!