FBA is experiencing phenomenal growth by e-commerce entrepreneurs and start-ups alike.
What’s the main reason behind this growth?
The biggest reason is that business owners find value in handling the day-to-day operations over to Amazon, so they can be freed up to focus on growing their businesses.
But what is FBA?
Read on discover what FBA is, how it works, and if it’s right for you?
What is FBA?
FBA stands for Fulfilment by Amazon. In simple terms, you ship your items to Amazon, and they handle the product fulfillment.
This partnership with Amazon lets you focus on other aspects of your business, like your business website, while Amazon takes care of all the shipping and customer service tasks. This arrangement is different from opening a store on Amazon.
How does FBA work?
If you’ve already got an e-commerce site, adding your products to FBA is a great way to extend your product’s reach.
It’s also great if you’re looking to create a business solely through FBA.
For example, many people do retail arbitrage on FBA. In other words, they buy a product for a low price, and then resell it on Amazon for a higher price.
The Selling Family makes a full-time income this way, often selling for a 100% profit margin on popular items.
Other entrepreneurs find products on Alibaba. The manufacturers of those products, usually overseas, send the products directly to Amazon on behalf of the business owner.
The simplicity of this type of business attracts many entrepreneurs and aspiring business people to FBA.
So, what’s the catch, you ask?
Well, as you can imagine, Amazon doesn’t provide FBA services simply out of the goodness of their heart.
As you might’ve guessed, fees and revenue-sharing are involved.
What are FBA fees?
Amazon charges you for storing your items, and they also take a percentage of each sale.
Your storage and fulfillment fees cover the following services:
- Picking and packing of your orders
- Shipping and handling to the customer
- Customer service
- Product returns
- Storage by weight or per cubic foot per month
Storage Fees
Amazon categorizes their fees by size, weight and time of year.
The prices for a standard-size item by weight range from $2.41 per unit to $3.19.
Storage fees for standard-size items per cubic foot are 0.69 cents per cubic foot but jump to $2.40 during October through December.
Please refer to Amazon for current fees.
Service and Referral Fees
Regardless of who ships the item, you or Amazon, you still must pay referral fees.
Referral fees are a percentage of the total sale price, which must be paid to Amazon.
The referral fees are different for each category, ranging from 6%, for personal computers, to 45%, for Amazon Device Accessories.
Typically, most items fall in the 15% range.
Fees for Account Service
Amazon has two types of seller accounts, individual and professional. Each comes with their fee.
If you sell as an individual, you are charged $0.99 for each item you sell.
Under the professional account, you are charged a flat fee of $39.99. So obviously, you would only choose the professional account if you plan on selling more than 40 items a month.
Once you’ve chosen your account, then it’s just a matter of setting up your products to sell to the public and shipping your items to an Amazon Fulfillment Center.
You can do this yourself, or FBA prep services are available to help you out.
The Bottom Line
When asking, “What is FBA?” remember; you sell the items, Amazon provides the shipping and fulfillment – for a fee.
In determining if FBA is worth it for you, consider the potential profit margin you can achieve selling a particular item, even after subtracting the various Amazon fees.
And if you found this article helpful, please check out our other business-related content.