Amazon FBA (Fulfillment by Amazon) is a service that enables sellers to store, pack, and ship their products directly from Amazon’s fulfillment centers. 

With millions of customers shopping on Amazon daily, FBA is an attractive option for those looking to start an ecommerce business without managing warehousing and fulfillment operations themselves. 

Amazon FBA for beginners, or an experienced seller considering Amazon FBA pros and cons, understanding the business model, fees, and alternative fulfilment methods is important to understand for all. 

What Is Amazon FBA? 

To define what Amazon FBA is, it is a service where Amazon handles storage, packaging, and shipping for third-party sellers. By using Amazon’s global fulfillment network, sellers can streamline their business and focus on sourcing and marketing their products while Amazon takes care of order fulfillment and customer service. 

Sellers ship their inventory to Amazon fulfillment centers, where products are stored until an order is placed. Once a customer buys the product, Amazon picks, packs, and ships the item directly to them. 

This service also includes customer service, returns handling, and eligibility for Amazon Prime shipping, making products more attractive to potential buyers. 

Amazon FBA simplifies logistics and enables businesses to scale quickly by outsourcing fulfillment to one of the world’s most efficient ecommerce platforms. 

How Does Amazon FBA Work?

The Amazon FBA step-by-step process is straightforward but requires careful planning, to understand how does Amazon FBA work, look below: 

1. Create an Amazon Seller Account: Sign up on Amazon Seller Central and choose between an Individual or Professional Plan. 
2. Select Products to Sell: Source products through private label, wholesale, arbitrage, dropshipping, or handmade categories. 
3. List Products on Amazon: Create optimized product listings with descriptions, images, and keywords. 
4. Ship Inventory to Amazon: Send products to Amazon fulfilment centers, where they will be stored and managed. 
5. Amazon Handles Fulfillment: When a customer places an order, Amazon picks, packs, and ships the product. 
6. Customer Service and Returns: Amazon takes care of customer inquiries, complaints, and returns processing.
7. Seller Gets Paid: Amazon deducts FBA Fees and deposits the earnings into the seller’s account. 

The Pros and Cons of Amazon FBA

To best understand, one needs to see what the Amazon FBA pros and cons are to make a well thought of decision.

Pros 

One of the main advantages of Amazon FBA for beginners is the ability to outsource fulfillment while using Amazon’s fast shipping network. 

Prime eligibility makes FBA products more attractive to buyers, increasing sales potential. 

Scalability is another major benefit, as sellers can expand their business without worrying about storage space or logistics. 

Additionally, Amazon’s customer service handles returns and inquiries, reducing operational burdens for sellers. The FBA program also provides access to Amazon’s multi-channel fulfillment (MCF), allowing sellers to use Amazon’s fulfillment network for non-Amazon sales channels. 

Cons

Despite its advantages, Amazon FBA comes with challenges. Amazon FBA fees can be high, especially for large or slow-moving inventory. Sellers need to carefully manage storage costs to avoid excessive fees. 

Another drawback is lack of control over fulfillment and branding. Amazon’s strict policies on packaging and customer service mean sellers have limited influence over how their products are presented. 

Competition is fierce, with thousands of sellers often competing in the same category. 

Understanding Amazon FBA Business Model Options

To understand how to start an Amazon FBA business, you need to see what the model options are: 

Private Label 

Amazon Private Label involves sourcing generic products, branding them, and selling under a unique label, which requires manufacturing partnerships, product differentiation, and marketing efforts. 

Wholesale

Amazon wholesale entails purchasing bulk products from established brands and reselling them as a profit. 

This model allows sellers to avoid branding and product development, focusing instead on competitive pricing and inventory management. 

Online Arbitrage

Amazon Online Arbitrage involves buying discounted products from online retailers and reselling them on Amazon for a profit margin. Sellers analyze price trends to identify profitable Amazon online arbitrage opportunities. 

Retail Arbitrage 

Similar to online arbitrage, retail arbitrage Amazon is where sellers source products from physical stores at a discount and resell them on Amazon. 

This model is low-cost and accessible but requires time-consuming product hunting. 

Dropshipping 

Amazon Dropshipping allows sellers to list products without holding inventory. 

When an order is placed, a third-party supplier fulfills the order, eliminating storage costs but reducing profit margins and control. 

Handmade 

Amazon homemade caters to artisans and small-scale creators, enabling them to sell customs and handcrafted products directly through Amazon. 

Considering Alternatives to Amazon FBA 

Fulfilled by Merchant (FBM) 

Amazon FBM allows sellers to handle storage, shipping, and customer service independently. 

While profit margins are higher, sellers must manage fulfillment logistics themselves.

Merch on Demand 

Sellers can design and sell print-on-demand products through Amazon Merch on Demand, avoiding inventory and fulfillment responsibilities. 

Digital Products 

Selling e-books, courses, and printable eliminates shipping costs and allows for passive income generations. 

Amazon Affiliate Program

Through the Amazon affiliate program, sellers earn commissions by promoting Amazon products, requiring zero inventory and minimal startup costs. 

Understanding Amazon FBA Fees: How Much Does Amazon FBA Cost? 

Amazon FBA operates as a pay-as-you-go fulfillment service, meaning sellers are charged based on the size, weight, and category of their products, as well as the amount of storage space they use. 

Fulfillment fees cover the cost of picking, packing, and shipping orders from Amazon’s fulfillment centers. These are calculated, as of 2024, standard-size items (weighing under 2 lbs) leading to lower fees compared to oversized items, which require more handling and storage space. The larger and heavier the item, the higher the fulfillment fee Amazon charges. 

Storage fees are based on the cubic footage occupied by inventory in Amazon’s warehouses. Sellers pay monthly storage fees, but long-term storage fees apply to inventory that sits unsold for more than 365 days. 

From January to September, monthly storage fees for standard-size items average $0.87 per cubic foot, while from October to December (Amazon’s peak season), fees increase to $2.49 per cubic foot due to higher warehouse demand. 

Oversized items have higher storage costs due to the space they consume in Amazon fulfillment centers. 

Referral fees are another major cost, charged as a percentage of the selling price. Amazon deducts this fee automatically for every sale, with a percentage ranging from 6% to 45%, depending on the product category. 

Most categories, including electronics, home goods, and apparel, leading to a 15% referral fee. 

What Percentage Does Amazon FBA Take? 

Amazon takes a percentage of each sale made through FBA, primarily through referral fees and fulfillment fees. On average, most sellers find that Amazon takes between 15% to 30% of their total revenue, depending on their product category, fulfillment costs, and storage duration. 

The referral fee is the largest commission Amazon deducts, varying between 6% and 45% with 15% being the most common rate. For instance, electronics and appliances typically have a 8% to 15% referral fee, while jewellery and luxury beauty items are charged up to 20% or more. 

Media items such as books, DVDs, and video games fall under fixed closing fees and increase of referral fees, which also impacts profitability. 

Another factor affecting how much Amazon FBA takes is storage fees. Long-term storage fees (applied after 365 days) can increase a seller’s total costs, especially if they sell slow-moving products. 

Sellers who fail to monitor inventory turnover may see Amazon deduct a higher percentage of their revenue due to storage and removal fees.