I’ve been spending a lot of time reading the Amazon FBA sub-Reddit recently, because it’s a great resource for anyone interested in selling with Amazon FBA. I’ve noticed there are lots of people new to Amazon FBA asking lots of beginner-type questions, so with this post, I’m going to address some of the topics new or potential Amazon FBA sellers often have.
What is Amazon FBA and How Does it Work?
This is a logical place to start, and if you’re new to FBA, or wondering if it would be right for you, then knowing how Amazon FBA works is obviously important.
The acronym FBA stands for Fulfillment by Amazon. In a nutshell, FBA is a service whereby you list products for sale on Amazon, send those products to Amazon’s warehouses, and Amazon sends the products to customers on your behalf.
One of the major benefits of FBA is that customers who are Amazon Prime members get the same free 2-day shipping service when they buy your FBA products, just like they would get buying products from Amazon itself.
This is a big deal, because according to the website Statista, there were 112 million Prime members as of the end of 2019, each spending about $1,400 per year on Amazon. That number of potential customers can’t be ignored if you’re trying to be successful at selling products online.
Another benefit of FBA is that Amazon handles customer service and returns for the orders placed for your products. This is a major time and cost-saver for any potential online seller, because time saved by not having to do customer service is time you can spend growing your business.
Before I continue, here is a quick video from Amazon showing what FBA is:
Amazon FBA Fees: What Will it Cost You?
Amazon charges you several fees to sell your products on their platform. Amazon FBA fees are broken down in to these categories:
- Selling Plan Fee
- Referral Fee
- Fulfillment Fee
- Other Fees
Selling Plan Fee: When you sign up for an Amazon seller account, you have to choose between two types of accounts: Individual or Professional. The Individual account doesn’t charge a monthly fee, but it does charge 99 cents per sale on every item you sell. The Professional account charges a $39.99 per month fee, but does not charge a per-sale fee. The Individual account has some restrictions as well, such as not being able to use Amazon’s advertising, and not being allowed to sell in certain categories. See this page for a full listing of the different features offered by Individual or Professional accounts. You can find the links to sign up for either type of account here.
Referral Fee: Amazon charges what they call a “referral fee” when you sell an item on their platform. The fee is based on this fee schedule broken down into categories, and usually ranges from 8% to 15% of the sale price.
Fulfillment Fee: Amazon charges you fulfillment fees based on the cost of picking and packing your orders, shipping your orders, processing returns, and providing customer service on your behalf. The exact fee is based on the weight and dimensions of your product as shown in a table here.
Other Fees: Amazon charges sellers several other types of fees, such as storage fees, advertising fees, etc. You can see a list of these fees here.
Amazon’s has a Pricing page devoted to a comprehensive discussion of their fees, which you should review if you want to know more.
I also wrote a post that provides a comprehensive explanation of FBA fees, including the FBA fee calculator. You can find the post here.
Amazon FBA Calculator: What Will You Earn?
Let’s say you want to know exactly how profitable a product will be if you sell it with FBA. Or maybe you want to know how FBA revenues and costs compare to fulfilling an order yourself or using another fulfillment service. To find out, you can use Amazon’s FBA Calculator tool.
As shown in the images below, you enter the description or UPC of a product you’re thinking of selling, and Amazon then provides a table to enter information such as the item’s selling price shipping cost, etc.
Enter a value for each field, and then click the “Calculate” button. You’ll then see a comparison between “Your fulfillment” and “Amazon fulfillment” that looks like this:
You can use this information to better guide you in deciding if Amazon FBA makes sense for you. Also, if you’re looking for a deeper dive into the revenue calculator, I wrote a complete overview of it here.
Is Amazon FBA Worth It?
I see the question “Is Amazon FBA Worth It?” posted regularly on Reddit in one form or another. In a word, my answer is “yes”. I have two major points to support this:
- The barriers to entry to sell with Amazon FBA are very low
You can start selling with Amazon FBA with almost no money, which is how I started. I took books I already owned, but no longer needed, and sent them to Amazon. The only thing I had to pay for was the shipping cost, and that was less than $10. I don’t know of any other business that I could legitimately start with so little capital up front.
Also, because it takes so little to get started, the cost of failure is low as well. You can try FBA, and if you don’t like it or it doesn’t go your way, there is very little lost on your part other than some time.
- The likelihood of success is high with Amazon FBA versus a traditional offline business
One of the best parts about selling on Amazon is you can know beforehand if a product will sell or not. Since Amazon tracks data associated with product prices, sales, reviews, etc. you can use software tools that use this data to find products that are already successful on Amazon before you start selling them.
For example, using a software tool like Keepa, you can research an existing product’s sales and price history to see if it’s been a winner or loser. You could use Jungle Scout to research product ideas based on frequently searched terms on Amazon.
These are just 2 examples of the many software tools specifically designed to make you successful selling on Amazon. Using these tools, a beginner can make very well-informed decisions about what to sell to be successful.
Summary
This post is just an introduction to how Amazon FBA works. If you’re still curious, or want to learn more about Amazon FBA, there are lots of topics I didn’t cover here, but have written about, such as:
- Where can you find items to sell on Amazon? Read this, this, or this.
- Want an in-depth breakdown of Amazon FBA fees? See this post.
- Want to see more benefits of FBA? Try this post.
- Want to know how an Amazon business can grow over time? See this post about how my business has evolved since I started in 2015.
Key points:
- Is Amazon FBA worth it? Yes
- Use Amazon’s FBA calculator tool to determine and compare cost and profit of selling with FBA
- Amazon FBA has several fees to be aware of before you begin
Additional Amazon FBA Resources:
- Amazon has a well-presented “How to Start Selling on Amazon” page here.
- Amazon also has a high-level overview of FBA here.
- Find Amazon’s frequently asked questions page about selling here.
- Reddit’s Amazon FBA sub-Reddit is here.
- See a tour of the inside of an Amazon fulfillment center here.
- I made an infographic to show what Amazon FBA is below.