When online retailers should consider Fulfillment by Amazon (FBA)
Whether you’re interested in starting a business or you already have one and you’re looking for growth options, you’ve probably considered using Fulfillment by Amazon (FBA) — that is, using Amazon’s network to pick, pack, and ship your orders as well as provide customer service.
But should you make the leap?
Only you can truly answer that question, of course, because the choice ultimately depends on a number of unique factors. For example, are you ready and willing to invest money in your venture? Will you put the work in to stay abreast of market conditions and changing FBA rules? Do you mind having an income that fluctuates instead of remains steady?
(Those questions are paraphrased from a great quiz you can find here.)
The choice is about more than you and your preferences, though. It also depends on your business. Obviously, you’re going to be selling (or you already are selling) products — but what products? Where do you get them? How profitable are they? How much competition do you have? And are you prepared to pay the fees that come with FBA selling?
There’s a lot to think about before starting any business, and an FBA business is no different. In addition to answering the questions above, it’s probably a good idea to make sure the following statements apply to you before you start with FBA.
Your business offers more than one or two core products. This isn’t a requirement, but businesses that rely on just one item are at significant risk. What if demand drops? What if another company copies your product and sells it at a lower price? Unless you have a highly specialized product, or a way to limit its production, that core offering could be hit hard by copycat sellers, market conditions, or both. A recent Jungle Scout survey shows that the median number of products for successful sellers is 10; if you feature just one or two products, you might consider diversifying before going to FBA.
You sell (or plan to sell) on platforms other than Amazon. Much like product diversification, providing your customers with a variety of places to purchase your items can reduce your risk and increase your profits as well. The Jungle Scout survey referenced above notes that profit increased by an average of 40 percent for sellers who use a second platform. Selling on your own website is a good example; you’ll have complete control over your listings, and you’ll broaden your audience, too. Many successful FBA sellers also sell on eBay, Etsy, and other alternatives. And that doesn’t necessarily mean you have to process orders yourself — there are plenty of third-party fulfillment services available. (It’s also a good reason to use Avalara to help manage your sales tax obligations, because we can support you on multiple platforms.)
You’re looking to scale. One of the most attractive things about FBA is that the tedious stuff like packing, shipping, and managing inventory is handled — leaving you with more time to work on growing your business. You can focus on marketing, or sourcing new products, or building a brand that customers come to know and love. There are numerous stories of exponential growth through FBA, such as sellers going from $0 to $50,000 a month in sales within a year. Could you be next?
You have a passion for what you do. No, you don’t have to love something to be good at it. However, you’ll probably put more effort into your business if it’s something you enjoy, with products you’re passionate about.
How did you determine whether or not to go with FBA? Do you have advice for others considering the move? Get in touch at 877-759-6520 and share your tips.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
Stay up to date
Sign up for our free newsletter and stay up to date with the latest tax news.