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7 Questions to Determine if FBA is Right for You

  • Jan 14, 2016 | Marcus DeHart

If Fulfillment by Amazon (FBA) is such a great service, why doesn’t everyone use it?

I mean, there’s no additional subscription fee. Your products are eligible for free shipping and Amazon Prime discounts, something millions of customers take advantage of every day. Your products can become eligible for winning Amazon’s coveted Buy Box just on the merit of being fulfilled by Amazon. Amazon handles the customer service for you. They manage the storage and distribution of your products. You can easily make your products eligible for export. And you can even use your inventory at Amazon to fulfill orders on your own website or through other channels.

So, why do the number of sellers that don’t use FBA vastly outnumber those who do?

I’m sure there are many sellers who either don’t know about FBA, or who don’t understand it and are not comfortable committing to the unknown. But there are many sellers who have looked seriously at FBA, understand all the benefits, and still walk away.

Here are seven questions to ask yourself as you try to determine if FBA is right for you.

1. What is your net profit?

Considering the complex fee structure for fulfilling and storing your products, a low net profit would make FBA difficult to justify. According to FBA Pricing, you could pay $1.55 for a DVD, $1.93 for a book, and $1.68 for a gaming device.

Those fees come out after you have paid your referral fee for the sale on Amazon. But those are small products. Sell something big and expensive like a large-screen TV or a stationary cycle, and your fees could exceed $100 for fulfillment. If your profit from a sale doesn’t significantly exceed FBA’s fees, FBA might not be right for you.

2. How many do you sell?

Economy of shipping in bulk can make FBA more profitable for you. If you send only a handful of products to Amazon’s fulfillment centers, the cost of shipping will be higher per unit. But if you’re sending hundreds or thousands of units that can be shipped on pallets or by the truckload, the per-unit will decrease, taking less from your net profit.

3. How quickly do you sell through your inventory?

Popular products seem to fly off the shelves, requiring frequent replenishments. But many expensive or rare items might sit on the shelf for months before a single sale occurs. The monthly storage fee can be a minor expense, but if your product sits in a fulfillment center for six months or more, you’ll get hit with a long-term storage fee. For six months, you’ll pay $11.25 per cubic foot. At 12 months, you’ll pay twice that.

4. Do you have world-class logistics?

Not everyone has the mindset to create and manage logistics on a national or even global scale. There are a lot of moving pieces to the puzzle: hiring and training the right people, purchasing supplies for packaging and labeling products, nurturing relationships with carrier networks, and providing excellent customer service. If this is your passion, you probably wouldn’t even consider using FBA. But if your passion is sourcing and selling excellent products, you might want to leave the logistics to Amazon.

5. Do your products or your brand require a personal touch?

Customers place a lot of trust in Amazon. That’s why FBA can be a great asset. But are you sacrificing your brand by leveraging Amazon’s brand? Every product sold on Amazon and shipped through FBA arrives in a box with Amazon’s smile on it. Many customers order products through FBA without ever knowing the name of the business they bought if from.

If your brand is important for your business success, FBA could undermine your goals. If, on the other hand, your goals are simply to source and sell products and make a profit, the level of anonymity that comes with using FBA won’t be an issue for you.

6. Are you experiencing growth pains?

Like Jeff Bezos, many online retailers get their start selling out of their (or their parents’) garage. If they are a success, the next logical step is growth. But to scale up, you need to hire people, acquire warehouse space, and expand your infrastructure.

This can be an exponential increase in expense that many businesses can’t afford. Others have deep pockets or make a winning pitch on Shark Tank enabling them to grow quickly to match sales demands. If you’re not so fortunate, FBA can ease your growth pains by allowing you to begin with small quantities of your inventory or ship it all in at once if you like.

7. Do you trust Amazon?

For some people, this question can be a major blocker. Yes, Amazon is trusted and relied upon for millions of orders around the world every day. They have one of the highest customer satisfaction rates for online retailers.

But you are still competing with them. Some might consider Amazon the 800 lb. gorilla that throws around its weight to get what it wants. Some might consider the corporation the antithesis of the small business pulling itself up by its bootstraps. But others place their trust in Amazon’s customer focus as an asset and want a piece of the pie.

Consider the Benefits and Costs

Thousands of sellers have made FBA an integral part of their business. For many, it has enabled them to grow at a pace they are comfortable with. Others have what it takes to develop the infrastructure necessary to make it on their own.

Do the math. Weigh the risk. Evaluate your goals. Listen to your instincts. Then ask yourself: Is FBA right for you?

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Avalara Author
Marcus DeHart
Avalara Author Marcus DeHart