Amazon FBA has become a critical part of many importers and private labelers. In this article I'll discuss the pros and cons of Amazon FBA, the real costs associated with using it, and how to have your Chinese Suppliers prepare your products for FBA.
There’s a good chance you’re already aware of what exactly Amazon FBA is, but for those who aren’t familiar, here is a quick overview. Amazon FBA is a third party fulfillment service provided by Amazon that allows you to send your products to Amazon warehouses and have Amazon ship the products to your customers for you. The main advantage, aside from the fact Amazon handles all aspects of shipping your packages, is that they also give you deeply discounted shipping rates and give FBA products preference in search results compared to non-FBA products. You can ship products that you warehoused at Amazon either for Amazon orders or non-Amazon orders with the latter having a small surcharge attached to such orders. This means that Amazon FBA is a fulfillment solution both for Amazon orders and other sales channels you may use like eBay and your own website.
Pros and Cons to Using Amazon FBA
- Amazon Handles all of Your Fulfillment
- Deeply discounted shipping rates
- Boost in Amazon search rankings & higher conversions
- You have to pay for your products to be shipped to Amazon
- You have to pay for Amazon storage fees
- You create sales tax liability in 13+ states
Pro: Amazon Handles All of Your Fulfillment
This doesn’t require a lot of elaboration. If you elect to use Amazon FBA they will handle all aspects of shipping your products. If you sell an item on Amazon, you literally have to do nothing except read the “Amazon.com has shipped the item you sold” email. If you sell an item on another channel, you simply have to fill in a small form to have your item shipped.
Pro: Deeply Discounted Shipping Rates
This is arguably the best part about Amazon FBA: the deeply discounted shipping rates they offer. As of this writing (2015) Amazon charges, for sales through Amazon.com, $1.00 per order + $1.04 Pick and Pack Fee + $0.63/pound. This means to ship a 3 pound package you will pay $3.93. This is a hard price to match anywhere else. Even better, Amazon’s express shipping rates are absolutely phenomenal, with the price for 2-Day shipping being just 10 cents more per pound.
Boost in Amazon Rankings
If your item is fulfilled by Amazon, you will see your items rank higher and your customers are more likely to purchase your item due to the added trust customers feel of having Amazon handle fulfillment. Most users of FBA report that their sales on Amazon increase by 200-300% when an item is converted to FBA (yes 300%!).
Con: You Have to Pay To Ship Your Items to Amazon
Unfortunately, with Amazon FBA you have to pay to have your items shipped to an Amazon Fulfillment center. These are sprinkled throughout the United States and you cannot choose which warehouse to send them to. Fortunately, Amazon gives you deeply discounted shipping rates via UPS to ship your products, so the shipping rates work out to be a fraction of the cost that they would have been without Amazon’s deeply discounted rates. More on the actual costs below.
Con: You Have to Pay to Have Amazon Storage Fees
As of 2015, Amazon charges $0.51 per cubic foot per month to store your products. This means an 18”x18”x24” box will cost you about $2.30 per month to have Amazon store it. With slow moving inventory, this can slowly start to add up.
Con: You Create Sales Tax Liability in 13+ States
The issue of sales tax and Amazon FBA is further reaching than this article can cover, but at the heart of the issue is that by using Amazon FBA you potentially create sales tax liability for yourself in each state Amazon has a warehouse in, which currently is more than a dozen states. This means that you technically need to file and remit sales tax in each of those states. The unofficial word is that 95%+ of Amazon FBA sellers do not currently do this and states have not been known to be going after FBA users for sales tax as of now. But it is a very real concern.
How Much Is It to Use Amazon FBA?
The first big consideration with Amazon FBA is how much exactly does it cost?
With Amazon FBA there's three main ways you're going to pay: freight to Amazon Warehouses, Storage Fees, and Fulfillment Fees. I'll break down these fees by pretending that we're selling a 10 pound item. If numbers bore you, feel free to skip over the breakdown here and go directly to the FBA Cost Summary below.
Inbound Freight to Amazon Warehouses
The largest single cost you're going to pay with Amazon FBA is the freight to get it to an Amazon warehouse. Annoyingly Amazon often will separate your shipment into many smaller shipments that you have to send to various states across the United States (unless you choose their inventory placement option which is extra money). So if you're sending 12 items to Amazon they'll request you send 4 to Indiana, 4 to Phoenix, and 4 to Guam (or some other absurd location).
Thankfully, Amazon offers deep discounts with UPS for these smaller shipments. In a mock example I made with Amazon FBA, they charged me $20.04 to ship a 40 lbs box from Seattle to Whitestown Indiana. Assuming each item weighs 10 lbs, this works out to $5.01 per item. In general, you can assume freight to Amazon warehouses is going to cost you around $0.50 per pound.
Storage at Amazon
Storage at Amazon is $0.51 per cubic foot per month in non-peak seasons (i.e. not Christmas). Assuming our little 10 pound package measures 24″x18″x6″ this works to approximately $0.77 per unit per month. This is quite reasonable although you have to be careful not to get stuck with a large amount of slow moving inventory for months on end.
Fulfillment Fees to Your Customer
Amazon charges $1.04 in pick and pack fees and then $0.88 for the firs two pounds and $0.41 for anything above 2 pounds. In other words, our ten pound item is going to cost $6.08 to ship (assuming it is ordered on Amazon).
Amazon FBA Cost Summary
So the total cost for our 10 pound item works out to the following:
Inbound Freight: $5.01
Storage at Amazon: $0.77
Fulfillment Fees; $6.08
Total Cost: $11.86
You will probably have a hard time shipping the a 10 pound item yourself using either UPS, USPS, or FedEx for that cost. So for $11.86 Amazon will ship your product and do all the dirty work. It's a great deal and one of the reasons Amazon FBA is thriving.
The Passive Way to Get Your Goods from China to Amazon FBA Warehouses
Does it sound like a lot of work to first receive your products from China and then break the products down into a lot of smaller shipments to send to various FBA warehouses? If so, it's possible to never actually touch your inventory. Here's how:
Step 1: Have Your Items Bar Coded in China
Whether you're using your own GS1 provided bar codes (you're probably not) or Amazon provided FNSKU bar codes you want to have your items bar coded in China. Almost all Suppliers will be happy to apply bar code stickers to all of your products free of cost.
How do you get Amazon bar codes for you product?
- Add your product as a private label product to Amazon which will require an Amazon professional selling account.
- Convert the product to be fulfilled by Amazon.
- Go to Manage FBA Inventory and print a PDF sheet of your bar codes (most Suppliers prefer 30-up, i.e. 30 bar codes on a sheet.
Step 2: Send Your Shipment from China to a Third Party Logistics Company Familiar with Amazon FBA
The next step is to simply send your products to a third party logistics company (sometimes called 3PL or a ‘pick and packer') who can break your shipment down for you into smaller packages and label them as required for FBA (all shipments going to FBA require an Amazon provided carton label on the outside of the box).
Almost every port city and every border city (and any medium-large city for that matter) has countless numbers of these logistics companies who can handle this. FBA Inspection based in California is one such company but again, there's countless of these companies (in the Seattle area alone, there's well over a dozen such companies). Keyword phrases to search for are “third party logistics FBA YOUR-CITY” or “Pick and pack FBA YOUR-CITY”. Just call or email a couple of different companies and make sure they're familiar with FBA. Most should be.
Remember, Amazon is Not the Only Third Party Fulfillment Option
As great as Amazon FBA is, it is not the only third party fulfillment option available. There are thousands of such companies which offer similar services, ranging from huge companies to smaller companies. The biggest advantages other third party fulfillment and logistics companies can offer is more bespoke service. With Amazon, you're just another spoke in the wheel, but with smaller fulfillment companies, they will actually learn about you, your company, and your products. Did you royally screw up a customer's order and want a special hand written note inserted into their package apologizing? Good luck getting someone at Amazon FBA to do this, but a smaller fulfillment company may be happy to oblige. But of course, such companies can't match Amazon's size, scale, efficiency, and/or pricing.
Amazon FBA has been one of the most fundamental changes in ecommerce in the past several years. It offers the every day Joe the opportunity to provide Amazon-level logistics and shipping to his customers. Although there's a ten thousand pound elephant in the room called “sales tax nexus”, local authorities seem to be turning a blind eye to it for the time being.
Have you personally used Amazon FBA for your products? Were there any hidden surprises you encountered along the way? Please share your experiences with Amazon FBA in the comments section below.