Amazon FBA: Everything You Need to Know in 2022

By Christopher Grant

August 22, 2022

amazon fba, Must read

If you’ve ever looked into selling physical products online, you may have considered dropshipping, print-on-demand or various other ecommerce business models.

The reality is they all have their pros and cons but working with the most notable ecommerce brand on the planet, Amazon, holds many advantages for aspiring online entrepreneurs.

Amazon FBA (Fulfillment by Amazon) allows sellers to capitalize on the Amazon brand and sell products worldwide, without ever having to pick, pack or ship orders out themselves.

While this might sound like a dropshipping model, it is far from it and it is a far superior business model as you’ll find out when you finish reading through this article.

Let’s dive into this guide on Amazon FBA and discuss the following:

What is Amazon FBA and How Does it Work?

Amazon FBA is a service that allows businesses to sell products on the Amazon platform, where Amazon themselves store, pick, pack and ship orders directly to customers on behalf of sellers. 

FBA stands for Fulfillment by Amazon, which is vastly different to Fulfillment by Merchant (seller) as you will soon discover.

How Amazon FBA Works

We’ll go through the finer details in this guide but in a nutshell, sellers like you and I purchase products and ship them into an Amazon warehouse. 

Once a sale is made from one of our Amazon listings, Amazon will ensure your customer get’s their product, from the inventory they are storing for you, within days. 

While it’s not without its challenges, Amazon FBA is an amazing business model that opens up a lot of opportunities for entrepreneurs to run their own business from the comfort of their own home, anywhere in the world!

Can You Make Money With Amazon FBA?

This is a very common question and the answer is always a resounding YES! Of course you can make money on Amazon FBA. Anyone can, but not everyone does.

I’ve personally known many people that have become multi-seven figure sellers and a handful of eight and nine figure sellers all thanks to Amazon FBA. 

But on the flipside, I’ve also known many that have tried and failed.

The reality is, you do need to go through some ups and downs to learn how Amazon FBA works and if you do it smart, you don’t need to lose money during the learning phase. You just need to follow the right people and make smart decisions. And never give up. That’s why most fail, they give up too soon.

Succeeding with Amazon FBA is like any long-term, sustainable business model. It doesn’t happen overnight and it takes lots of hard work to succeed but absolutely anyone can do it.

If you ask me, Amazon FBA is so much easier than many other options out there and it is one of the greatest online business models you can start.

What Are The Pros and Cons of Using Amazon FBA?

Before I outline how you can get started with Amazon FBA, let’s cover the good and the bad when it comes to the Amazon FBA business model.

I personally think it's a great way to sell products online, but it’s important that you weigh up both the pros and cons before deciding if this business is right for you and your situation.

Amazon FBA Pros

Sell Under the Strength of Amazon’s Brand

Love them or hate them as a seller, online shoppers love Amazon and they trust them. If you were running your own brand on a Shopify store for example, it's a lot harder to build this trust with customers.

No Need to Pick, Pack and Ship Products Yourself

Amazon does this for you. You do pay a fee for it, but this makes your business completely hands off and gives you more time to work ON your business, rather than IN it.

Harness The Power of Prime

Amazon Prime is a huge benefit for customers that shop on Amazon and FBA sellers automatically qualify for Prime shipping. 

Win That Buy Box 

I’ve written about winning the Amazon buy box before and if you didn’t already know, over 90% of sales happen on listings where the buy box appears. While being an FBA seller doesn't mean you’ll win the buy box, it does mean that you will likely be able to charge a little more than FBM sellers and still get the buy box or have a better chance of getting that coveted spot ahead of merchant fulfilled sellers. 

No Customer Support Hassles

If you’re an Amazon FBA seller then Amazon will handle all of your customer support. This is a huge time saver.

There may be the occasional customer email you need to tend to but with a few templates your time responding to customer inquires can be as little as a few seconds per email.

You Can Sell The Business

Amazon FBA businesses are bought and sold every single day on platforms like Flippa.com or via business brokers. They are a highly sought after business, but you need to make sure that you know everything about selling an Amazon FBA business before you list yours for sale.

Amazon FBA Cons

It's Not Totally Free

Amazon FBA is far from expensive but alas it’s not free. It's tempting to look for free methods of building an online business, which rarely work in my opinion, but nevertheless some people see having to pay fees as a disadvantage so here we are!

You're Building Amazon’s Brand, Not Your Own

Everyone that goes into Amazon FBA knows this, but the one major downside with it is that you’re not really building your own brand. Packages get sent out in Amazon branded boxes and for all the customers know, it's being sold by Amazon themselves.

Inventory Prepping Requirements

Amazon has quite strict requirements when it comes to labeling and prepping your products before sending them into an FBA warehouse. They’re such a monstrous business though so these policies and procedures are important. I always prefer to use an Amazon FBA prep center anyway.

Managing Inventory Can Be Challenging

Because you don’t have full control of your inventory it can be easy to lose track of what stock you have on hand at the Amazon warehouse. FBA sellers need to be diligent in their inventory management to make sure you don’t run out of stock unexpectedly. 

You’re at the Mercy of Amazon’s Policies

We all know that Amazon puts the customers first, so you might find yourself with some unwanted returns and refunds. You don’t get a say in this unfortunately, Amazon makes these calls as they handle all the customer service for FBA sellers.

Alright I’m Convinced, How Do I Become an Amazon FBA Seller?

Amazon FBA is a great way to sell products online - but it’s important to keep in mind that there are some requirements associated with using this service. All FBA businesses need to meet the guidelines set out by Amazon. 

Just FYI, in this article we’re NOT going to cover how to choose actual niches or products that are likely to sell well on Amazon. That’s a whole other topic that we cover more in our OA Challenge.

Here’s the steps you need to take to start your Amazon FBA journey:

Create an Amazon selling account if you don’t already have one

Set up FBA in your selling account

Learn about how the FBA labeling requirements work.

Package and prepare your products according to Amazon’s FBA requirements. You may choose to use an Amazon FBA prep center for this.

Assign your inventory to FBA inside your selling account.

Send your products to Amazon & start selling!

Now it’s very important to note that there’s a lot of small but very important tasks you need to do inside each of the above mentioned steps, so make sure you take some time to learn all about Amazon FBA in greater detail.

It may seem daunting and while there are a lot of steps involved, once you learn the ropes and get your Amazon FBA business started, you will be happy you did!

Does Amazon FBA Cost Money or is it Free to Start?

Like any business there are startup costs involved with an Amazon FBA business however, when you compare the costs to a brick and mortar business, the overheads of running an FBA business are miniscule. 

Cost of Goods

Ultimately, purchasing your inventory is going to be the biggest expense in your Amazon FBA business. The good news is though, you can start small and start with a low cost model like Online Arbitrage.

Amazon Seller Monthly Fee

At the time of writing, it costs $39.99 per month to have a professional Amazon selling account.

Amazon FBA Prep Center Costs

These fees are going to vary greatly depending on what prep center you use and how much inventory you are purchasing and sending to Amazon. You can also do all of this step yourself, but it’s wise to put a dollar value on your own time to work out if it’s worth it.

FBA Warehouse Storage Fees

When storing your products at Amazon’s warehouses, you get charged for the privilege. Amazon is quite transparent with these fees, as per the table below.

TIME OF YEAR

COST

EXTRA OVERSIZE COST

January - September

$0.75 per cubic foot

$0.48 per cubic foot

October - December

$2.40 per cubic foot

$1.20 per cubic foot

 In addition to the costs shown in the table above, you get charged for products that sit on Amazon's shelves for more than 365 days. There's also various other warehouse related costs like returns processing fees, removal order fees and unplanned services fees.  For the most up-to-date fees you should refer to the help docs inside your seller central account as they are subject to change at any time.

FBA Fulfillment Fees

Fulfillment fees include picking, packing and shipping out your product from the warehouse.

Referral Fees

Amazon charges a referral fee which is a percentage of the sale cost. This percentage varies depending on the category of your product. Currently, Amazon charges anywhere from 8% up to 17% referral fee when you make a sale.

Overall, Amazon FBA can be a great way to make money - but it is important to keep in mind that there are some costs associated with using this service.

Amazon FBA Cost Example

Let’s take a look at some figures that I plugged an example into the Amazon Revenue Calculator.

The attributes for this product were a 4inch square package weighing 3lbs. I marked it as the US Amazon store in the clothing and accessories category. 

In the first example I set the sale price to $25, and the second example I set a sale price of $45.

Amazon FBA Calculator Example

Now you can see that the costs are only a few dollars higher if the product sold for $45. This is a great example of how crucial it is to pick a product with a healthy profit margin.

As mentioned previously, the referral fee charged by Amazon can vary from 8% up to 17% depending on the category in which you sell.


What’s the Difference Between Amazon FBA and Seller Fulfilled Prime?

Now that you know what Amazon FBA is, you’re probably wondering what the difference is between FBA and Seller Fulfilled Prime. 

Seller fulfilled prime is just as it sounds. You, the seller, fulfill orders yourself. This means you arrange your own storage, picking, packing and shipping rather than Amazon doing the work like they do if you’re an FBA seller.

The most important consideration as a seller taking part in the Seller Fulfilled Prime program is the fact that you need to commit to free, two-day delivery for Amazon Prime customers. 

In exchange for meeting all the requirements below, you also get to display the prestigious Prime badge so it definitely comes with its advantages.

Here are some of the most important requirements of being a Seller Fulfilled Prime seller:

  • Ship at least 99% of your orders on time
  • Low cancellation rate (<0.5%) 
  • Use Amazon Buy shipping services
  • Abide by Amazon’s returns policy
  • Use Amazon’s customer support service

Full details can be found at https://sell.amazon.com/programs/seller-fulfilled-prime

So whilst utilizing the Seller Fulfilled Prime model will save you money on storage and fulfillment, you will need to spend more time doing what Amazon normally does for FBA sellers.

You need to work out, is your time worth it? The chances are, probably not. Especially not when your business gets to a certain size, that's for sure.

Is Amazon FBA the Right Business for Me?

This is truly a question that only YOU can answer, but I would like to give my opinion on the matter. This is coming from a long-time Amazon FBA seller myself so I like to think that my opinion is of value.

The beauty of an Amazon FBA business is how hands-off it can be. You don’t need to stay up late packaging and shipping out orders. 

You can start small and slowly build as your FBA business turns more of a profit.

There is a bit of a learning curve at the start, but once you nail it then you can outsource almost all of your business.

If you find a winning product and decide that you want to create your own brand outside of Amazon, you have the freedom to do so. Many people don’t end up leaving FBA as they love the ease of use and the consistency. 

The Final Word on Amazon FBA

My Facebook Group has over 52k members in it now and it grows every week.

Flippa currently has 150 Amazon FBA businesses listed for sale, the cheapest one is $300 and the most expensive one is asking $4,000,000. Yep that’s right. Four million dollars.

My point here is that Amazon FBA isn’t slowing down. Jeff Bezos has built an empire that employs 1.3million people worldwide.

Is Amazon FBA the perfect business model? Heck no, but it’s better than the majority that's for sure. There’s no such thing as perfect in business, but selling products with Amazon FBA is pretty dang close! 

If you want to take your Amazon knowledge to the next level, I’d love to have you join my world and do the following:

Thanks again for reading, until next time!

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