When you operate a small e-commerce company, getting your product on Amazon can feel like a victory. Selling on Amazon gives you access to the site’s millions of customers, potentially putting your product in front of a wider audience than you can reach on your own. The online retail giant goes a step further, offering Fulfillment by Amazon (FBA) services to sellers. Amazon sellers who choose to use FBA hand the responsibility for fulfilling orders to Amazon. Your products are stored at an Amazon fulfillment center and pickers and other Amazon employees are responsible for pulling and packing any orders that come in.
Although FBA has its advantages, many sellers find that the fees to sell on Amazon using FBA eat into their bottom line. If you’re considering using FBA when you sell items on Amazon, it’s worthwhile to familiarize yourself with the costs. You might also consider exploring alternatives to Amazon fulfillment, such as using your own inventory management software.
Is Amazon Fulfillment Expensive?
FBA can seem like an ideal way to simplify your life as a seller and to make your inventory management more efficient. Amazon takes the reins when you use FBA and becomes responsible for storing, picking and packing your products. The company also handles any returns of your products. Using FBA also means that the products you sell on Amazon are eligible for Prime shipping, which can make them even more appealing to shoppers.
The services offered by FBA do come at a cost, though. Some of the common FBA fees include:
- Fulfillment fees: Amazon charges sellers for the privilege of using its fulfillment service. The per-unit fulfillment fee varies based on the size of the item and whether it’s apparel.
- Storage costs: Amazon also charges for storage, and the storage rates depend on the time of year. The storage fee is considerably higher from October through December than during the rest of the year.
- Long-term storage costs: Ideally, your products will sell quickly on Amazon. If they don’t, the company will charge a long-term storage fee. This fee kicks in if your products have been at an Amazon fulfillment center for longer than 180 days and is calculated per cubic foot of storage space. If your products stay on the warehouse’s shelves for more than a year, FBA starts to charge an additional fee per item.
Beyond cost, there are some other issues to consider before you decide to use FBA. One potential issue with using FBA is that you must trust Amazon completely to manage and care for your inventory. If something happens to your product at a fulfillment center — for example, if some items get lost — it can be difficult to take action and resolve the issue. There’s also the chance that Amazon’s pickers will mishandle your products, causing them to reach customers damaged.
Your products may also end up commingled with similar products from other sellers. If any of those other products are counterfeit, there is no way to sort out which product belongs to which seller, which can lead to penalties or account suspension on your end.
Another potential cost associated with FBA is the cost of returns. If you’re a small retailer, it might be too complicated or expensive for you to handle returns. But returns are part of the process with Amazon, and they make it easy for customers to return items they don’t like. While ease of returns can increase the chance that someone will purchase from you, it can also eat into your bottom line, depending on how many returns you get. Amazon also charges a returns processing fee, which can further reduce your revenue.
3 Ways to Lower Fees
In some ways, the fees you pay to Amazon to use its fulfillment services is money you would spend otherwise if you didn’t use FBA. For example, if you decide to fulfill your orders yourself, you’ll have to pay for mailers and packaging and the cost to ship products to customers. You’ll also need to find a place to store your products. You have a few options if you want to use FBA but keep the fees from eating into your profits too much.
- Choose what you sell wisely: If you’re going to use FBA, it makes sense to sell products that cost more, as the company charges fees on a per-item basis. If you sell something for $10, after fees, you’re likely only going to get a few dollars out of the sale.
- Pay attention to your product inventory: Although Amazon stores your items and picks and ships them for you, you don’t have to remove yourself from the equation entirely. Keep tabs on your products so you can see what is selling and what’s languishing. If some items just aren’t moving, shift your attention to the products that do sell and invest less in the slow-movers.
- Sell bundles of items: If you sell products that people typically buy in multiples, it makes financial sense to sell those items in bundles rather than individually. You’ll pay the same fees to Amazon if you sell a bundle of 10 tea towels or a single tea towel.
Finale Inventory Can Help Streamline Your Inventory Management
Finale Inventory can centralize your inventory data, helping you make the most of using FBA and your own warehouse. The software tracks your stock levels on Amazon and will alert you when it’s time to order more products or send items from your warehouse to Amazon. Finale Inventory creates an inbound shipment request for Amazon in the specific format required by the retailer. Using the correct inbound shipment request format allows you to avoid unplanned service fees that Amazon charges for products that arrive at fulfillment centers without proper labels or packaging.
Along with tracking your FBA stock levels and sales, Finale Inventory also keeps track of your inventory and sales through other channels. The platform integrates with ShipStation, QuickBooks, and other apps to minimize the chance of double sales or double reporting.
Schedule a Demo of Finale Inventory Today
Whether you’re new to selling on Amazon or are looking for a way to reduce your costs while better managing your inventory, Finale Inventory can help. Schedule a demo to see the software in action or start a free, two-week trial today.