What the F is FBA?

I get this question from clients…a lot.

So, what is Amazon FBA? The acronym stands for “Fulfillment by Amazon”. In its most basic form, Amazon FBA is letting Amazon do all of the grunt work for your business, for a fee. Instead of having a warehouse full of products, hiring a team of sweaty guys, picking, packing, and shipping every order that comes through your website, Amazon FBA allows business owners to send inventory directly to an Amazon warehouse and have them pick, pack, ship, and deal with the nightmare of returns. For every order, they take their fee out directly of your NET profit. Let’s breakdown the pro’s and con’s of the Amazon FBA program.

PRO’s

Well damn, that should be crystal clear! You don’t have to do any of the real work.

Cons

Jeff Bezos and his corporate team of greedy goblins take fees anywhere they can.

I’ll expand. Amazon FBA is an excellent program that allows businesses and individuals to sell their goods. That alone would be cool, but the fact that you can sell your goods on their marketplace is the real reason so many of us do it. Amazon has now surpassed Google as the #1 search engine. Wrap your head around that for a second. Google was, like, the THING to search for products. If your Gran needed a new knitting pattern, you’d take our your phone and Google something like “sweater knitting pattern for cats”. A few years ago, the Google search results would have only been websites that sell knitting patterns. Now, the top results are Amazon seller listings that sell knitting patterns. It’s not true for every instance, but it’s changing more to the favor of Amazon results everyday.

There are a few groups of people/businesses that Amazon FBA can/will benefit. Let’s outline them below.

Individuals

According to this statistic, as of the 4th quarter of 2017, 51% of the sellers on Amazon are 3rd party. That blew my mind. Hell, before I started my own Amazon store, I just assumed that the only one selling on Amazon, was Amazon. I had no idea that there was even such a thing as a 3rd party seller. Come to find out that there are. There are a LOT of individual people – like me – taking advantage of the power of the Amazon marketplace.

The FBA program is great for individual sellers because we tend not to have the space for storage. We don’t have giant warehouses. We might not even have large garages, empty closets, non-living living rooms. An individual like me can order inventory from my manufacturer, create a listing on my Amazon store, send the inventory directly to an Amazon warehouse, all without even so much as touching any inventory. I did it for 2 years while traveling throught SE Asia and New Zealand. 

Small Businesses

The Amazon FBA program is also great for small businesses, or mom and pop shops. They might have the same lack of storage issues as individual sellers. Sending inventory directly to Amazon warehouses in order to sell on their marketplace, as well as their own website or physical store, is usually a great idea. They don’t have to deal with customers (unless someone sends them a message directly), they don’t have to be bothered with returns, and they get to compete alongside the big girls and boys.

Mid to large sized businesses

Medium and larger businesses might not face the storage issues that smaller and individuals do, but they sure do like to expand their revenue streams. Why NOT tap into the giant Amazon marketplace? The more traffic your products and pages get, the more chances to convert sales.

More bad stuff

Here’s the argument against the FBA program, “They’re cutting into my profits!” There are lots of people that are turned off by Amazon’s fee structure. If you take a look at the report from below, you’ll see a typical breakdown of the transaction for an individual sale. This is taken from my own Amazon store. On March 12th, I sold one of my products that costs a buyer $19.27. The buyer didn’t use any promotional codes or have any rebates. The Amazon fees column shows what Amazon took out for that sale. The Total column is what I get from that sale. At first glance you may be like “WHOA, WTF THAT’S A LOT!”. And it kinda is. But when you do some simple math, you’ll see why I still participate in the FBA program.

I buy these from my manufacturer for $5.10 each. That includes the product itself, the packaging, and the shipping (from my manufacturer to an Amazon warehouse). If you minus that cost from the total profit that I’m taking home after that sale ($10.15) that particular product will get me a $5.05 profit for every sale. I sell about 5-8 of these/day. That’s $757.50 per month on the low end, and $1,212 per month on the high end. Profit. 👏 For 👏 one 👏 item 👏 in 👏 my 👏 store.

Note that there are a lot of factors that Amz takes into account for their fee structure. They mainly consist of price of item, weight, and volume. This product is super heavy so the fees are a bit on the higer than usual side. 

If you’re still in shock about the percentage that Amz has taken out for my product, try think about what they’re actually doing to help facilitate that sale. I certainly don’t want to do the things that they’re doing…

I like my minimalist house. I don’t want boxes of inventory everywhere. I don’t want to pay for a storage space, a garage space, or a warehouse space. I definitely don’t want to hire a bunch of people to pack and ship my items. And most importantly, I really like my time. I am more than happy, thrilled even, to pay Amz to do it for me.

Conclusion

I’ve really talked up the FBA program and for good reason. I truly believe in it. It’s helped me earn tons of passive income, and sell my products to people all around the world.

The single most imporant thing to do if you’re considering joining the FBA program is to do some math. Figure out your margins. If you know how much your product costs, know how much you’re going to sell it for, know what Amazon’s fees will be, then you can decide if your margins are worth it. If your take home profit is $1 per item but you can sell 1,000 a day by being on Amazon’s marketplace, well that math doesn’t lie.