With rising costs and inflation running rampant throughout the e-commerce sphere, many sellers have begun to ask themselves one question: is Amazon FBA worth it?
This blog post discusses the pros and cons of using Amazon FBA in today’s marketplace to help you determine whether or not it makes the most sense for your brand and how to use it properly.
Pros and Cons of FBA
As we mentioned in the blog, How Fulfillment by Amazon FBA Works, the question ‘is Amazon FBA worth it?’ is, for many brands, yes. With 110 warehouses in the US alone and 185 globally, Amazon has all but conquered global logistics. Additionally, they have discounts with the largest US parcel carriers, such as the USPS and UPS, to keep FBA a cost-effective shipping option. This level of infrastructure is tough to beat.
The value of FBA also goes beyond just the size and scope of its fulfillment capabilities. FBA handles product returns, improves product rankings and buy box percentages, and even offers an FBA fee calculator to help sellers determine the total cost of the service.
What are the drawbacks when asking ‘is Amazon FBA worth it?’ The most obvious is cost. As we discussed in the post, How to Minimize Seller Fees & Costs to Maximize Net Profit Margin, Amazon’s fulfillment and storage fees directly affect profitability, and they are also subject to change at any time.
Additionally, since the massive ecommerce disruptions of the pandemic began in 2020, Amazon has repeatedly restricted storage limits for FBA sellers. This can be problematic for items that tend to sell quickly as running out of inventory will cost you both sales and ranking. Having cornered the market on shipping efficiency, Amazon also has the power to reject any products coming into their facilities that do not meet their strict packaging requirements.
Size Matters, So Does Speed
To recap, Amazon FBA gives sellers access to a massive and reliable fulfillment network and helps with both product ranking and customer service, but these services come at a price and make sellers beholden to unforeseen changes in the economic landscape and to Amazon’s whims. Amazon has a massive network and an equally massive impact on shipping expectations, with consumers now all but expecting free shipping to their doors within days if not hours.
While FBA makes sense for a majority of sellers, it tends to disproportionately impact products on either end of the size spectrum: over-sized items have higher shipping and storage fees, while smaller, low-dollar items might not have the margins to make Amazon FBA worth it.
Additionally, items that do not move off the shelves as quickly as Amazon would like to tend to incur additional storage fees, making selling products through Amazon FBA even more costly if your projections are off. As mentioned earlier, inventory issues can cut both ways, with out-of-stock SKUs negatively impacting both rankings and the Buy Box. Demand, supply, and products themselves must all be right sized to make FBA worth it.
How to Make Amazon FBA Worth It
The key to using Amazon FBA to your benefit is to make it part of a larger fulfillment and customer satisfaction strategy. We’ve discussed the virtues of diversified fulfillment options and engaging with customers to strengthen brand loyalty many times before, so we’ll just recap some of the best strategies to offset both the costs of Amazon fees and any potential pitfalls of over-reliance:
Although Amazon FBA fees continue to rise, the fact remains it is a fulfillment juggernaut, and as the saying goes, if you can’t beat ‘em, join ‘em. With a global warehouse network and industry-leading fulfillment speed, for many sellers the benefits of Amazon FBA far outweigh the risks.
That said, putting all your eggs in the Amazon FBA basket is far from the best option. This strategy puts you utterly at the mercy of Amazon’s fees and regulations and increases the monopolistic hold the company has on e-commerce fulfillment. It also leaves you vulnerable to the dreaded single-point-of failure scenario. It’s far better for everyone involved to invest in diversified options. This builds resiliency not only in your own fulfillment network but in the supply chain as a whole.
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