In the first quarter of 2024, 61% of paid units on Amazon were sold by third-party sellers, many of whom rely on the Fulfillment by Amazon (FBA) program to reach millions of customers. While it’s the fuel that drives growth for many vendors on the platform, that doesn’t mean it’s the best solution for everyone.

James Thomson, a former Amazon executive and eCommerce strategist, provides a unique perspective on FBA, along with recommendations for how best to leverage the service. In addition to those insights, this article explores the expansion of Amazon FBA, its impact on brands, and the pros and cons of using the service.

Most importantly, however, it will answer the most pressing question: is Amazon FBA worth it for your business?

The evolution of FBA

Thomson’s firsthand account of the early days of Amazon FBA offers a fascinating look into how skepticism gave way to widespread adoption among brands. His experience sheds light on the initial doubts people expressed and the strategies Amazon employed to win them over.

Is Amazon FBA worth it? Skepticism at the outset

When Amazon launched FBA in 2006, brands were wary of the program for several reasons. According to Thomson, many couldn’t see the benefit of handing over their logistics to the marketplace, mainly because they worried about losing control over their inventory and customer service quality. The idea of relying on an external entity for such critical processes was a leap of faith many hesitated to make.

How Amazon overcame the doubts of is Amazon FBA worth it

To eliminate these concerns, Amazon got to work demonstrating FBA’s value. One effective strategy that answered the question of “Is Amazon FBA worth it?” was taking sellers on tours of their vast network of fulfillment centers. Seeing the scale and efficiency of these operations firsthand helped change the minds of many businesses.

Thomson attests to the impact of those tours, saying they “convinced a number of sellers that, even if they had a decent-sized warehouse of their own, the fact that Amazon had a network of warehouses across the country and could support Prime — that was a major differentiator, and brands got excited.”

The program’s status change

FBA’s journey from being a “money loser for Amazon”, and everyone asking “Is Amazon FBA worth it?”, to becoming a cornerstone of their eCommerce empire is nothing short of remarkable. More than a logistical solution, the program became a strategic advantage that allowed brands to leverage Amazon’s vast customer base and distribution prowess.

That shift in perception was pivotal: Brands began to recognize the value of integrating FBA into their sales strategies and realized Amazon could offer them not only a sales channel, but also a comprehensive platform for logistics, marketing, and customer engagement.

Is Amazon FBA worth it? The pros and cons of FBA

Amazon FBA offers many advantages but also comes with certain drawbacks. Let’s explore the pros and cons to help you determine if Amazon FBA is worth it for your brand.

Pro: Access to Amazon’s customer base

By leveraging FBA, sellers can showcase their products to a massive audience and significantly increase their brand visibility and sales potential.

Imagine having your products displayed alongside established names, all within Amazon’s trusted environment. That exposure can be game-changing for businesses looking to expand their reach and acquire new customers.

Pro: Efficient logistics and fulfillment

Managing warehousing, packaging, and shipping can be a complex and time-consuming endeavor. FBA eliminates this burden by providing sellers with access to Amazon’s state-of-the-art logistics network.

From strategically located fulfillment centers to a highly optimized shipping infrastructure, the program ensures fast, reliable delivery for your products. This translates to happier customers who receive their orders promptly and efficiently.

Additionally, FBA tracks and manages returns, which frees you to focus on core business activities like product development and marketing.

Pro: Enables multichannel selling

Brands that employ a multichannel eCommerce strategy will greatly benefit from passing on their logistics and customer service to Amazon. The platform, in fact, has a Multi-Channel Fulfillment (MCF) program that takes FBA to the next level.

Designed to let sellers fulfill orders from their other sales channels as well, MCF offers automated services and integrations that encompass:

• Your website
• Shopify
• WooCommerce
• BigCommerce
• And the like

Pro: Prime eligibility and sales boost

One of the most coveted advantages of FBA is the automatic eligibility for Amazon Prime. Known for their high spending habits and loyalty, Prime members are drawn to the prospect of fast, free shipping.

Fulfilling your products through FBA unlocks this valuable customer segment and can significantly boost your sales. Prime members, in fact, currently stand at more than 200 million strong. Their presence in the United States (U.S.) alone is extremely significant, as they make up 71% of the country’s Amazon customers.

The Prime badge next to your product listings instantly increases its visibility and attractiveness to these customers, making them more likely to choose your offering over competitors who lack the Prime label.

Pro: Operational simplicity

FBA streamlines your operations by outsourcing the fulfillment process to Amazon. This frees you from the complexities of managing inventory, packaging orders, and ensuring timely deliveries, thus saving on resources and effort.

That enables you to dedicate your focus and energy toward more strategic aspects of your business, such as product development, marketing initiatives, and customer service. As a result, you can scale your business more efficiently and focus on growth strategies.

Con: Loss of control

While FBA offers major convenience, it also forces some brands to relinquish control.

Inventory management and customer service are two crucial aspects that Amazon largely takes care of for FBA sellers. This can worry businesses with specific packaging requirements or who pride themselves on exceptional customer service experiences.

FBA requires precise planning and adherence to Amazon’s product labeling and packaging guidelines. Although the marketplace offers inventory management tools, some brands may prefer a more hands-on approach to stock control.

Con: Dependency on Amazon

FBA opens a powerful sales channel, but remember, you’re operating within Amazon’s ecosystem. That forces a certain level of dependence on their platform and policies. Amazon’s rules and fees change frequently as well, which may impact your business model, so it’s critical to stay informed about any alterations and adapt accordingly.

Further, since FBA uses generic packaging, it can be challenging to showcase your brand identity to customers. Exploring alternative packaging options or inserts within the FBA framework can help mitigate this.

What to learn more about incorporating custom packaging into FBA so your products stand out but still meet the platform’s standards? Check out MyFBAPrep’s guide to custom packaging within the FBA framework. 

Con: Fees and costs

FBA offers a streamlined solution, but it’s not without its costs. Understanding the program’s various fees, including storage, fulfillment, and pick-and-pack charges, is crucial for calculating your profitability:

• Amazon’s selling plan fees are straightforward and based on which one you choose. The Professional plan nets you a flat $39.99 per month, while you incur a $0.99 per-item fee with the Individual plan.
• Referral fees are charged for every successful sale you make on the platform. Their rates are based on the sale’s total price, typically ranging from 8% to 45%, depending on the product category. Keep in mind that Amazon charges an applicable minimum referral fee on a per-unit basis as well. Across almost every category, it’s at $0.30, except Amazon Explore which nets $2.00.
• Closing fees, meanwhile, are incurred from selling media items. Amazon bills them at $1.80 per product sold, and they’re added on top of any other applicable fees. These pertain to categories such as Books, Music, Video Game Consoles, and the like.
• FBA’s fulfillment fees are charged per unit and are determined by your item’s product category, size, and weight.
• Its storage fees, on the other hand, are billed based on the space your inventory occupies in Amazon’s fulfillment centers. Here, your daily average volume in cubic feet, the product’s size tier, and the time of year are taken into account.

Accurately estimate these costs and factor them into your pricing strategy. (An FBA prep service can help mitigate some of these expenses.)

Note: Overstocking or slow-moving stock can lead to significant storage fees. Effective inventory management and sales forecasting are imperative to avoid these additional costs.

Other indicators of Amazon FBA’s value

In addition to the upsides and downsides covered above, FBA has other aspects that prove it to be a valuable fulfillment model for aspiring Amazon merchants.

Significant sales volumes

Over 60% of Amazon sales are generated by independent sellers, majority of whom are small to medium-sized businesses. Meanwhile, an astounding 82% of the platform’s merchants use FBA, making it the most used fulfillment method on the platform.

Seeing that a vast number of sales pass through the program, it obviously cannot be overlooked by those who want to take their eCommerce ventures to Amazon.

How much Amazon sellers make

In 2023, independent sellers based in the U.S. enjoyed an annual average of over $250 thousand in sales. This figure alone displays how setting up shop on Amazon can be an extremely rewarding endeavor.

Time to profitability

Businesses can take an average of two to three years to become profitable. A survey by JungleScout, however, saw 58% of its respondents saying they achieved such success much quicker—within their first year as Amazon merchants in fact!

Their timelines are broken down further as well:

• Within three months: 22%
• Within three to six months: 16%
• Within six months to one year: 20%

Although this doesn’t guarantee you’ll enjoy a quick return on your investment of time, effort, and resources, it does indicate the potential.

Accessible financing

Majority of the Amazon’s merchants, 81% of them in fact, funded their online ventures with their personal resources. The eCommerce giant, however, offers a solution for those who lack the finances to start selling on the platform.

Through Amazon’s Lending program and its partner third-party financing providers, eligible small and medium-sized businesses can gain access to loans, credit lines, or cash advances designed to help them grow their ventures.

The application process is simple, and financing decisions are fairly quick. Take note, however, that you must receive an invite before you can go through it.

Is Amazon FBA worth it? Why Amazon can’t be ignored

Choosing where your business lives online is like picking a location for your physical store. James Thomson believes in Amazon’s power to boost a brand’s online presence, whether that’s through making sales, running ads, or keeping tabs on the competition for market insights.

The marketplace has ballooned into a behemoth in retail and digital advertising. Amazon’s vast user base and sophisticated search and recommendation algorithms make them a gold mine for brands looking to reach new customers, answering the age old question – Is Amazon FBA worth it?

Thomson recognizes that the unique blend of visibility, credibility, and logistics is hard to match. But listing products on Amazon is only half the work — businesses must also understand how the marketplace works and use it to their advantage, whether that’s optimizing for the platform’s search engine, capitalizing on Amazon ads, or leveraging the Prime badge for greater visibility.

How to sell on Amazon FBA

To kickstart your efforts on the platform, here’s a quick rundown of how you can become an Amazon 3P seller.

Step 1: Planning

As a new Amazon seller, meticulous preparation will act as the cornerstone of your success. Before pushing through with account creation, make sure to tackle these business aspects:

• Fulfillment: FBA is ideal for those with fast-moving goods. Inventory management and FBA prep solutions also ensure cost efficiency and Amazon compliance.
• Product prep: Amazon has stringent labeling and packaging guidelines. Not meeting them leads to higher fees and return costs, but a specialized 3PL can mitigate them.
• Customer service: Amazon handles all of FBA’s customer service concerns. If branded, personalized experiences are your priority, you may need to reconsider.
• Inventory management: Precisely tracking inventory across the entire fulfillment process can be challenging without an inventory management solution or software.
• Marketing: Before spending on any advertising, make sure you have an accurate estimate of your profit margins. This way, you can budget accordingly.
• Merchandising: In compliance to Amazon’s standards, produce an Excel spreadsheet with your products’ descriptions, photos, etc.

Step 2: Account type selection

Afterwards, choose whether you’ll create a Professional or Individual seller account. If you’re aiming to sell more than 40 items a month, go with Professional.

Step 3: Registration requirements and profile setup

Next, head to Amazon Seller Central. If you already have an account, log in. If not, sign up. Then, submit the necessary information, as well as supporting documents like:

• A valid government ID
• A recent bank account or credit card statement
• A chargeable debit or credit card
• Your mobile phone number

Afterwards, fill your profile out as best as you can. Include your logo, business details, descriptions, and the like. You’ll also need to check your tax information and other settings.

Note: You may need to meet with an Amazon Associate for verification.

Step 4: Product listings

Once verified, you can curate your product listings. This can be done individually or via batch upload using the Excel file that you prepared in step one (for the merchandising consideration). To produce more comprehensive listings, account for these as well:

• Product variations and offers
• Keywords and search engine optimization (SEO)
• User-generated content (UGC)

Note: Unique listings aren’t necessary if your products already exist on the platform. You must, however, provide a new item’s UPC/EAN, SKU, and other information to Amazon, then wait for them to assign it an ASIN.

Step 5: Fulfillment method selection

Afterwards, choose a fulfillment option for each product. For the sake of this guide, make sure to choose FBA.

Step 6: Brand Registry enrollment

Amazon’s Brand Registry is extremely beneficial, particularly when selling your own branded offering. It gives you access to tools that enable:

• Intellectual property protection
• Better connections with customers
• Strategic analytics

Once fully enrolled, you can start selling as an Amazon FBA merchant!

How to craft a winning Amazon FBA strategy

Developing an effective FBA strategy requires a multifaceted approach. Here are some key steps to take to maximize your success through the program.

Evaluate your business needs

Before diving into FBA, assess whether it’s the right fit for your brand. Consider your product type, profit margins, and sales volume. FBA might be ideal for lightweight, high-velocity products, but bulkier or lower-margin items may require a different fulfillment solution—take Amazon’s Fulfilled by Merchant (FBM) program as an example.

Then, establish your goals. If rapid growth and brand visibility are top priorities, FBA’s vast consumer base can be a major advantage. However, if you have a strong focus on complete control over customer service or intricate branding, you might need to weigh the trade-offs.

Optimize listings and inventory

Once you’ve decided to move forward with FBA, meticulous planning is foundational to your success. Conduct thorough keyword research and craft compelling product descriptions that showcase your offerings and resonate with your target audience. High-quality product images and informative content can significantly improve conversion rates.

Inventory is another key ingredient here, and maintaining optimal stock levels is a constant balancing act. Utilize Amazon’s inventory management tools and sales forecasting techniques to avoid stockouts and minimize storage fees. Regularly evaluate sales trends and adjust inventory levels accordingly.

Leverage Amazon’s tools

Amazon offers a suite of powerful tools to boost your FBA sales. Features like Amazon Sponsored Products and Sponsored Brands allow you to target relevant keywords and display targeted ads to reach potential customers who are actively searching for similar products.

You can also take advantage of Amazon Seller Central’s analytics to gain insights into customer behavior, identify best-selling products, and track campaign performance. Use that data to refine your marketing strategies and optimize your product listings for more conversions.

Monitor and adapt

As we explained above, Amazon’s policies and fee structures experience alterations almost constantly. To stay ahead of the curve, regularly monitor key metrics like product sales, conversion rates, and customer feedback. Identify areas for improvement and adjust your strategies accordingly.

Keep yourself updated on any changes to Amazon’s FBA program, fees, or policies. Being proactive ensures you can adapt your approach to maintain optimal efficiency and profitability on the platform.

Maintain brand consistency

While FBA unlocks a massive customer base, it presents a unique challenge for businesses: retaining a uniform brand identity across all touch points. This requires you to give attention to aspects like:

• Unified voice: Ensure your product listings, descriptions, and customer service interactions through FBA adhere to your established brand voice and messaging.
• Visual cohesion: FBA uses generic packaging, but you can explore creative workarounds within the program’s guidelines. Consider custom inserts, product labels, or even unique packaging materials that meet Amazon’s approval to showcase your brand identity subtly.
• Proactive content management: Monitor your product listings and FBA content regularly to ensure they reflect your brand’s current messaging and avoid inconsistencies. As James Thomson emphasizes, continuous monitoring and nurturing your brand are crucial.

By being mindful of these elements, you can capitalize on FBA’s reach while safeguarding your brand’s unique identity. A consistent experience fosters customer trust and loyalty, which, in turn, supports long-term success.

Capitalize on seasonal events

Events that see a staggering amount of shoppers, such as Black Friday and Cyber Monday, are opportunities that FBA merchants should watch out for. In 2023, these two periods alone saw customers order over 500 million items from independent sellers, most of whom are small and medium-sized businesses.

Prime Day is another example, as it’s the platform’s biggest yearly event. Its 2024 iteration has proven to be record-breaking for Amazon, with the two-day event exceeding 200 million items sold and seeing millions of early Prime signups from around the world.

As being an FBA seller automatically makes you eligible for Prime, maximize these occurrences and make sure to:

• Keep plenty of your best-sellers in stock
• Offer enticing bundles and deals
• Optimize your listings
• Ramp up Amazon advertising
• Encourage authentic product reviews

Choose a strong FBA partner

Being an FBA seller poses some challenges, whether they be due to Amazon’s stringent guidelines or regular policy changes. A partner with proven expertise in these matters, however, can ensure compliance and alleviate any issues.

We would be remiss to not mention that MyFBAPrep specializes in handling fulfillment for Amazon sellers, securing their customers’ quick and seamless experiences through orders that are correctly and efficiently picked, packed, and shipped.

Our Amazon FBA Prep Services are delivered by experts with decades of experience, guaranteeing your goods properly enter FBA’s network. If you’re looking to focus on your business and circumvent the complexities of Amazon FBA prep, get in touch!

FAQs: Is Amazon FBA worth it?

At this point, you should have a clear understanding of Amazon FBA’s value. You may, however, have some questions left unanswered. To alleviate such concerns, we’ll address some matters other FBA merchants typically ask about.

Is Amazon FBA a good option for small businesses or startups?

Amazon FBA can be a great option for brands or entrepreneurs who are starting out, especially those with limited cash flow—64% of sellers needed only $5,000 or less to begin on the platform.

However, it’s still vital that you carefully study its cost structure and note these two considerations:

• Low-margin or slow-moving products may rack up fees, ultimately outweighing FBA’s benefits.
• Does the program’s fulfillment efficiency and access to Amazon’s vast customer base offset the costs and competition? Remember, 82% of the platform’s sellers use FBA.

How can Amazon FBA improve my eCommerce business?

The FBA program can enhance your online endeavors in multiple ways:

• First, it expands your reach, as Amazon has customers worldwide.
• Since Amazon takes on the burden of fulfillment, you can focus on strategic initiatives. Think of product development, marketing, scaling, and the like.
• The eCommerce giant handles customer service inquiries and returns as well, enabling consistent experiences.
• The automatic Prime eligibility lets you offer speedy and free shipping to Prime members.
• The “Buy Now” button you see while browsing Amazon is the Buy Box, and it sees roughly 80% of the platform’s sales. Although Professional sellers must compete for it, Amazon favors fast and reliable fulfillment, making FBA listings more likely to win it.

What are the alternatives to Amazon FBA?

• Self-fulfillment: This simply entails handling inventory storage and management, as well as product packaging and shipping yourself.
• Third-party logistics (3PL): This involves outsourcing your fulfillment to an external service provider while maintaining control over your brand and customer experience.
• Direct-to-consumer (D2C): This means selling your offering through your own eCommerce website. This offers complete control, but requires considerable investment in fulfillment, marketing, backend capabilities, and other forms of overhead.

How does Amazon FBA compare to FBM or 3PL?

• FBM: Amazon’s self-fulfillment program leaves you with full control over your branding and customer experiences. However, high volumes can be a challenge if you lack the fulfillment capabilities, since you’ll need to invest in warehousing, staff, and logistics.
• 3PL: Similar to FBA, 3PLs manage inventory storage, packing, and shipping, but you have more authority over packaging and branding. However, choosing the right 3PL partner is key, as they’ll have to align with your business needs and adhere to Amazon’s comprehensive policies and standards.

How can I determine if Amazon FBA is worth it for my business?

There are four key steps you can take to ascertain whether or not FBA will be beneficial for your eCommerce venture:

• Conduct a cost-benefit analysis: Here, simply calculate FBA’s fees and any associated expenses you’ll incur, then compare them to your potential sales and profit margins. If you need assistance, we have a Profit Margin Calculator.
• Examine your goals: Do you want to scale rapidly and reach a global audience? If so, reducing your fulfillment responsibilities and selling via FBA can help you achieve that.
• Gauge product-market fit: You can’t thrive in Amazon’s ecosystem and compete if your offering doesn’t align with a market’s needs. So, before entering, make sure your items fit well.
• Monitor competitor strategies: One way to thrive on the platform is to analyze how your competitors leverage Amazon FBA, then identify what does and doesn’t work. Afterwards, you can formulate ways to stand out.

Wrapping up — The final verdict on is Amazon FBA worth it?

Amazon FBA has revolutionized the way brands reach online shoppers. From its humble beginnings, it has become an indispensable component of eCommerce success on the platform.

Although the program offers enticing advantages like a vast consumer base, streamlined logistics, and the coveted Prime badge, it also presents challenges in terms of control and platform dependence.

At the end, the answer to “Is Amazon FBA worth it for your business?” boils down to your brand’s specific needs and its ability to navigate the program’s intricacies. However, those that can effectively leverage FBA’s strengths and mitigate its potential drawbacks will unlock significant growth opportunities.

By carefully evaluating your business goals, optimizing listings and inventory management, as well as utilizing Amazon’s powerful tools, you can craft a winning FBA strategy that fuels your store’s success.