If you’re just starting out as an Amazon seller, you’ll have the option to use Amazon’s FBA service to store and ship your products out to customers.
In today’s post, we’re answering the question: Why should (or shouldn’t) you use Amazon FBA instead of your own warehouse?
What is FBA?
FBA, which stands for “fulfillment by Amazon”, is a service Amazon provides its sellers holding, shipping, and customer support services to sellers who use Amazon as their platform.
FBA services do charge a not insignificant fee for sellers, but whether the cost is worth it for your business depends on a few factors. Seller Accountant CEO Tyler explains more here:
The biggest deterrent towards signing up for FBA services is the cost.
As shown in the above screenshot from Amazon’s FBA info page, the service can accrue a lot of costs with the fees it requires to use it as a seller. (More detailed information on FBA fees here.)
These fees vary based on the sales category of your products, the size of your packaging, the time of year during which you store product with Amazon, and more, including return costs and a multi-channel fee (e.g. for sellers who use FBA for both Amazon and Shopify). Based on our research of over $140 million in e-commerce sales in 2019, FBA fees ate up an average of 17.7% of a company’s net sales.
While sourcing your own warehouse (priced by square footage), fulfillment employees (making at least minimum wage), shipping supplies, and a customer service team may seem overwhelming, they often tend to be cheaper overall than using Amazon’s FBA service. However, your business will be less efficient because you’ve given yourself more to oversee as CEO.
Capital Efficiency vs. Competency Efficiency
Though you may find it daunting to account for the price of the FBA service, a large percentage of our clients choose to use it for the sake of efficiency in their business.
When considering the FBA, it is important to consider the size of your company from a cost efficiency standpoint. Smaller companies may be able to handle their own shipping and returns, while most mid-size businesses find it extremely cost efficient to outsource their logistics to Amazon. As your company scales into a multimillion dollar seller, it may make sense to use FBA for some of your products but not all, as the cost per item storage will no longer be feasible for a company with thousands of units to store.
On the other hand, competency efficiency is a more personal metric that takes into account your strengths as a seller. For example, if you feel great about being your own warehouse manager but would rather watch paint dry than do your own customer service, then you can outsource that aspect of the business and do your own shipping and storage.
Amazon does offer some specialty FBA programs that cater to sellers with specific logistics needs. These programs are a great option for sellers who don’t want to dump 100% of their logistics onto Amazon and may, depending on the product category and volume, lead to lower FBA costs.
Overall, the best choice for your business logistics is the one that can play to your strengths. Just like deciding whether to outsource your accounting, it’s all about what you’re comfortable handling on your own. If you’re a great accountant, you might be perfectly capable of doing your own books, but if you’re overwhelmed by numbers, Seller Accountant would be happy to help you take a load off – much like Amazon’s FBA services.