What Is Amazon FBA? Definition, Process, & Common Strategies

July 20, 2023

What is Amazon FBA?

Amazon FBA is a program through Amazon that provides an order fulfillment solution to Ecommerce sellers. The meaning of FBA is Fulfillment by Amazon. Through the FBA program, a third party seller on Amazon can outsource inventory storage, picking and packing, shipping, customer service, and returns processing to Amazon. 

How does Amazon FBA work?

Amazon FBA works by sending your Ecommerce product inventory to an Amazon fulfillment center. When a customer buys a product from your store, Amazon removes the product from its shelves, does any necessary preparation work, and uses its advanced logistics systems to ship the order to the customer. Usually, the customer receives the product in two days or less. 

What is the process for Amazon FBA?

  1. Send products to Amazon - After Amazon receives your product inventory, it's scanned and made available for sale on the Amazon marketplace. 
  2. Make sales - Every time your Amazon store makes a sale, Amazon prepares your product and ships it directly to the customer. 
  3. Get paid - Amazon collects the payment from the customer and distributes it to your bank account, minus any fees attributed to the product sale. Amazon sellers get paid every two weeks. 

What are the most common Ecommerce business models for Amazon FBA?

  • Private label
  • Wholesale
  • Retail arbitrage
  • Online arbitrage
  • White label

What is Amazon FBA private label?

Amazon FBA private label is an Ecommerce business model characterized by an Amazon seller putting their own custom branding on a product produced by a third-party manufacturer and selling it as their own. A private label product is exclusive to the brand selling it. The manufacturer provides the specific version of the product to only one Amazon seller. 

What is Amazon FBA wholesale?

Amazon FBA wholesale is an Ecommerce business model where an Amazon seller obtains branded products in bulk through a wholesale distributor and resells them on Amazon. An Amazon FBA wholesaler earns a profit by purchasing in large quantities to get a discount, and then reselling the products on Amazon for the market price. 

What is Amazon FBA retail arbitrage?

Amazon FBA wholesale is an Ecommerce business model where an Amazon seller finds products in retail stores like Target and Walmart that are selling at a discount to the price on Amazon to resell them on Amazon for a profit. 

What is Amazon FBA online arbitrage?

Amazon FBA online arbitrage is an Ecommerce business model that entails finding products from online marketplaces that are selling for a discount to their price on Amazon, and then reselling them on Amazon for a profit. 

What is Amazon FBA white label?

Amazon FBA white label is an Ecommerce business model where an Amazon seller puts their own custom branding on the product of manufacturer and resells it as their own on Amazon. A white label product is a generic product available to multiple sellers who only change the product by putting their own logo and design on the packaging. 

What are the pros of Amazon FBA?

Fast and free shipping

According to a survey by logistics company Maergo, 62% of Ecommerce customers expect free shipping and to receive their order in three days or fewer. With the Amazon FBA program, Amazon guarantees free two-day shipping to their 200 million Amazon Prime members worldwide.

Boost Amazon ranking

Delivery time is an important ranking factor for Amazon’s A10 algorithm, according to Amazon services agency Eva. The A10 algorithm dictates where your product listing ranks organically on Amazon. Many Amazon experts also consider conversion rate, sales velocity, and customer reviews as important ranking factors. By allowing your business fast delivery times through the FBA program, you improve the ranking of your product listings by enticing more customers to buy your products and increase the likelihood you’ll receive positive customer reviews.

Better chance of winning Amazon Buy Box

Many Amazon business models, like retail arbitrage or wholesale, require you to share a product listing with other Amazon sellers. That’s because Amazon only allows one product listing on its platform for a single product to avoid cluttering. However, on each product listing, Amazon chooses one seller to be the default seller for the “Buy Now” box. This is known as the Amazon Buy Box.

According to Repricer Express, 83% of all Amazon sales go through the Buy Box. Amazon FBA sellers have a better chance of winning the Buy Box because the Amazon algorithm perceives it as a superior choice for Amazon. This is because FBA sellers generate more revenue for the company through more fees.

Better shipping rates

When comparing Amazon FBA vs FBM, Amazon FBA actually offers much better shipping rates. According to Amazon, shipping with FBA costs 32% less per unit than other slow shipping options offered by the leading U.S. carriers and 72% less per unit than their two-day options.

Improved working conditions

Running your business through the Amazon FBA program outsources a major portion of your work as an Ecommerce seller to Amazon. With Amazon FBA, you can do more with less time. You need 20 hours a week or less for Amazon FBA. In fact, the majority 53% of Amazon sellers spend between just 1 to 10 hours a week on their business, according to JungleScout. 

Amazon handles most client interactions

Interacting with customers can be a major headache, especially if they have a complaint about your product. Fortunately, Amazon handles customer service for Amazon FBA sellers. Therefore, you won’t need to interact with customers very often with this online business model.

What are the cons of Amazon FBA?

Pay more fees to Amazon

You can expect to pay Amazon substantially more fees if you run your business through the FBA program. Amazon takes over 50% from FBA sellers, according to Entrepreneur magazine. Amazon FBA is so expensive because Amazon is a public company that needs to appease its shareholders by finding ways to drive more revenue, which they can do through higher fees. Although they make it easier for you, FBA Amazon fees drive down your profit margins.

Increased returns

Amazon's standard return policy allows customers to return orders within 30 days. According to SellerApp, 12% of Amazon products are returned on average. With Amazon being a customer-centric company, you can expect higher returns for your Ecommerce business when selling through Amazon FBA.

Reliance on a 3rd party to operate business

An FBA seller relies on Amazon to operate its business. If Amazon ends the FBA program or limits access to sellers, it would completely disrupt FBA seller operations. However, sellers that establish their own logistics systems and processes outside of Amazon protect their business from this scenario. Furthermore, they are setup to expand their Ecommerce operations outside of Amazon for better scalability.

Strict seller policies 

If you want to be an Amazon FBA seller, you’ll have to adhere to Amazon’s strict seller policies. For example, an Amazon seller must maintain an order defect rate of less than 1% or risk their account being suspended by Amazon. Another example is Amazon’s FBA product preparation requirements, which dictates exactly how sellers need to package their inventory before sending it to the Amazon warehouse.

High competition

Just because Amazon FBA improves your opportunities on Amazon, doesn’t mean you’re going to be successful. Selling Amazon FBA is extremely competitive in 2024 because there are approximately 6.9 million Amazon FBA sellers competing for customers on Amazon, according to SellerApp.

Lack of brand loyalty

When you sell through Amazon FBA, Amazon usually earns the customers' loyalty, not your FBA business. Unlike running your own retail shop or Ecommerce store where you can interact with customers and generate brand loyalty, it’s very difficult for Amazon FBA sellers to draw repeat customers.

What are Amazon FBA fees?

Amazon FBA fees are the fees Amazon charges for storing and shipping products to customers. Storage and fulfillment fees are only charged to FBA sellers because Amazon FBM sellers handle fulfillment themselves. 

FBA fulfillment fees

Amazon fulfillment fees are charged based on the dimensions and shipping weight of your product. This fulfillment fee ranges from $3.22 for the smallest items less than 4 oz and under 15” x 12” x 0.75” all the way up to $159.49+ for items weighing more than 150 lbs and longer than 108”. 

FBA storage fees

The monthly storage fee is an Amazon FBA fee charged for storing your product inventory in Amazons warehouse. The FBA storage fee ranges from $0.56 to $2.40 per cubic foot of product, depending on the month and size of the product. If your products stay in an Amazon fulfillment center for longer than 180 days, you can also incur an additional aged inventory surcharge fee each month that ranges from $0.50 to $6.90 per cubic foot on top of your standard storage fee. 

How to start Amazon FBA for beginners?

Step 1: Choose an Amazon business model

The first thing you should do if you’re considering starting an Amazon FBA business is to decide which business to use. There are a few different Amazon FBA business models you can choose from, with private label and wholesale being the most popular. Even though it’s best to focus on mastering one Amazon business model in the beginning, you can expand your income potential by combining multiple business models into a single Amazon business over time.

Step 2: Set up an Amazon seller account

Amazon offers two selling plan options in Seller Central. You can either choose the Individual seller plan that charges just $0.99 per item sold or the $39.99/month Professional seller plan that permits you to sell unlimited products on Amazon. If you’re serious about Amazon FBA, you should choose the Professional seller plan. Even if you don’t sell that many products right away, the Professional plan: 

  • Allows you to do Amazon advertising 
  • Qualifies you for top placement on product detail pages
  • Enables you to access restricted product categories
  • Opens access to advanced selling tools and reports

What do you need to create an Amazon seller account?

  • Amazon customer account or email address 
  • Bank account where Amazon can send sales proceeds
  • Internationally chargeable credit card
  • Government-issued ID for verification
  • Tax information
  • Phone number

Step 3: Product research and sourcing

Your procedures for finding product ideas and sourcing those products depends on which Amazon business model you’ve decided to use. For example, if you choose retail arbitrage, you can find products to sell at local retail stores like Target or Walmart by using the Amazon Seller App to analyze profitability if you were to resell the item on Amazon. However, if you choose wholesale or private label, you’ll need to use a product research tool like Jungle Scout to find product ideas and then reach out to major suppliers like manufacturers and distributors to provide you the product in bulk.

Step 4: Add products to Amazon

Once you have a product to sell, you need to add the product on Amazon. If you’re selling the product of another brand, it probably already has its own product listing on Amazon. If so, you can just go to the “Inventory” tab in Amazon Seller Central, choose “Add a product”, and search for the product by its ASIN. Then, provide Amazon some necessary information about your products like the quantity of the product you have to sell, so Amazon knows that to expect when they receive your products. 

If you’re selling a product that is new to the Amazon marketplace, you will need to create the product listing yourself. On the “Add a product” page, you can create a new Amazon listing by choosing “I’m adding a product not sold on Amazon”. To create your own product listing, you’ll need:

  • Product ID, such as a UPC barcode from GS1
  • High-quality product images
  • Product title and description
  • Selling price

  • Brand and manufacturer information

Important note: Before you finish adding a product, Amazon will ask you how you plan to fulfill orders for the product. Make sure to choose Fulfilled by Amazon if you want Amazon to handle your order fulfillment. 

Step 5: Send product inventory to Amazon

Now that Amazon is expecting your products, you can prepare and ship to your assigned Amazon fulfillment center. Make sure to prepare your products according to Amazon’s FBA prep requirements or you could be charged unplanned services fees from Amazon if they need to adjust your product packaging. 

You pay for shipping to FBA. However, Amazon gives you the option to use their partner carrier UPS to get a very competitive shipping rate. There is no minimum to send to Amazon FBA. You can send as many products as you have available for sale with no quantity limits. 

Step 6: Amazon marketing

If you want to optimize your selling ability on Amazon, running Amazon ads is essential. Amazon PPC advertising is Amazon’s on-platform advertising program. Depending on the competition level of your product niche, you can expect to pay between $0.15 to $6 each time your Amazon ad is clicked by a potential customer. Amazon PPC isn’t cheap, but it can be absolutely essential for driving sales and boosting your product listing’s organic ranking on Amazon, especially for private label sellers.

Amazon FBA FAQ's

What is the difference between Amazon FBA and dropshipping?

The difference between Amazon FBA and dropshipping is that with dropshipping, your product supplier holds your inventory and ships the order to customers instead of Amazon. When comparing Amazon dropshipping vs FBA, dropshiping products usually arrive to the customer much slower than Amazon FBA products.

Can you make a living off FBA?

Yes, you can make a living off FBA. According to LivingCost.org, the average cost of living in the United States is just over $2,200 for a single person and approximately $5,000 for a family of four. 42% of Amazon sellers make between $10,000 and $500,000/month in revenue, according to Jungle Scout.

When considering a realistic profit margin of 20%, an Amazon FBA seller can expect to take home $2,000 to $100,000/month in profit, which is comparable to people who opt to become remote closers. The difference with Amazon FBA is that you are responsible for customer service and the quality of your products. In contrast, remote sellers don't need to manage inventory or face supply chain issues.


How does the Amazon FBA calculator help selling on Amazon?

The Amazon FBA calculator helps selling on Amazon by showing you an accurate estimation of how much profit you can make by selling a product through Amazon FBA. 

How does Amazon FBA compare to local lead generation?

Amazon FBA is selling physical products to the customers of a third-party while local lead generation is selling high-value customer leads to a local business. Both Amazon FBA and local lead generation enable you to make money online by serving as a connection point between businesses and customers. However, unlike Amazon FBA where you rely on the assets of a third-party company to run your business, a local lead generation agency owns its own assets. The assets a local lead generation agency owns are websites that rank on Google and attract clients for local businesses.

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