More and more people are choosing Amazon FBA in 2020. And let’s be honest – they have good reason to do so. Plenty of people out there are making a killing with this unique business model, and there are plenty of benefits. While an FBA business takes significant work and planning, there’s also an incredible potential for insane profits. Yes, this business certainly has its attractive features, but there are also a number of downsides to choosing FBA that everyone needs to be aware of.
While being optimistic is never a bad thing, it also doesn’t help to be completely blind to the potential issues you might face with this kind of business. And let’s be clear – there are plenty of issues you could run into when you choose Amazon FBA. While these problems might be acceptable to some entrepreneurs, they could scare off others who are considering this path.
But first, let’s take a look at your options when you choose to sell through Amazon.
The first is obviously the business we’ve been talking about – Amazon FBA. This stands for “Fulfillment By Amazon,” and it’s one of the most popular choices for entrepreneurs today. With this business plan, Amazon ships and packages your products for you. They’ll even handle customer support. All you have to do is pick the right product, choose the right supplier, and conduct product research. Don’t worry – we’ll go into more depth later.
But first, let’s consider the second option on the table – Merchant Fulfilled, or “MF.” As you might imagine, this is a business plan where the merchant (i.e you) takes almost all of the responsibility when it comes to the product. You’ll be storing inventory, shipping the product, and dealing with most of the customer service. Amazon will stay out of the way – but they’ll still charge you penalties if you dispatch your orders too late. What do you get out of it? The chance to advertise, promote and sell your products on an established platform like Amazon.
But enough about Merchant Fulfilled – that simply isn’t the focus of today’s article. Instead,we’ll be taking a deep dive into the various pros and cons of Amazon FBA. Ready? Let’s go!
Advantage – Peace Of Mind
This is probably the number one reason why people choose FBA. There’s a simple reason why FBA is one of the most recommended ideas for those looking to start a small business – it’s easy. With the shipping, storage, and packaging taken care of, you don’t have to juggle as many skills and tasks. That means that you can divert your focus towards other, potentially more important things, such as the product itself. When you’re starting out with a product-based business, the FBA program can seem like the most logical route. And in many cases, it is. Choosing FBA means there’s a few less things to worry about, which makes it a more stress-free option.
Con – Lots And Lots Of Fees
But that peace of mind comes at a cost, and it’s definitely something to factor into your decision. Most people don’t even mention the fact that you do have to pay Amazon for doing your work for you, and it’s not exactly cheap either. First of all, Amazon will charge you a fee based on how much space your product takes up in their warehouse. Bigger products or more products equate to higher fees. This isn’t a flat fee, either. Amazon will increase the price based on how long your products sit in their warehouse. So if your products aren’t selling, you can expect to pay for it.
If you thought that was it, think again. Amazon will also charge you a monthly fee on top of that, which is about $35 USD. Not a lot of money, but it all adds up – especially when you consider that every time you ship products, you’re going to be charged “fulfillment fees” and other hidden fees that can seriously eat away at your profit margins. If you’re not careful, you can actually lose money with Amazon FBA because of all these fees. That’s why it’s very important to crunch the numbers and figure out your profit margins before you buy products to sell. And whatever you do, remember to factor in all the fees.
Advantage – Integration
Most people don’t actually know about this advantage. Yes, you can integrate the FBA program into multiple systems, not just Amazon! You can use it with your own personal website, Shopify, and many other options. If the site has anything to do with eCommerce, FBA can integrate seamlessly, handling all your business needs across the entire internet. One of the best parts of this is that your customers get access to Amazon’s famously reliable shipping, including flexible shipping dates, great customer service, and much more.
Con – Extensive Planning Is Needed
The most successful FBA sellers are people who are meticulous planners. Big companies devote entire teams of people towards product research, and if you want to compete, you’re going to have to put in a lot of work. That means crunching the numbers, analyzing the trends, finding the right niches, and much more.
You’ll also need to prepare your actual products for storage in Amazon’s warehouses. This is another little tidbit many people fail to mention. If your products aren’t “prepped” correctly, Amazon will actually charge you penalties. Even though Amazon is doing a lot of the work for you, FBA is anything but easy. If you get too lazy and refuse to play by the rules, expect to pay for it dearly.
Advantage – Reputation
We’ve all been in a situation where we’re about to buy something online, but we end up backing out because the site seems dodgy. Tons of online sellers suffer with this problem, as they just don’t have the reputation to put customers at ease. Well with FBA, you can say goodbye to these problems for good. That’s because on every sale you make, no matter where, your product will be stamped with Amazon’s seal of approval. A recognized brand means greater credibility, and that will in turn lead to greater sales. It’s just another one of the benefits of choosing FBA.
Con – You Can Become Over Dependent On Amazon
Sure, Amazon is well-known for reliability and professionalism when it comes to shipping. But if a problem arises, you’ll be relegated to the sidelines. If a product isn’t shipping or faces extensive delays, you’ll be powerless to step in and speed up the process, and this can lead to the loss of customers. Although this might seem like an unlikely scenario, there are plenty of circumstances where Amazon could face delays. A busy period like the holiday season could result in delays, or who knows, Amazon’s workers might even go on strike. All this means that you have no control or ability to interfere if something goes wrong. It’s easy to become over dependent on Amazon.
Advantage – Amazon Prime
Amazon Prime is more popular than ever, and online sellers are finding it hard to compete with this top-notch shipping service. You know what they say – If you can’t beat ‘em, join ‘em. By choosing FBA, you get to ship with Amazon Prime, and that can often be the difference between making a sale and losing a customer. People just love next-day shipping, plain and simple. The best part is that you won’t actually have to charge your customers a dime for their subscription fee. Once again, this is all handled by Amazon.
Con – It’s Hard To Build Your Own Identity
With FBA, Amazon is essentially taking you under their wing. But how can you ever hope to forge your own identity if you’re constantly in the shadow of one of the largest corporations on the planet? Don’t get us wrong – FBA is a great way to make insane amounts of money. But in a sense, the training wheels never come off. You’ll never actually get to experience what it’s like to fully run a product-based business, and that can be a major downside.
Creating your own brand identity is an important step for any business. It’s the only way to challenge the big corporations and start growing your business to unbelievable levels. Coca Cola or Apple would have never emerged as major brands if they’d simply relied on other companies to be their face. Their personality and their unique flair is a major reason why so many people love their products. This simply isn’t possible with FBA, and that is defintelt something to consider.
Advantage – Higher Priority
Tons of sellers struggle with Amazon, and one of the biggest battles seems to be getting their products to the top of the list. No matter what they do, their products never seem to be suggested or advertised to Amazon customers – until they actually search for them manually. It doesn’t take a genius to figure out that this results in a lot of lost sales. But with Amazon FBA, your products automatically get prioritized, and you’ll find them popping up on the front pages of Amazon. Your products are considered more trustworthy by Amazon, because they’re the ones handling the shipping and customer service. In short, they know that they can rely on you.
Con – No Email Lists
Another interesting disadvantage to consider is the fact that it’s almost impossible to develop email lists while making use of Amazon’s FBA program. Email lists are some of the most powerful tools in a seller’s arsenal, but you’ll have to forgo this pleasure if you choose FBA. Email lists allow you to remarket your products to existing customers and keep them in the loop when it comes to new products. Email lists are incredibly efficient at converting sales, so you’re left empty-handed without them. Because of this, you could potentially be losing out on sales. You could also lose customers who drift away and lose interest.
Advantage – Amazon Deals With Customer Service
Last but not least, there’s also the benefit of not having to deal with customer service. This cannot be understated. Dealing with customers can be a total pain, and we all know that there are some very… difficult people out there. This can lead to insane amounts of stress, frustration and pressure. But with FBA, you can let all those worries simply float away, because you’ll never have to handle a phone call with an angry customer… ever! Think about all the costs associated with customer service. You need to man the phones, hire people, and make sure that you’re ready to receive calls at all hours. All of this is handled by Amazon, which is a major plus.
Con – It’s Insanely Competitive
Last but not least, there are a lot of people trying their hand at FBA. Some are extremely well-funded corporations who pour significant amounts of capital and manpower into “hacking” the system through research and market manipulation tactics. It would be a massive understatement to say that the odds are stacked against you. One or two years ago, it was relatively easy to get started with FBA. Now, everyone is more than aware of how profitable this business can be, and they’re all grappling for a foothold.
Remember, no matter how much time and effort you’ve put into your product and your marketing plan, someone else has put in twice as much work. Sure, you can look for niches that have low competition, but these are getting harder and harder to come by these days. There are entire companies dedicated to finding niches with little to no competition, and they know what they’re doing. FBA is a total free-for-all right now, and that’s definitely a major downside.
Alternatives To FBA
While a lot of people think that FBA is the bee’s knees, it’s not the only game on the block. There are actually quite a few interesting alternatives to consider, and choosing these lesser-known options could mitigate some of the disadvantages we’ve discussed in this article. These options include programs such as Shipwire or Core Fulfilment, as well as the aforementioned Merchant Fulfillment. Check them out, and you might just find that they offer better pricing and services that Amazon’s FBA. It’s definitely something to consider.
So what’s the verdict? To FBA, or not to FBA? That is the question… The simple answer is that it depends on you and what you’re looking for. If all the disadvantages we’ve mentioned seem like no big deal, then FBA could be the right option for you. But if some of what we’ve discussed is giving you a bad feeling, then perhaps backing off is the right move.
That being said, the general consensus out there is that FBA is still an extremely viable business plan, and for all its faults, it represents an excellent choice for almost all sellers out there – especially those who are new to product-based businesses. Fulfillment By Amazon is a great way to save time, effort, and energy. And to be honest, there’s definitely a reason why so many entrepreneurs are diving headfirst into this business – it’s incredibly profitable.
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