Is Amazon FBA Safe? 10 Risks To Avoid

Is Amazon FBA safe? Amazon FBA is completely safe. It isn't a scam. Amazon FBA, or Fulfillment by Amazon, is an ecommerce service for third party sellers. With it, an Amazon business can entrust their product inventory to Amazon’s inventory storage facilities and shipping network. That way, customers can quickly and efficiently receive product orders. But, there are risks to the business model, such as:

• Amazon suspending or banning your seller account
• Amazon sellers can face lawsuits
• Amazon is a main competitor
• Amazon will charge storage fees for overstocked products
• Cheap products aren't profitable

Fortunately, with a bit of planning and awareness, most of these risks can be avoided and a third party seller can make a solid online income with Amazon FBA. In fact, there are some sellers who safely make millions of dollars with Amazon FBA, like Amazon wholesaler Larry Lubarsky of the Amazon course, Wholesale Academy, who has accumulated over $18 million in Amazon FBA sales. Amazon FBA can be challenging, but it can also pay off big for those who put in the effort to learn Ecommerce skills like product sourcing and Amazon PPC advertising. 

Is Amazon FBA safe?

Amazon FBA is safe. The Amazon FBA platform, Amazon Seller Central, allows you to enroll in two-step verification with your phone number or an authenticator app like Google Authenticator. If you have any security concern about your Amazon seller account, you can visit Amazon.com/security to report any suspicious activity. Furthermore, Amazon provides a special email address, stop-spoofing@amazon.com to report phishing emails or text messages that are impersonating Amazon. 

When you use the Amazon FBA service, you can also be confident that your items are safe and secure. Amazon is one of the most advanced logistics systems in the world, employing a well trained staff and leveraging advanced technologies like AI and robotics to perform tasks in the fulfillment centers where FBA seller products are stored. If something does happen to your products, such as Amazon losing or damaging your inventory, Amazon will completely reimburse you for the costs.

Is Amazon FBA legit? 

Amazon FBA is legit. The service first launched in 2006 and today serves approximately 1.5 million active Amazon sellers, considering that there’s around 2 million active sellers and about 75% use FBA. By using Amazon fulfillment, a business can increase the efficiency and speed of getting its products to customers.

What does Amazon FBA do? 

An FBA seller sends their product inventory into Amazon and Amazon ships the order out and handles any customer interactions once the product sells. Selling products through the FBA program also makes your products eligible for Prime FREE two-day shipping, making them more attractive to the approximately 200 million Amazon Prime members.

Is there risk in Amazon FBA?

There is risk in Amazon FBA. Although Amazon FBA is safe and legit, there are some risks that new sellers should be aware of, like getting hit with unexpected Amazon FBA fees and having a negative profit margin. If you’re not careful, you could even lose your entire Amazon FBA business by not considering some of these risks before you start selling through the Amazon FBA program. However, with a little foresight, most of these risks are avoidable. 

1. Amazon can suspend or ban your seller account

When you sell through the Amazon FBA program, you need to abide by Amazon’s strict policies. If you break any of Amazon’s rules, you could have your Amazon seller account suspended, or worse, banned from the platform. Common reasons Amazon may suspend an FBA seller account include:

• Selling counterfeit products
• Selling poor quality products that causes an order defect rate above 1%
• Review manipulation, like incentivizing customers for positive reviews
• Product listing and actual product not matching exactly
• Copyright infringement claims against the seller
• Sending in restricted or banned products like Hazmat
• Sending in product inventory that requires approval without first getting approved
• Using multiple Amazon seller accounts

If Amazon is your only sales channel, an account suspension could freeze your entire Ecommerce income stream. Therefore, it’s essential to consider all potential issues before adding a product to your Amazon inventory.

2. Amazon sellers can face lawsuits

Just because you’re selling behind the Amazon brand name doesn’t mean they will protect you from lawsuits against your business. There are 3 main reasons that third party Amazon sellers get sued, including:

• Product causes harm to the customer
• Product contains copyright images
• Product violates patents

Although Amazon’s insurance policy does state that they will handle any valid property damage and personal injury claims against sellers under $1,000, the seller is responsible for anything over that amount. Amazon even requires sellers whose sales exceed just $10,000 for 3 consecutive months to carry at least $1,000,000 in liability insurance. Besides this insurance, third party sellers can further protect themselves by running their Amazon business through a formal business entity like an LLC to separate business assets from personal assets.

3. Amazon is a main competitor

If you’re not careful, you may find yourself in a situation where you’re competing against Amazon directly on its own platform. This is a situation that is not likely to end well for you. Amazon sells products under over 118 of its own private label brands, according to CNBC. Amazon private label brands, like Amazon Essentials and Amazon Basics, are some of the best selling products on the platform because of their quality and affordability, leading to high positive review counts. Therefore, it’s advisable to look for Amazon private label products when you’re doing product research and avoid selling similar products to give yourself the best chance of success. 

However, that won’t help you if Amazon brings a new private label into the market after you have already started selling your products. In fact, Amazon has already proven it will try to mirror third-party seller success by using their data to create profitable products. According to the Wallstreet Journal, Amazon employees have admitted that the company has used the data of third-party sellers to develop their own private label merchandise, an issue that was even brought before the US congress.

4. Amazon will charge storage fees for overstocked products

The Amazon FBA program makes Ecommerce convenient for sellers by holding their product inventory in the Amazon warehouse. However, sending too many products into the Amazon warehouse at once can end up costing you. Amazon charges monthly storage fees for this service, which ranges anywhere from $0.56/cubic foot to $2.40/cubic foot, depending on the weight class of the products and time of year. For example, October through December is Amazon’s high season, so they charge higher storage fees during those months than the rest of the year. If a product is stored at the Amazon warehouse for over 180 days, an additional aged inventory surcharge is added on top of the base storage fee. The aged inventory surcharge ranges between $0.46/cubic foot and $0.94/cubic foot extra each month. 

As you can imagine, allowing excess inventory to sit in the Amazon warehouse can really add up and quickly cause a product that was supposed to be profitable to actually lose money, especially if you have a lot of inventory that’s not selling. Therefore, it’s useful to use an inventory management tool like SoStocked to help estimate how much inventory you should stock at the Amazon warehouse so you can better avoid paying excessive storage fees. 

5. Cheap products aren't profitable

One of the biggest mistakes you can make when selling on Amazon FBA is choosing a product with too low a selling price. This is because many of the shipping costs and Amazon FBA fee costs remain about the same no matter the price of the product, so more expensive products enable you to retain a much higher profit margin than cheaper products. For example, imagine you can choose between two sets of headphones to sell on the Amazon marketplace. One of the headphones is selling on Amazon for $20 while the other is selling for $60. They are about the same size, so the costs associated with shipping the headphones from the supplier to the Amazon fulfillment center and the FBA inventory storage and shipping fees are the same for both products, costing you $15. 

If you decided to go with the cheaper headphone because you thought more people would buy it, you would only earn a profit margin of 25%, but if you went with the more expensive product, your profit margin would be 75%! Of course, there are some additional costs to consider in a real scenario, like the Amazon referral fee and Amazon advertising costs, but this is a good example of why choosing a cheaper product is risky. Most Amazon experts like YouTuber Dan Rodgers agree you shouldn’t sell a product for less than $15 on Amazon. Anything less and there's a high probability you won't be profitable. 

6. Amazon will hit you with unexpected FBA fees

As an Amazon FBA seller, it’s easy to get hit with costs you didn’t expect, such as the additional storage fees we’ve already mentioned. However, there are quite a few other costs that many Amazon sellers forget to consider, including:

7. Customers can take advantage of Amazon's return policy

Amazon’s customer-friendly return policies mean your FBA business is likely to have quite a few product returns. Depending on the product category, Amazon allows customers to return FBA products between 30 to 90 days after purchase. According to the co-founder of SellerApp, Dilip Vamanan, the average return on Amazon FBA is approximately 12%. However, the figure can be much higher for certain categories, such as high fashion apparel, which has a return rate of 35%. The Amazon seller pays for FBA returns. As mentioned, there is a processing FBA fee of up to $5 to receive the inventory back in the Amazon warehouse. Furthermore, Amazon does not return the FBA shipping fees that were associated to the original sale. 

Unfortunately, there are also many people that try to take advantage of Amazon’s policies. In fact, there are quite a few Amazon shopper horror stories out there of sellers fighting with Amazon after customers have gamed the refund policy.

8. Amazon FBA sellers are susceptible to scams and fraudulent activities

Unfortunately, selling on Amazon FBA puts you at risk of being targeted with a variety of malicious schemes. 9 commons Amazon FBA scams are:

1. Phishing email scam - This common scam typically involves an Amazon FBA seller receiving an email from what appears to be Amazon requesting that they follow a link and provide their account details, which are then stolen and used for malicious activity. 
2. “Get-rich” scam - This scam entails a scammer contacting the Amazon seller pretending to be a representative of Amazon with an opportunity, whose real motive is to obtain the seller's account credentials and access their financial information. 
3. Credit card scam - This scam involves a scammer contacting an Amazon FBA seller pretending to verify their credit card information to sell on Amazon in order to obtain their credit card information. 
4. Fake positive reviews - A tactic sometimes used by competing Amazon sellers is to rapidly fill a competitor's product listing with fake positive reviews so that Amazon flags the account and potentially suspends the listing for violating Amazon’s policy on fake reviews. 
5. False negative reviews - This fraudulent activity entails a competitor giving an Amazon FBA seller false negative reviews to bring down their product’s rating. 
6. Sponsored ads scam - This occurs when an Amazon FBA business runs ads and a competitor tries to quickly deplete their ad budget by repeatedly clicking on the ads so the Amazon FBA business pays for the clicks without getting any sales. 
7. Failed delivery scam - This scam involves an Amazon customer pretending like they never received an item in order to get a free product and refund while you bear some of the FBA cost and lost sale. 
8. Replace and refund product scam - This scam involves a customer receiving the product from the FBA seller and replacing it with an old or already damaged version of the product and requesting a refund, leaving the FBA seller stuck with bad inventory. 
9. Extra FBA charges scam - Some scammers will impersonate Amazon in order to request additional FBA fees that don’t really exist from the FBA seller. 

9. Your product listing can get hijacked by a seller with copycat goods

One of the major benefits of creating a private label product to sell on Amazon FBA is that you get your own product listing. However, some Amazon sellers may see your success with your private label product and try to steal some of the sales from you by creating a counterfeit version of your product and selling it on your listing. These sellers can even win the Buy Box over you by using cheaper materials so they can offer the product to customers for a lower cost. Therefore, it’s essential for an FBA private label seller to regularly monitor for this activity or risk losing sales.

Fortunately, you can combat this behavior by:

• Sending a cease and desist letter to the hijacker
• Reporting the hijacker to Amazon
• Preventing the hijacker in the first place by getting a trademark and enrolling in the Amazon Brand Registry

10. Many new Amazon sellers have unrealistic expectations and quit early

There are many Amazon FBA influencers on social media that exaggerate the realistic profit potential or speed of the opportunity. This leads to unrealistic expectations and eventual frustration among sellers that aspired to mirror the success of a seemingly high achieving Amazon FBA seller that they’ve seen on social media. In their desperation for quick success, new Amazon sellers can give up too soon without giving Amazon FBA a real chance and end up losing money as a result. 

To avoid this risk, it’s important to start your Amazon FBA journey with the right mindset and achievable goals. Understand that you may not choose a successful product on the first try and that it’s going to take around 1 to 2 years before your business is generating a solid income.

How to safely start Amazon FBA for beginners? 

Is Amazon FBA worth it?

Amazon FBA is worth it. For those that want to generate online income or just want a side hustle to bring in some extra money, Amazon FBA can be a great opportunity. 88 percent of Amazon FBA sellers are successful, according to the 2023 State of the Seller Report by Jungle Scout, which found that only 12% of sellers are not profitable after more than 2 years of selling through the program. Furthermore, the majority 76% of Amazon FBA sellers are able to run their business on 20 hours or less per week. 

For those trying to decide between Amazon FBA and Amazon FBM, Amazon FBA is worth it for higher volume sellers with larger profit margins, while Amazon FBM can be a better choice for one-off product sales that have slim margins, according to the Helium 10 team.

What is Amazon FBA salary?

The Amazon FBA salary is around $13,200 to $30,000/year. That’s considering data from Jungle Scout’s 2023 State of the Amazon Seller Report that found the majority 56% of Amazon sellers make 10,000 or less/month and 55% of sellers achieve a profit margin ranging from 11% to 25%. Amazon FBA is good for money. However, it’s usually not good enough for a full-time income to live in the United States. Instead, it’s better as a side hustle, which is why many sellers do Amazon FBA part-time in order to achieve goals like saving for vacations or paying off debts. 

Is Amazon FBA hard?

Amazon FBA is hard. There are many reasons Amazon FBA is hard, including the fact that you need to compete against nearly 2 million other sellers on the platform and Amazon itself for sales. Fortunately, there are many Amazon FBA courses available that can teach you how to win as an Amazon FBA seller. Some of the best Amazon FBA course options include Private Label Masters by Tim Sanders and AMZ Champions by Trevin Peterson.

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