Reasons Amazon FBA is a bad idea:
- The Amazon Marketplace is oversaturated with products
- Chinese sellers have taken over Amazon
- Amazon has a history of corruption
- Your Amazon product inventory will be mismanaged
- You can get punished because of another seller’s bad product
You don't need to look very hard to find reasons why Amazon FBA is bad. There are pros and cons to any business model, and Amazon FBA is no exception. Even so, there's a reason that millions of sellers and popular household brands like Crocs and Calvin Klein continue to sell through Amazon FBA. These businesses are making money while outsourcing some of the most difficult aspects of Ecommerce to Amazon's efficient systems. In fact, there are tens of thousands of Amazon FBA sellers bringing in at least 6 figures per year from their business. So, does the income potential of an Amazon FBA business outweigh the list of reasons why it's a bad idea?
1. The Amazon Marketplace Is Oversaturated With Products
The Amazon marketplace is oversaturated with products, making it difficult for new sellers to stand out. With over 350 million products available on the platform, according to Repricer Express, there are more products than the 310 million active customers. Many sellers use product research tools like Jungle Scout to find selling opportunities, but these tools have become less effective over time. As more sellers use the same tools, they compete for the same product recommendations, reducing the chances of finding unique, profitable items.
In addition to the high number of products, sellers often have to compete on the same product listing. Amazon only allows one ASIN per product, so multiple sellers can list the same item, leading to price wars and lower profit margins. This intense competition makes it hard for sellers to succeed and is one reason why Amazon FBA might not be the best option for everyone.
According to a Reddit post, the Amazon marketplace is packed with low-quality products from people trying to make quick money through dropshipping. The Reddit user explains that anyone can create an LLC and start selling on Amazon, so many sellers buy cheap items from sites like Alibaba or Temu and try to resell them. Business gurus often promote dropshipping as an easy way to get rich, which leads to more people joining in. Amazon benefits by taking a cut of each sale, so they don’t stop these sellers. However, it makes it harder for buyers to find good products since the marketplace is full of cheap, low-quality items.
2. Chinese Sellers Have Taken Over Amazon
Since the mid-2010s, Amazon has aggressively recruited sellers in China. They’ve made it easy for Chinese sellers by providing support in their language, creating a Chinese version of Seller Central, and even offering shipping services directly to Amazon warehouses.
Because of this, about 63% of all third-party sellers on Amazon are based in China. Chinese sellers also represent nearly half of the top 10,000 sellers in the U.S. marketplace. This overwhelming presence makes it harder for other sellers, especially those trying to act as middlemen between manufacturers and customers, to stay competitive.
With such strong competition, especially on price, it’s difficult for U.S. sellers to make a profit. The lower costs for Chinese sellers give them an edge in many product categories, leaving little room for others to succeed. This is a key reason why Amazon FBA may not be as profitable as it once was.
Chinese sellers have many advantages over domestic third-party sellers, including:
- Better access to the Chinese manufacturing system and connections throughout it
- The ability to quickly inflate their product listing with positive reviews while filling competitor listings with negative reviews, called review bombing, by working with other Chinese sellers and creating fake accounts.
- The advantage of bypassing US taxation while US sellers must report everything over $600
- Access to stolen proprietary platform data from China-based Amazon employees from services like ASINSpy, a Chinese-only ASIN report generator
In a video from The Amazon Files, Kristen Ostrander explains how Chinese sellers are becoming a big force on Amazon. Many Chinese manufacturers have learned how to use Amazon’s FBA (Fulfillment by Amazon) program to sell directly to U.S. customers. This has led to more competition, especially for generic, everyday products. These sellers often offer lower prices because they can manufacture goods cheaply and ship them at a lower cost. This makes it harder for small U.S. sellers to compete, especially in crowded categories like phone accessories, electronics, and household items. As a result, many sellers are struggling to stand out and make a profit.
Even though it’s not impossible to succeed on Amazon, Kristen says that sellers need to be smart about choosing the right products and avoiding direct competition with these large sellers.
3. Amazon Has a History of Corruption
Amazon has a history of unfair practices that make some people see it as corrupt. One major issue is how Amazon sells its own products alongside third-party sellers but doesn’t always play fair. Amazon has been using data from third-party sellers to figure out what products it can create and compete with, according to a Wall Street Journal investigation. The report found that some Amazon executives got around company rules to access data from individual sellers and identify top-selling items. This practice, called "going over the fence," has raised concerns about Amazon's business tactics.
Amazon says its policy bans the use of private seller data for launching its own products. However, the company is now looking into these claims with an internal investigation. Amazon argues that its private-label strategy, like AmazonBasics, is based on customer trends, industry patterns, and suggestions from manufacturers, just like other big retailers. But the Journal's findings go against Amazon’s earlier statements that it doesn’t use this data to compete with third-party sellers.
Many sellers have criticized AmazonBasics, saying it gives the company an unfair edge by promoting its own products on their listings. This issue has also drawn the attention of regulators, leading to investigations by the Federal Trade Commission and the Department of Justice over Amazon’s business practices.
On top of that, a report by The Markup revealed that Amazon often gives its own brands better placement in search results, even when other sellers have more reviews or higher sales. This means Amazon not only copies successful third-party sellers but also gives its products an unfair advantage by ranking them higher in search results. These practices show why Amazon FBA can be a bad idea for sellers, as they have to compete with a platform that promotes its own products over theirs.
4. Your Amazon Product Inventory Will Be Mismanaged
Amazon FBA is the risk of inventory mismanagement refers to the common issue where Amazon's fulfillment centers mishandle or lose inventory sent by sellers using the FBA program. When sellers send their products to these centers, they expect accurate tracking and management, but this isn't always the case. Lost or miscounted inventory can lead to customers buying items that aren’t in stock, hurting sales and rankings.
Amazon offers a process to report missing items, but it can take up to 60 days to resolve, and many sellers find it difficult to get compensation as Amazon often resists refund requests. This makes inventory mismanagement a serious concern for anyone using Amazon FBA.
A Reddit user shared their frustration after Amazon lost a high-ticket clothing shipment worth nearly $20,000. Despite providing all necessary proof, including invoices and delivery confirmation, Amazon repeatedly claimed they never received the inventory.
The seller pointed out that the shipment may have gone to the wrong fulfillment center, but Amazon ignored this detail and kept sending the same stock response. After a month of trying to resolve the issue, the seller was still waiting for a refund, highlighting the difficulties small businesses face when dealing with lost inventory through Amazon FBA.
For example, Amazon seller and YouTuber with over 151K subscribers, Marketing Food Online, experienced just this. After sending his product inventory into Amazon, he realized Amazon had miscalculated his inventory levels by nearly double. This can be a major issue because buyers may try to buy products from you that aren't actually available, which could negatively affect your Amazon ranking and sales.
5. You Can Get Punished Because of Another Seller's Bad Product
You can be penalized for another seller's poor-quality product on Amazon FBA. When Amazon stores identical products from different sellers in the same warehouse, your items can be mixed with others, including counterfeit or defective goods.
If a customer receives a bad product and leaves a negative review, all sellers sharing that listing may be blamed, even if your product is high-quality. This unfairly damages your reputation and can lead to lost sales or account issues, even though the problem wasn't caused by you.
According to a Redditor, they reordered their usual sunscreen, assuming it would come from the same trusted seller. Instead, it arrived from a new seller and turned out to be counterfeit, causing chemical burns to their face. When they reported it to Amazon, the platform refused to help and told them to contact the seller directly.
The seller ignored their messages, leaving the buyer with no solution, despite providing medical evidence. This situation shows how you can suffer due to another seller's bad product on Amazon, even if you did nothing wrong.
6. Amazon Takes a Major Cut of Your Sales
Amazon takes a big cut of your sales, which can hurt your profits. Over time, Amazon's fees have increased, and they now take an average of 50% of each sale for sellers who use their platform for selling, fulfillment, and advertising.
Amazon FBA sellers need to be aware of several key fees that can impact their profitability. Here's a summary of the main Amazon FBA fees to watch out for:
Referral Fees
Referral fees are Amazon's commission for selling on their platform. These fees typically range from 8% to 15% of the product's selling price, with most categories falling around 15%. Some specialized categories may have different rates, and there's usually a minimum referral fee of $0.30 per item.
FBA Fulfillment Fees
FBA fulfillment fees cover the cost of picking, packing, and shipping your products to customers. These fees are calculated based on the size and weight of your items3. As of 2024, Amazon has introduced more granular rate cards for standard-sized products and new size tiers for large and extra-large items. Fees can range from as low as $2.50 for small items to over $100 for oversized products.
Storage Fees
Additional Fees to Consider
- Long-term storage fees: Applied to items stored for more than 365 days.
- Unplanned services fees: Charged for items not complying with Amazon's preparation requirements ($0.20 to $2.00 per item).
- Labeling fees: If Amazon needs to apply barcode labels ($0.55 per item).
- Manual processing fees: For shipments without proper content information ($0.15 to $0.30 per item).
- Removal and disposal fees: Charged when you want to remove or dispose of inventory from Amazon's warehouses.
- Returns processing fees: Applied when customers return products4
To manage these fees, sellers should regularly check and optimize their inventory to avoid extra storage costs. They need to follow Amazon's rules for labeling and packaging to prevent penalties. Using Amazon's fee calculator helps estimate costs more accurately. It's also smart to choose products carefully by considering their size, weight, and category to keep fulfillment fees low.
A report from Fox Business shows that Amazon takes a big chunk of sales from small businesses, with the current cut being 51.8%. This covers things like commissions, storage, delivery, and advertising. Sellers feel the pressure because Amazon takes more than half of their sales. However, many feel they have no choice but to sell on Amazon since the platform controls 40% of all online sales in the U.S. This makes it hard for small businesses to make a good profit, but they need to be where the customers are.
7. You Will Have More Refunds
As an Amazon FBA seller, you will face more refunds due to Amazon's customer-friendly return policy. You have no control over returns, and Amazon allows customers to return products within 30 days, often extending this period.
This can result in more refunds and added costs that reduces your profit margin.
A Reddit post shows how frustrating it can be for Amazon sellers to deal with refunds. The seller explains that paying for return labels adds up, especially when the product is perfectly fine. The real problem is customers lying about why they’re returning the item, saying it didn’t work even though they never opened the box.
The seller wishes customers would just be honest and admit they made a mistake or didn’t want the product. This makes handling refunds on Amazon a real struggle for sellers.
8. Amazon Can Remove Your Listings in an Instant
Amazon can remove your product listing at any moment, which can stop your sales instantly. Even if your inventory is already stored in their warehouse, you still have no control. If a competitor files a complaint, whether valid or not, Amazon can act on it without notifying you first. This can result in the immediate removal of your listing, cutting off your income source.
For example, Dan Rodgers, a seller on Amazon, had $70,000 worth of inventory, half of which was stored at Amazon’s warehouse. His product listing was removed after a larger company filed a complaint, claiming his product used their mark. Amazon removed the listing without contacting him to verify the complaint. Dan lost his sales, high organic ranking, and over 400 customer reviews, all because of an unproven claim. This shows how easily Amazon can disrupt your business.
9. Amazon Can Suspend or Ban Your Seller Account
Amazon has the authority to suspend or ban your seller account, which can instantly end your ability to do business on the platform. This means that your entire income stream can be cut off without warning. Amazon enforces strict rules, and violating any of them can result in a suspension or permanent ban.
Some reasons for Amazon account suspension include:
In a YouTube interview, Avery "Roamer the Roamer" shared how his Amazon business went from making $90,000 a month to being shut down. His account was suspended because Amazon linked multiple accounts together, which is against their rules. Avery also unknowingly sold counterfeit textbooks, which contributed to the suspension.
He explained how Amazon’s strict rules can result in sudden account shutdowns. It even affecting accounts linked by shared permissions. Avery shared his frustration with not getting clear reasons for the suspension and warned other sellers to follow Amazon's rules carefully and be cautious with account access to avoid similar issues.
10. Amazon FBA Take Years to Build a Stable Business
Building a stable Amazon FBA business that generates reliable income takes time, usually around two years. While some sellers make quick money with retail or online arbitrage, these methods aren't great for long-term success. Profit margins are small, usually between 10% to 20%, and you're not building value through your own product listing.
The best way to create a lasting Amazon business is by investing in private label products or doing Amazon wholesale. These approaches have better profit margins, typically between 20% to 40%, but they also require a larger upfront investment of $10,000 to $20,000 for bulk inventory. To establish stability, you should aim to have at least five products generating sales. This ensures your business can still bring in income if a competitor takes your market share or if Amazon removes one of your listings.
Starting with one product and reinvesting your profits can help you reach five products in a few years. However, many people need to make money sooner, especially after making a significant investment and committing hours to their business each week. This long timeline is one reason why Amazon FBA may not be ideal for those seeking quicker results or immediate income.
Steve Chou from the MyWifeQuitHerJob Ecommerce Channel explains that building a stable Amazon FBA business usually takes about two years. While quick profits can be made with retail or online arbitrage, these methods offer low profit margins (10% to 20%) and don’t help with long-term success or product ranking. Steve Chou suggests that a better way to build a reliable business is by investing in private label products or wholesale, which offer higher profit margins of 20% to 40%.
However, this requires a bigger upfront investment, usually between $10,000 and $20,000 for bulk inventory. Chou reveals that having at least five products generating steady sales is key to long-term stability. This protects the business from issues like competition or Amazon removing a listing.
11. There Is a Good Chance You Will Lose Money With Amazon FBA
According to the State of the Amazon Seller report by JungleScout, 12% of sellers who have been on the platform for two years or more are not profitable. Additionally, SellerApp reports that 24% of Amazon sellers quit before ever turning a profit.
Launching a successful product on your first try is rare. Most sellers will need to spend money on multiple product launches before finding a profitable one. If you don’t have enough startup capital or patience to wait for profits, you might end up losing money, like many other Amazon FBA sellers.
A Reddit post shows how easy it can be to lose money with Amazon FBA. The user started with high hopes of making extra income but quickly realized the competition is much tougher than expected. They mentioned that FBA fees were lower and there was less competition from Chinese manufacturers back in 2017, making it easier to succeed.
After two months of selling, the user found that all their earnings were being spent on Amazon ads, leaving them with a negative balance. In their first "payment," they owed Amazon $1,000, then $500 in the second, and $100 in the third—losing money each time. This highlights how challenging it can be to make a profit with Amazon FBA today.
Is Selling on Amazon FBA Still Worth It?
Yes, selling on Amazon FBA is still worth it if you want to make money with eCommerce and use Amazon as your sales platform. FBA lets Amazon handle storage, shipping, and customer service for your products. While the fees can be high, Amazon’s bulk shipping deals often make it cheaper than handling everything yourself. FBA also helps boost sales—Amazon reports that FBA sellers make 20% to 25% more sales than those who fulfill their own orders.
Some other reasons Amazon FBA is still worth it are:
Is Amazon FBA still profitable in 2024?
Amazon FBA is still profitable for many sellers in 2024, but it’s becoming less appealing due to rising costs. Amazon is increasing FBA fees, which cuts into profit margins. Even small fee hikes, like $0.15 per unit sold, can reduce profits. For example, if you sell a $20 product with a 20% profit margin, this small fee increase can drop your profit margin by 3.75%. In addition to fees, Amazon PPC (pay-per-click) advertising costs are also going up. Between 2020 and 2023, the cost-per-click rose by over 51%, which further eats into profits. This means sellers are paying more to get their products in front of customers.
On top of that, international shipping costs have also hit record highs, making it more expensive for sellers who source products from abroad. This reduces profitability, especially for small businesses trying to compete. Although some sellers still make good money, many are finding it harder to stay profitable. Shrinking profit margins and rising costs make Amazon FBA less attractive, especially for beginners or those with tight margins.
Conclusion: Why Local Lead Generation Is A Good Idea Than Amazon FBA?
Local lead generation is a better idea than Amazon FBA because it requires less upfront investment and offers quicker profit potential. With local lead generation, you create websites that attract leads for local businesses, earning passive income without having to manage inventory, shipping, or customer service. Unlike Amazon FBA, which requires significant startup capital and has many ongoing costs, local lead generation can be started with a much smaller investment. Once a website is built and ranked, it can generate consistent income with little maintenance.
Another advantage of local lead generation is its higher profit potential and quicker returns. While Amazon FBA businesses can take months or even years to become profitable due to fees, advertising costs, and shipping expenses, a single lead generation website can start bringing in profits within 6 weeks to 6 months. In some cases, these websites can earn up to $3,000 per month, depending on the niche and location. This kind of passive income model allows for greater flexibility and freedom compared to the day-to-day operations of running an Amazon FBA business.
If you’re looking for a low-risk, high-reward business model, local lead generation is a smarter choice. You can start earning passive income faster and with fewer headaches compared to Amazon
