Does Amazon FBA work? BEST Products to Sell and Why

It’s only right for new sellers to ask the obvious question, does Amazon FBA work?

Yes, Amazon FBA does work. Amazon’s fulfilment network enables the retail giant to dominate global commerce. It does this by leveraging large distribution centres that house and ship third-party seller’s inventory for them. This optimises the transaction process benefitting buyers and sellers alike.

What is Amazon FBA (Fulfilment by Amazon)?

Fulfilment by Amazon is a service that allows us sellers to leverage their fulfilment network for a fee. This includes warehousing your inventory, handling payments, packing, shipping, returns and more.

In short, this means you don’t have to clear out your garage, individually pack items before driving to the post office to send them. It means you can effectively run a physical products business from anywhere in the world with just a computer. A ground-breaking and attractive prospect, right?

It certainly is, and it’s the reason why I chose to start using the service a few years ago for my own businesses. It allows ANYONE to become an ecommerce retailer and sell products globally.

Fundamentally, you add your product to the Amazon website, and they do the rest – just collect your profits every two weeks. It’s slightly more involved than that but that’s the general idea.

Here’s a much more succinct explanation by Amazon themselves:

The Amazon FBA process

As a long-term seller, this is how the Amazon FBA process works for me:

1. Research product ideas.
2. Source products from manufacturer.
3. Manufacturer packages and labels products.
4. Manufacturer ships products to me for inspection.
5. Amazon UPS service collects products and takes them to FBA warehouses.
6. Amazon checks in products making them available to buy online.
7. Customer buys product online.
8. Amazon handles payment and ships product to customer.
9. Amazon pays me the profit after taking their fees.

Note: I have the products shipped to me personally for my inspection. I like doing this to get a real feel for the product, I want to guarantee that I sell high-quality goods, consistently. Once happy with the supplier and product, an inspection company can be used to do this for you.

Consequently, this enables the product to be inspected at the factory and shipped directly to Amazon. Thus, eliminating any physical interaction with the products and making it completely ‘hands-off’.

Great we like hands-off, but how much does this privilege cost sellers…

Amazon FBA fees UK – how much do they take?

Unsurprisingly, it’s not amazingly cheap to leverage one of the world’s largest fulfilment networks. But it does allow someone who hasn’t got the time to package, store and ship their own orders the chance to sell globally – a fair trade off.

The two main fees to be aware of are storage fees and fulfilment fees.

Amazon FBA Storage fees

The fee structure is very similar depending on which marketplace you operate in. My main thrust is the UK marketplace so will be discussing that below.

Just like a normal rented warehouse, Amazon charge a monthly fee to utilise their real estate and store your inventory. The cost used to be cheaper than 3PL companies however, the cost is now similar.

The storage fee is based on the daily average volume in cubic feet per month and varies between low season (January to September) and high season (October to December).

The cost per cubic foot per month:

Basically, the more space you use the more you pay. Consequently, it’s cheaper to store smaller items than larger items.

This is quite an important gotcha to pay attention to.

Items that are large enough to fall into the ‘oversized’ bracket will cost considerably more to store. Make sure to measure your products to avoid getting stung with any unexpected storage costs.

Additionally, while the fee structure is continually changing, be aware that long-term storage fees exist. Items that have been on the shelves at the warehouse for longer than 12 months will incur long term storage fees. To avoid this, you should send in 2-3 months’ worth of inventory only.

However, FBA storage fees are quite manageable for the most part. Now the fulfilment fee.

Amazon FBA fulfilment fees

These are only charged when a product is sold. No money up front is required, the fee just gets deducted from the sale price.

The fulfilment fee is a flat fee that you pay per unit, based on the product type, its dimensions and its weight.

I highly recommend using Amazon’s FBA Revenue Calculator to work out how much you will be coughing up for their service. If your product is not yet for sale, use a similar product to get a decent estimation. Here’s a screenshot to show how it works but have a play around with it yourself.

Alternatively, as a rough guide, use Amazon’s fulfilment fee calculator (screenshot below) to get an estimation of the cost.

The fulfilment fees can make or break your business. Make sure to thoroughly know your costs before committing to a product.

If your products are small and inexpensive, the FBA small and light solution can get smaller products selling profitably if they are priced under £9.

So, does that make smaller items the best thing to sell on Amazon?

Best types of products to sell on Amazon

There is no ‘best’ product to sell on Amazon however, there are types of product that will lend themselves to FBA more than others. Here’s a few considerations to get you on the right tracks:

• Think small – I don’t like to retail anything larger than a rucksack or shoebox for example. If you sell kitchen tables clearly this won’t apply to you, but thinking smaller rather than larger will save you shipping fees, storage fees and fulfilment fees.
• Think cheap – Inexpensive products will cost you less in returns than more expensive orders. Amazon is the king of customer service and easy returns – you will get a lot and there is little you can do about it.
• Keep it simple – Products with no moving parts are less likely to be faulty or get damaged quite as easily. The less there is to go wrong, the less that will go wrong, trust me.
• Electrical items – I don’t like to sell anything that uses mains electricity. My reasoning being that electrical products always run the risk of malfunctioning and even pose a fire risk. Being sued or responsible for injury is not on my bucket list!
• Choking hazards – I won’t sell anything that is designed for babies or very small children. While it’s difficult to stop a baby from eating the wrong thing, I’ll try my very best to avoid being associated with this minefield by staying away from products designed for babies.

Is Amazon FBA dead?

Amazon FBA is not dead however, the low hanging fruit of reselling Alibaba items for a mark-up and basking in financial glory has become much more difficult. Increased competition and the influx if Chinese sellers on the platform has prompted strategy change. In order to leverage Amazon FBA effectively, you must offer a unique or better product to the consumer, just like any business must to thrive.

Additionally, Amazon FBA must be used as a fulfilment and distribution channel, as part of a multi-faceted brand – not a one product pony.

However, this does not necessarily require huge start-up capital and working 12 hours a day to achieve. You just have to apply a bit more thought to the process with a clear plan of attack. If you want some guidance, have a read of Dom’s Brand Blueprint here.

Benefits of Amazon FBA

There are loads of benefits to using FBA but here are some of the important ones:

• Customers love Prime – All products that are sold using Amazon FBA earn themselves the Prime badge, meaning customers get Amazon’s famous 1-2 day shipping times. Amazon favours Prime eligible products which makes winning the buy box easier. For this reason, choosing to sell on Amazon without using FBA is an unwise choice at present.
• Returns and customer service – Some of the biggest drains to any physical products business are the handling of returns and customer service. Having the returns dealt with and large majority of customer service swept up means you can focus on the creative and money-making elements of your business. If you have a small business you can manage replying to the odd customer email however, for a more management consider hiring a Virtual Assistant (VA) to take care of everything for you from somewhere like fiverr.
• Work from anywhere – The biggest draw to using Amazon FBA is definitely the passive nature of business that it allows. Once up and running it can be truly hands off if you want it to be. This unfortunately attracts a lot of the ‘passive income’ hype and ‘gurus’, but there is an underlying truth to the ridiculous claims that find themselves sprawled across YouTube etc.

Disadvantages of Amazon FBA

While the pros definitely outweigh the cons, here are some negative to be aware of:

• Amazon owns you – By this I refer to how your business must run exactly in accordance with how Amazon want it to, adhering to all their ever-changing standards and requirements. For example, if your item gets a higher than average return rate it will be suspended or withdrawn from the market. You might sign in one day and your seller account could be banned, for a seemingly minor issue which totally derails your whole business. You must diversify to avoid this and use Amazon FBA as just one of the sales channels for your brands.

• Listing hijackers – Be prepared for some foul play from competitors when your products really start to fly off the shelves. People will do everything they can do leech off your success and attempt to steal your customer base. Commonly, this is done by selling a similar product on your listing and undercutting you on price attempting to steal the buy box. Consequently, innocent customers unknowingly purchase and get sent the hijacker’s item and not yours! If you are having problems with hijackers, take a look at my guide on getting rid of them once and for all: The BEST Way to Remove and Deter Hijackers from your Amazon Listing

• Long term storage fees (LTSF) – Amazon charge you a penalty for keeping their warehouses full for long periods. The 6-month LTSF has recently been abolished however, the 12-month fee still exists. Make sure to only send in enough inventory for 2-3 months. Bear in mind, if you send in too much and it doesn’t sell, there is also a pretty pricey removal fee to have it sent back to you or destroyed.

Amazon FBA UK tax implications

For UK based sellers selling on Amazon.co.uk, tax can be handled completely independently of Amazon. Like any physical shop on the high street. Sellers must complete an annual tax return whether operating as an individual, sole trader or limited company. Tax is then paid as a percentage of your profits. The tax rate will vary of course based on a multitude of factors. I suggest using a tax professional to ensure you have everything under control.

Additionally, although not essential, I use JungleScout’s Fetcher accounting software to bookkeep automatically for me. If this may interest, you check out my write up about it here: Why you should be using Fetcher for Amazon FBA (Review)

Amazon FBA US sales tax implications

For anyone that sells on Amazon.com, US sales tax is slightly more complicated. US Corporations and partnerships file annual accounts and pay federal tax on their profits to the IRS.

The amount you are required to pay will vary depending on the location of stock (likely spread across multiple fulfilment centres) and the location of sale. This poses the problem of remaining sales tax compliant and keeping tabs on which states your inventory is being sold in.

Again, I suggest using a tax professional to ensure you have everything under control.

Parting thoughts

Conclusively, whether Amazon FBA works for you will be dependent on your requirements and awareness of how the system works, of which I hope you are now more conversant.

Just getting started with Amazon FBA? Head here now: How to Start an Amazon FBA Business 6 Step Guide

Amazon FBA works and will continue to work if you treat it like a real business. Remember:

• Keep your products simple and relatively inexpensive to minimise returns and thus minimise negatively affecting your profit margin.
• Use FBA as just one part of your business, diversify with other sales channels where possible.
• Don’t be tempted to use black-hat or grey-hat tactics to game the system. Amazon is known for being ruthless towards sellers and can ban you for good without warning. Stick to the rules!

Take care,