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Complete Guide to Amazon FBA: Minimize Fees & Avoid Pitfalls!

Amazon FBA isn’t as easy as it’s often made out to be.

Yes, it takes care of order fulfillment, allowing you to focus on selling products. 

But, you pay lots of FBA fees and face stiff competition. Hence, many sellers wonder if it’s worth getting into at all.

Long story short, Fulfillment by Amazon is still worthwhile. However, lots of newbies go about it the wrong way. In this article, I’ll explain how Amazon FBA works and the fees involved, exposing common pitfalls for new sellers.

Key Takeaways

  • Amazon FBA entails Amazon taking care of order fulfillment while the seller focuses on providing excellent products.
  • FBA sellers pay several fees, including referral, fulfillment, and inventory fees.
  • Third-party apps like Helium 10 and Jungle Scout allow for better product research and increase the likelihood of success.

How Does Amazon FBA Work?

As the name implies, Fulfillment by Amazon (FBA) is an e-commerce selling model in which Amazon handles all order fulfillment. This involves every step, from storing your products to packing them and shipping them to customers.

All you do is send your goods to an Amazon fulfillment center. From there, Amazon receives orders for your products and packages them for shipping to your customers. 

It’s so hands-on that Amazon also processes returns!

In conclusion, Fulfillment by Amazon frees you from worrying about getting products to your customers. It also allows you to offer services that make Amazon so popular – free shipping, Amazon Prime, and free returns.

What Are the Requirements for Starting Amazon FBA?

Becoming eligible for FBA is a straightforward process. To become an FBA seller, you need to set up these essential things.

Amazon Seller Account

First, you must create an Amazon seller account and enroll as an FBA seller.

If you don’t plan on selling many units at first, start with the Individual account, which is eligible for FBA and only charges $0.99 per sale. However, the Professional account, which costs $39.99 monthly, offers additional perks like the Buy Box, access to otherwise restricted products, and dynamic pricing.

FBA Eligible Products

Ensure you sell products in categories that FBA can fulfill and set the product listings to FBA. When the time comes, you must package your products according to Amazon’s FBA policy and place barcodes on them.

Get Suppliers

The next step is to partner with a supplier to manufacture your products

You can find suppliers on popular marketplaces like Alibaba or through tools like Jungle Scout’s Supplier Database.

Relevant Software Tools

These aren’t compulsory, but they offer a lot of functionality. For instance, they allow you to conduct better research (product, keyword, market, competitor, etc.) and access data that Amazon doesn’t directly provide.

Features you enjoy with applications such as Helium 10 include sales estimations, product and keyword research, inventory management and prediction, market tracking, listing optimization, PPC management, and more.

How Much Money Do You Need to Start Amazon FBA?

You need just enough money to create a Seller account, order the first product batch, and pay for storage at Amazon warehouses. Other selling costs are removed after customers have bought from you and will only be charged to your credit card if the money in your Seller account is insufficient.

Here’s a breakdown of everything that may cost you money while starting as an Amazon FBA seller.

Item Cost Purpose
Amazon Seller Account (Pro) $39.99/ month To sell products directly to customers using Amazon’s platform
Manufacturing and Packaging Costs Variable To manufacture and package products according to Amazon FBA’s standards
Shipping costs Variable, depends on shipment size. Most report around $500 To ship inventory to Amazon warehouses
Business Creation Costs Variable, depends on the business location To officially register the business as an LLC or DBA (not compulsory, but very important)
Barcodes $250 for 10 barcodes To purchase UPC and FNSKU, barcodes are to be put on your Amazon packages
Amazon FBA fees Variable Fulfillment and Inventory fees are charged after sales
Product pictures Variable To get professional product pictures to add to your Amazon listings
Third-party software fees Variable Monthly or annual subscription fees for third-party tools like Helium 10 and Jungle Scout

While some sellers begin their Amazon FBA careers with under $1000, spending above $5000 to launch an FBA business is typical.

Thankfully, FBA beginners can use the Zoof Spotlight tool to find the best products in any niche that fits within their budget. Simply feed the tool your budget, choose Amazon product categories you’re interested in, and let it load up options.

Alternatively, you can follow Helium 10’s Project $5K case study after signing up (get sign-up discounts here) to learn how to use its tools to turn a decent profit while starting with smaller capital.

How Do I Earn From Amazon FBA?

FBA sellers earn after Amazon deducts fees from a purchase. Likewise, there’s no minimum payout, and FBA sellers are paid every 14 days for orders delivered seven days prior.

For instance, if a customer makes a purchase on the 2nd of a month and it gets delivered on the 5th, the payment becomes available for disbursement on the 12th, seven days later. 

Sometimes, Amazon holds back some funds in reserve to deal with issues like refunds and cashback.

To collect your earnings, you must add an ACH-enabled checking bank account

After disbursement, you receive the funds within 3 to 5 business days.

How to Navigate Amazon FBA Fees?

Here are all significant Amazon FBA fees, plus how to minimize your payments to maximize business revenue:

Referral Fees

Amazon FBA referral fees are commissions you pay to sell on the platform, which are charged for every sale you make. Referral fees range from 5% to 22%, reaching as high as 45%.

The table below shows select referral fees for some product categories selling on Amazon.

Product Category Referral Fee
Automotive and Powersports 12%
Beauty, Health, and Personal Care 8% to 15%
Footwear 15%
Furniture 10% to 15%
Home and Kitchen 15%

FBA Fulfillment Fees

FBA fees cover packaging, shipping, handling, customer service, and returns. 

These fees are fixed values based on the size and weight of your product. Likewise, they usually range from $2.5 to $7.25.

The best part of these fees is that they’re only deducted after sales. So, you won’t be paying out-of-pocket, only from the revenue realized.

Refund Administration Fee

You may have to refund a customer if they return a product. Of course, such returns must go through Amazon’s comprehensive return system before they’re deemed eligible for a refund.

Once you’ve paid a refund, though, Amazon will also refund your referral fee. 

However, that’s not before the e-commerce giant charges an administration fee of $5 or 20% of the referral fee, whichever is less.

Inventory Storage Fees

Remember that FBA sellers have to send their stock to Amazon warehouses for easier and quicker fulfillment? Hence, you’ll pay Amazon for inventory storage – $0.78 per cubic foot for standard-size products and an additional $0.56 per cubic foot oversize on off-peak months.

For peak months (October to December), the fee jumps to $2.40 per cubic foot for standard-sized products and $1.40 for every additional cubic foot taken by oversized products.

Other Fees

Besides the significant fees mentioned above, you may sometimes pay extra fees.

For example, there’s an inbound placement service fee for distributing your goods to several warehouses and a low inventory-level fee for keeping relatively low stock compared to sales.

Additionally, you can pay Amazon to make labels for your products, ensuring better customization and improving your brand image with customers.

How to Save on Amazon Fees?

How can you minimize Amazon’s seller fees to increase your net profit without cutting corners? Below are several ways to do so.

Enroll in the SIPP Program

Amazon Ship In Product Packaging (SIPP) allows you to ship your packaged product from the warehouse without having Amazon repackage it with its material. That reduces the fulfillment costs, specifically the ones incurred by having Amazon use its in-house packaging for your products.

This saves $0.04 to $1.32 per order, quickly adding up over multiple orders.

Low-Price FBA Program

To automatically qualify for the low-price FBA program, a product must be priced at $10 or less. The benefit is reduced fulfillment fees.

However, this won’t work for sellers of large equipment, household furniture, or other Amazon categories where such low prices are impossible.

Ship to Only One Fulfillment Center

Opt out of shipping to several fulfillment centers to minimize the amount you pay for shipping and the FBA inbound placement service fee.

The best way to optimize for this is to get the data on where most of your customers come from. Then, ship to an Amazon warehouse near them.

That way, you minimize the associated costs while ensuring quick order deliveries.

Keep Enough Stock to Avoid Low Inventory-Level Fees

Amazon started charging low inventory-level fees to sellers who keep their stock relatively low compared to the unit sales. You can avoid this by constantly restocking and ensuring your inventory can last at least one month.

Even so, there’s an issue of overstocking a product, which can result in paying more for Amazon storage fees. That’s where helpful tools like Helium 10’s Inventory Manager can help you predict optimal stock levels.

Note:

This is primarily applicable to Amazon US sellers

Estimate Fees Beforehand

Thankfully, tools like Helium 10’s FBA calculator can help estimate both FBA and FBM fees on products before you start selling them.

You can even play around with different product dimensions and metrics to see how your potential payable Amazon fees will change.

Pros and Drawbacks of Amazon FBA

FBA remains one of the better opportunities for e-commerce sellers to make a decent income. However, it’s also essential to consider the competition and effort it entails to stand out.

In light of that, I’ve reviewed the pros of this program and balanced it against its cons to prepare you better.

Amazon FBA Pros

  • Handles order fulfillment chain: Fulfillment by Amazon allows you to focus on finding and marketing great products. FBA handles all the logistics, including inventory storage, packaging, shipping, and customer service.
  • Manages customer service and refunds: Amazon’s employees provide customer service. They process customer issues and only notify you when needed.
  • Ship products via Amazon Prime: With Amazon FBA, you can offer one-day or two-day Prime shipping. That’s a sure way to keep customers happy without launching your logistics network.
  • Multi-channel listing fulfillment: Besides selling directly on Amazon, you can ship products listed on your website through FBA.
  • Global selling: Amazon FBA allows you to access the global community and serve international customers. For instance, you can add Seller Central accounts to sell on Amazon US, UK, Canada, or any of the 20+ marketplaces covered.

FBA Drawbacks

  • Lots of fees: Amazon FBA is notorious for charging sellers many fees. Aside from the obvious fulfillment, referral, and storage fees, Amazon may charge you extras like low inventory fees.
  • Delayed payments: Amazon disburses payment every 2 weeks for orders delivered 7 days prior. This usually keeps funds in the system within the refund cycle, but it also means less capital and revenue are available to the seller on time.
  • Product mishandling: Sometimes, your product gets mishandled by Amazon employees, leading to higher return rates. In most cases, there might not be any way to prove that the fault isn’t from you, and multiple returns damage your brand’s reputation.

6 Mistakes to Avoid Early in Your Amazon FBA Career

When you first start Amazon FBA, it’s easy to make errors that may cause you to lose money or even get banned from selling on Amazon. Even though mistakes are to be expected, here’s how to minimize them to avoid unnecessary loss.

Not Picking the Right Product

You need to pick a product in demand with little competition. It’s also better if it’s in an ungated Amazon category.

Furthermore, when you find a good product, don’t just copy a competitor and put your private label on it. That’s an easy way to get banned on Amazon. Instead, add something new to make it unique.

Pro Tip:

Use tools like Zoof’s Amazon Spotlight to find the right products for any budget, or try Helium 10’s Black Box to discover unique selling opportunities.

Not Protecting Your Business

One of the significant complaints FBA sellers have is that other people undercut them to sell similar products. That’s why getting a trademark that allows you to sue copycats is essential.

You should also demand wholesale invoices and a Declaration of Conformity (if you intend to sell in EU marketplaces). Wholesale invoices show that you own the private label you’re selling, and a Declaration of Conformity shows that you comply with EU regulations.

Ordering Too Much Inventory at First

Always contact several suppliers for any product idea and order samples first. 

This allows you to test the products, send feedback, and ensure they’re made according to design.

Afterward, don’t order too much inventory for your first batch. After all, who’s to say all the feedback has been implemented or that you didn’t miss something in the first batch?

Once the product begins to sell and you have customer review data to build on, you can order more stock. Otherwise, it’s time to change your supplier or the product idea.

Getting Fake Product Reviews

It’s challenging to sell Amazon products with no reviews, even with PPC getting you to the first page of search results. Buyers require social proof, yet Amazon is against soliciting reviews.

So, what should you do? You can ask a few friends and family to buy some products and leave honest reviews. You can even promote your products on platforms like Twitter or an email list to drive initial sales and get those crucial reviews.

Quitting Too Early

It’s expected that the first few months won’t be highly profitable. Yet, some new sellers look for quick wins and drop out a few months later. You have to stick around to succeed.

Not Having a Great Product Launch Strategy

As a new Amazon seller, you should launch your products in a way that sets you apart from competitors and puts you in front of customers.

A good product launch includes an effective PPC strategy, which BidX can help you with, plus promotions. You should also immediately optimize your product listings for higher organic ranking.

Note:

If English isn’t your first language as an Amazon US Seller, or you want to expand to international marketplaces, you can use one of our best AI-assisted Amazon listing builders to create SEO-optimized, ready-to-publish listings in no time.

Amazon FBA vs. FBM vs. Seller Fulfilled Prime – Differences

FBA isn’t the only fulfillment method for selling on Amazon. For instance, you can use the Fulfilled by Merchant (FBM) route to pack and ship orders personally rather than send them via Amazon. Another option is Seller Fulfilled Prime (SFP), which allows you to deliver directly to Amazon Prime customers from your own warehouse while still fulfilling Amazon’s Prime delivery promises.

Here’s how the other options differ from Fulfillment by Amazon.

 Fulfillment Method How It Works Seller Fees Fulfilled By
FBA Amazon fulfills orders on products stocked by sellers Referral fees, Fulfillment fees, Inventory fees, Refund processing fees Amazon
FBM Seller stocks products and fulfills orders via Amazon Referral fees Seller
SFP FBM strategy, but with the seller agreeing to fulfill products under Prime conditions Referral fees Seller

Do You Need Software Tools to Win at Amazon FBA?

Yes, Amazon FBA sellers need third-party software to succeed at Amazon FBA

Tools like Helium 10 are crucial for in-depth product, keyword, competitor, and market research, especially as Amazon won’t directly provide such data.

That’s not all you can do with robust Amazon seller software. I’ve tabled some of the top options I use and what they do below.

Tool Best Used For? Target Sellers Discount
Helium 10 Product and Keyword Research Beginners and Experts Get 20% OFF
Jungle Scout (Optional to Helium 10) Sales Estimation and Analytics Beginners and Experts Save 35%
BidX PPC Ad Automation Beginners, Intermediates, and Experts Try for Free
Profit Protector Pro Repricing Intermediates and Experts Try for Free
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Frequently Asked Questions (FAQs)

Yes, Amazon FBA is worth exploring because it allows you to build a sustainable business without dealing with logistics. You can start with relatively low capital and grow a successful brand once you’ve identified the right products.

Yes, Amazon FBA is profitable if you pick the right product and make the right decisions. However, FBA is not a get-rich-quick scheme, and it typically takes some months before sellers begin making serious money.

Launch a Profitable Amazon Business With FBA Today

Amazon FBA allows you to focus entirely on offering your customers outstanding products.

While it can drown sellers in fees and may seem oversaturated sometimes, it’s still a valid way to build an Amazon business. You just have to take the right steps and be prepared to be in it for the long run.

Also, running your Amazon FBA business would be much easier with in-depth research and competitor analysis. That’s where software like Helium 10 (discounts here) and Jungle Scout (get 20% OFF) stand out with the tools you need to succeed in almost every facet of selling FBA products.

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