Amazon FBA is still a worthy entrepreneurship and selling opportunity in 2023.
While the e-commerce sales market is more competitive than in previous years, it’s nowhere near saturation as new markets, niches, and products open up to sellers.
However, following outdated selling strategies may put sellers on the back foot and at a loss. So, keep reading to discover how (and why) this business opportunity remains viable in 2023.
- Selling via Amazon FBA is profitable in 2023.
- More than half of new sellers were profitable within the first year of launching their Amazon business in 2022.
- You can spend as low as $500 to sell on Amazon.
What Is Amazon FBA?
Fulfillment by Amazon, popularly known as FBA, allows sellers to delegate specific fulfillment-related tasks, including inventory storage, packing, customer service, and shipping, to Amazon.
FBA sellers leverage Amazon’s global logistic support to streamline operations and scale their e-commerce businesses.
Ultimately, this allows sellers to free up time and money to focus on other growth-inducing aspects of their online business.
Components of an Amazon FBA Business
As its name implies, Fulfillment by Amazon focuses on optimizing the order fulfillment process. Simply put, it embodies every little detail that may help a seller deliver products to customers promptly and efficiently.
Hence, FBA provides a suite of services that activates when customers place orders, as explained below.
FBA allows sellers to store their products at Amazon fulfillment centers, which are large warehouses strategically located in Amazon-present markets. With this, Amazon FBA sellers can delegate inventory management responsibilities to Amazon and fulfill orders in record time.
Since your products are already at fulfillment centers, Amazon is responsible for sorting, packing, and shipping your products to customers.
As part of the effort to optimize the order fulfillment process, the Amazon FBA program also offers customer services like processing return and refund requests.
With FBA, you become eligible to enjoy incentives like free two-day shipping, free ad services, discounted storage charges, and much more. Moreover, the FBA model unlocks Amazon Prime’s deals and the added market visibility that comes with them.
How Does Amazon FBA Work?
Sellers usually follow a cyclic flow of operation that uses all four components of Amazon FBA. The steps involved in this cycle are as follows:
- First, you ship your products to an Amazon fulfillment center for storage. This process transfers inventory management responsibilities to Amazon, so you don’t have to worry about security, monitoring, and space.
- After securing storage space for your products, list them on the Amazon website. Make sure to indicate that Amazon is in charge of shipping, returns, and other order fulfillment processes.
- Once a customer places an order, Amazon processes the payment, updates your inventory, and initiates the logistics requirements for fulfilling the order.
- Amazon provides 24/7 customer service to your customers before and after product delivery. As such, return and refund requests are processed on your behalf, reducing the time spent settling disputes.
This stepwise guide applies to individuals with an Amazon seller account.
Pros and Cons of Amazon FBA
You now know the workings of Amazon FBA and how it improves sellers’ order fulfillment process. However, like all business models, there are counterproductive effects of using Amazon FBA.
Below is a breakdown of the benefits and disadvantages of Amazon FBA:
|Using Amazon FBA ensures prompt fulfillment of orders.||The Amazon FBA service is not free! You must pay various fees, including shipping costs, to keep enjoying each of Amazon's order fulfillment services.|
|The storage management services that Amazon offers scale seamlessly according to the size of your business.||Since Amazon is in charge of packing and shipping, it is more difficult for sellers to provide personalized packaging services.|
|With FBA, you can meet professional packing and shipping requirements.||Sellers must adhere to strict Amazon packaging and shipping rules or face steep penalties.|
|By capitalizing on FBA, you automatically inherit Amazon's global standards and reputation.||Amazon prides itself as a customer-centric service provider. Hence, FBA sellers tend to record more cases of return and refund requests.|
|The FBA program unlocks access to Amazon's global market.|
Is Amazon FBA Still Profitable in 2023?
Amazon FBA is still a worthwhile venture in 2023 since 89% of sellers were profitable in 2022. Also, 55% of small and midsized Amazon businesses recorded profit margins greater than 15%.
All these numbers point to one thing: Amazon sellers are still finding ways to generate profit despite steep competition. You might be wondering, “Can new FBA users also replicate this type of success?”
Although experience generally impacts profitability, new sellers break even quickly and would likely record profits in their first year of operation. In fact, 63% of sellers made a profit within the first year of using the Amazon platform as of 2022.
Factors That Determine the Profitability of Your Amazon FBA Business
Regardless of the encouraging state of Amazon’s e-commerce business, some FBA users were unprofitable in the last calendar year. Below are some factors that contributed to this:
As mentioned earlier, FBA is not a free-to-use service. Amazon uses a module-based pricing system that sets different rates for each specialized service provided to FBA sellers:
- Selling plan: As part of the registration procedure, you must pay a setup fee to become eligible to sell on Amazon. The options available are an individual plan, which requires that you pay $0.99 per item sold, or a $39.99 monthly professional plan.
- Referral fees: Depending on your product category, Amazon charges 6%-45% of the unit price of each item sold as referral fees.
- Fulfillment fees: Amazon considers several factors, including shipping weight, size, and product type, to set fulfillment prices.
- Inventory Storage fees: FBA sellers pay a monthly storage fee based on the size of their inventory and the space it occupies at fulfillment centers.
- Other fees: Besides the above-listed charges, you may be subject to additional Amazon FBA fees. This is primarily when you activate optional services or exceed predefined service limits. For instance, inventory surcharges apply to products stored in fulfillment centers for more than 181 days.
Looking at the Amazon FBA seller fee structure above, you’ll agree that it may take a lot of work to keep up with the multiple pricing modules applicable to FBA sellers.
This is especially true for sellers operating a high-volume retail Amazon business without setting effective price strategies that account for long-term FBA costs.
The tools below can help you save on Amazon Fees:
FBA's Inventory Bias
Apart from cost, the specialization of FBA (inventory management and shipping) may also hurt profitability. Due to the heavy focus of the FBA model on inventory, it’s easy to lose sight of other aspects of your business, especially when allocating resources.
FBA requires a significant initial investment in inventory because the business model depends on stock availability. And so, inexperienced FBA sellers with limited resources might prioritize stock availability at the expense of other key business drivers like marketing and branding. Often, such poor resource allocation strategies lower the chances of earning profit.
That’s why you should get a tool like Helium 10, which offers you everything you need to stay on top of multiple aspects of your Amazon business from the same dashboard.
According to a recent study, Amazon hosts around 9.7 million sellers, of which 1.9 million are active. Regardless of the promising profitability stats mentioned earlier, competition is very high on the Amazon platform.
In other words, it requires intense planning and tact to become profitable. Sellers need to evolve to stay ahead of trends. Otherwise, it becomes much harder to break even, let alone generate profit.
Regulatory and Policy Issues
Amazon FBA sellers are heavily dependent on Amazon’s logistic infrastructure, so the policies and regulations governing the platform apply to you.
And knowing that such rules are bound to change from time to time, it’s only a matter of time before you need to make small or large alterations to your business to remain compliant.
In some cases, such alterations may strain sellers’ operations and cause them to lose money. The situation becomes dire when new policies inadvertently increase business costs.
Tips for Increasing Amazon FBA Profitability
Since the factors affecting the profitability of Amazon FBA are known, it’s possible to improve your operations and establish a sustainable business. Here are five ways to make selling via Amazon FBA a profitable venture.
Make Data-Driven Decisions
We’ve already established that selling on Amazon is highly competitive.
However, it’s worth noting that this high saturation is a product of Amazon’s growing popularity among shoppers, as Amazon accounts for almost 40% of the global eCommerce market.
In other words, this high saturation of sellers is effectively countered by the steady growth of buyers flocking to the Amazon marketplace.
So, it’s no more a question of how competitive the Amazon platform can be.
Instead, you should be more interested in finding ways to beat the competition.
This is where planning and innovation come into play.
For new sellers, it’s advisable to carry out extensive product research. This approach reduces the propensity of jumping into short-term trends impulsively, as data back all your decisions.
Keep a Tab on Your Spending
From the cost breakdown of using FBA, one thing is clear: it’s easy to get lost in the complexities of the module-based pricing structure of Amazon. As such, keep track of your expenses and, in the process, cut off all unnecessary spending.
Adopt Effective Resource Allocation Strategies
Even as FBA helps do all the heavy lifting regarding inventory and shipping, note that other aspects of your eCommerce business need almost the same level of attention.
So, avoid resource-allocation strategies that favor one or two components of your business to the detriment of others.
As you set aside capital to meet the pricing and management requirements of selling via FBA, remember that marketing and branding are just as crucial to the success of your business.
Play the Long Game
Note that an eCommerce business isn’t a get-rich-quick scheme. It takes time to generate significant liveable income. And even if you earn enough in the first few months, taking funds out early in your business isn’t advisable.
A more measured approach would be to focus on long-term success. With this mindset, you can painstakingly build a sustainable business from the ground up.
Adopt Amazon Optimization Tools
Once you begin selling, you will notice that managing all the moving parts of your FBA sellers business becomes more efficient with the help of top Amazon seller tools.
For instance, Helium 10 offers profound insight into your operations and helps you make informed decisions. Adopting such software not only optimizes specific processes but also improves the overall profitability of your business.
How Much Money and Time Do You Need to Start Amazon FBA?
The cost and time requirements for launching a product on Amazon vary depending on various factors, including the size and type of business and the amount of effort put into it.
Someone with access to a significant startup budget would launch sooner than a financially-restrained individual. Applying the same logic, it would likely take a shorter time for a full-time Amazon seller to launch their first product.
Furthermore, the type of Amazon business you run will also impact the time and money it takes to start. For instance, you’ll require significant investment to launch a private-label product (Items sold under your brand name). In contrast, reselling other people’s products on Amazon takes less time and money.
That said, It took fewer than six months for 70% of sellers to launch products on Amazon, while 19% spent up to a year to start.
Regarding financial requirements, more than half of sellers (58%) spent under $5,000 as startup capital, 25% started with under $1000, and 12% needed less than $500 to launch in 2022.
Frequently Asked Questions
Yes, you can sell globally with Amazon FBA. All you need is to deliver your inventory to an international fulfillment center and have Amazon ship them on your behalf to your customers abroad.
While it can take up to 2 years to start seeing some profit, most sellers (around 65%) were profitable within the first year of operation, with 40% achieving this in less than six months. In contrast, it took roughly 1 to 2 years for 14% of new sellers to turn a profit.
This is a realistic expectation for sellers looking to launch their brand.
If FBA seems incompatible with your business, you can try the more hands-on Fulfilment by Merchant model, also called FBM. As its name implies, FBM allows sellers to list products on Amazon and have complete control over storage, shipping, and customer support.
You can sell via FBM exclusively or combine it with the FBA method.
Verdict: Is Amazon FBA Worth It?
The simple answer to this question is yes, considering that the chances of earning profits via selling on Amazon FBA are still relatively high, even in 2023.
But as with all promising business ventures, there’s a catch. Without the much-needed effort and investment, there’s no guarantee of success. As much as FBA delegates much of the heavy lifting to Amazon, the business still needs your daily inputs to run smoothly.
So, find the right product, keep business costs low, invest in branding and marketing, and optimize your day-to-day operations with tools like Helium 10.