How does Amazon FBA work? Everything you need to know about the popular fulfillment service in one overview!
(Last updated 29.07.2022) Most sellers should be familiar with this: Fulfillment by Amazon, or in Russian “Доставка через Amazon”. This encompasses a whole range of services that the e-commerce giant offers to sellers on its marketplace. Sellers can order these services in a package and thus transfer a large part of the tasks related to order fulfillment to Amazon. The FBA business has become one of the most popular business models among sellers in the marketplace, as selling on Amazon becomes incredibly easy.
However, those who want to start working with Amazon FBA should be well informed in advance. The service is not suitable for every seller and participation in it is not economically justified for everyone. Nevertheless, there is a reason why this service is so popular: with the FBA program, Amazon has allowed sellers to meet the high standards of the e-commerce giant without additional effort. This significantly eases the workload for many sellers, and for others, it is the first opportunity to expand their business.
In this blog, we want to clarify the important basics and then delve into the topic of “FBA on Amazon”: what costs sellers should consider, how order processing is carried out, and when sellers should use this service?
Amazon FBA: What is it?
Under the name “Fulfillment by Amazon” lies the online giant’s own order fulfillment service. This service can be ordered by sellers on the marketplace for a certain fee. Amazon then takes care of all the logistical steps for FBA products necessary for order processing. These include, among other things,
To do this, FBA sellers send their products to an Amazon logistics center, from where the sender initiates all subsequent steps. These also include, for example, the distribution of inventory to other logistics centers based on demand.
With Amazon FBA, little experience in logistics is required
For many sellers, Amazon FBA has clear advantages: they can, even as small companies with just a few employees or limited experience in e-commerce, create a wide range of products and gain access to millions of customers solely through Amazon FBA in Germany. After all, using this service also automatically involves participation in the Prime program, which is particularly popular among customers due to fast delivery.
Many users even primarily order Prime products and ignore other offers in the search results. Although there is an option to sell on Amazon without FBA but with Prime status, sellers must first prove that they can meet high standards through their own logistics. For many small sellers, this would be impossible.
Amazon FBA is not a money-printing manual
Becoming an FBA seller on Amazon is relatively easy compared to creating an online store. However, sellers are also subject to strict requirements from the American corporation. The gold rush that prevailed among sellers in the market a few years ago is long gone. Currently, it requires a lot of work and certain expertise to make money with Amazon FBA.
This is largely due to the high level of competition in the market, especially considering that the corporation itself is also involved in sales. Many products are now offered by multiple sellers, so competition exists not only between different products but also among identical items. The competition is particularly fierce for the so-called Buy Box.
Seller performance as a criterion for Buy Box
On Amazon, there are two types of products: Private Label and retail goods. While Private Label is offered by only one seller, retail goods typically consist of well-known brands whose products are resold by multiple resellers. However, not every seller gets their own listing page, and all suppliers are gathered on one product listing. Only the one who is in the Buy Box at the time of sale receives the order.
This pet carrier is sold by two different sellers. However, only one can be in the Buy Box – currently, it is the seller “Mariot.” The second supplier named “Highfunny” is mentioned only below and quite inconspicuously. Since 90% of users purchase through the Buy Box, this seller often finds themselves at a disadvantage if they do not win the Buy Box. As can also be seen, although Mariot sells the product, it is shipped by Amazon. Thus, FBA is being used by the current seller for this product.
The algorithm prefers FBA sellers in the Buy Box
It can now be assumed that Mariot is primarily in the Buy Box because they use Fulfillment by Amazon, as such sellers are preferred compared to their counterparts who only use Fulfillment by Merchant (FBM). An important factor in the competition for the Buy Box is the overall seller performance, which also includes delivery speed and customer service quality.
Amazon certainly gives FBA sellers top ratings in these aspects, as the e-commerce expert takes on these tasks. For FBM sellers, providing the same level of performance is practically impossible or, at the very least, very difficult to achieve. Therefore, for retail goods sellers, working with Amazon FBA is almost inevitable.
Advantages of FBA
In conclusion, the following advantages of FBA can be highlighted:
Disadvantages of FBA and how to deal with them
Amazon FBA: Costs and Fees
Of course, Amazon Germany’s FBA service is not offered out of pure charity. The company also wants to profit from it and, accordingly, charges additional fees for Amazon FBA in addition to the mandatory selling fee. These fees depend in particular on the storage location, type of product, dimensions, and weight of the item.
In addition, when using Amazon FBA, there are additional storage fees per cubic meter per month. But be careful! Storage fees increase for items stored for more than 365 days, up to 170 euros per month per cubic meter. From May 15, 2022, an additional fee of 37 euros per cubic meter will also be charged for storage periods from 331 to 365 days. This applies to all categories except:
Tip for the smart: Amazon offers an FBA calculator, but only for shipping costs. However, some others have filled this gap and developed such a pricing calculation for fees related to FBA, for example, Shopdoc. Here is the link to the original from Amazon: FBA Fees Calculator. And here is the link to the calculator from Shopdoc.
For everyone else who prefers not to use the Amazon FBA automatic calculator and wants to maintain control over individual items, the fees for Europe can be found here: Current shipping costs and fees for Amazon FBA.
Amazon FBA Costs at a Glance
What are the actual costs of Amazon FBA? This question, as is often the case, cannot be answered definitively. FBA fees often only relate to shipping costs and storage fees. However, there are actually other costs that need to be considered when calculating FBA business expenses.
| Costs Before Sale | |
| Business Registration | 25-65 euros / one-time fee |
| Amazon Seller Account | 39 euros / month |
| Amazon Fulfillment Costs | |
| Selling Fee | 5-20% of MSRP |
| Final Fees (Media Products) | 0.81-1.01 euros / unit |
| Amazon FBA Storage Fees | 16.69-41.00 euros depending on cubic meters and season / month |
| Long-term storage fee | 331 to 365 days €37 per cubic meter, over 365 days €170 per cubic meter per month |
| Transportation costs | Individually, depending on the type of product, size, and weight |
| Fees for returns and disposal | Individually, depending on the size and weight |
| Return processing fee | 20% of the sales commission, up to €5.00 |
| Amazon Advertising | Individually |
| Other expenses | |
| Tools | Individually |
| Tax consultant | Individually |
How to find the right product for Amazon FBA – how to do it?
In fact, in the Amazon FBA business, product research is just as important as with Private Label. Although virtually any legal product is available in the online marketplace, it does not mean that the costs of Amazon FBA are justified for all products.
There are currently several useful tools for product research in Amazon FBA, however, sellers can also take advantage of their competitors’ inventory or bestseller rankings to ultimately achieve an acceptable margin. Products that become stagnant or have low margins should be excluded from the assortment accordingly.
Proper packaging of FBA products and other Amazon products: Guidelines
For many sellers in the market, the question of how to properly package their Amazon FBA products before sending them to the logistics center of the e-commerce giant arises sooner or later. If necessary, Amazon reserves the right to reject improperly packaged products. This would be unpleasant, costly, and would take up unnecessary time.
Therefore, Amazon FBA sellers should familiarize themselves with the packaging guidelines before sending their products. For example, all parts of the SKU must be packed in one box, each unit must be labeled with a scannable barcode, and the packaging must clearly indicate the product. For special items, such as fragile items, Amazon also requires FBA packaging that takes this into account.
Gradually expand with Amazon FBA: Pan EU and USA
Sellers discover a huge market only in Germany with Amazon FBA – but that is not the limit. The American company realized that international sales can also be profitable. With the Pan EU program, Amazon FBA sellers can become global players – and it is relatively simple. Products can be stored in Amazon’s European logistics centers and shipped from there. Sellers can easily specify which markets they want to serve in their seller account.
For starting in the FBA business or for small companies, the European Fulfillment Network (EFN) is more suitable. In this case, products are stored in local logistics centers and shipped throughout Europe. The key advantage of EFN compared to the Pan EU program is that sellers only need to be registered for taxation in the country of storage, not in the destination country.
But that’s not all. With FBA, sellers can connect to Amazon USA, the largest online marketplace in the world. The sales potential is enormous, and the regulatory barriers are lower than many think. Those who want to make money with their Amazon FBA business should not miss this opportunity.
Good to know: The Pan EU program works similarly to Amazon FBA in Germany. The seller sends their products to a chosen European warehouse. From there, Amazon takes care of the necessary storage in other logistics centers and the corresponding delivery processes to the destination country, customer service, returns, etc.
Who is Amazon FBA suitable for?
Amazon FBA certainly offers many advantages. But is this service really suitable for everyone who sells on Amazon? We believe that Amazon FBA is intended for anyone who:
The potential of Amazon FBA in the future
You may have already wondered whether Amazon FBA has potential in the future. Often, sellers on Amazon hear that the market is already “saturated.” Many fear that it will no longer be possible to make a profit, and not least blame Chinese suppliers of cheap goods for this. But is it really that hopeless?
Customer satisfaction is of the utmost priority for Amazon, and product quality also plays a significant role. Thus, sellers or companies that sell quality goods have a clear advantage, while suppliers of cheap products cannot compete.
It should also not be forgotten that Amazon’s share of online retail in Germany has been over 50% since 2020 – this is a clear dominance. Furthermore, the e-commerce giant is opening more and more new markets around the world and is thus constantly expanding. This means more potential customers and more sales opportunities for FBA sellers.
Certainly, there are currently many sellers on the platform. However, this does not mean that it is too late to successfully enter the FBA business, as demand is also extremely high and is likely to continue growing internationally in the future. Regarding competition with other suppliers, you can increase your chances of success by focusing on good product quality from the very beginning.
Overview: Entering the FBA Business
Have you weighed all the pros and cons and decided to take advantage of the Amazon FBA program? Then the next step is to take the necessary actions. Before becoming an FBA seller, several steps need to be completed. These include:
Next, everything will focus on the Amazon FBA business itself. Especially at this stage, it is important to dedicate enough time and carefully consider each step. The key steps include:
To learn more about each step, click here: The Ultimate Guide to Amazon FBA (including checklist).
Conclusion: Amazon FBA – small startup capital, big opportunities
Yes, Amazon FBA has its drawbacks. Sellers hand over all order fulfillment, including customer service, to the online giant and thus miss out, for example, on the opportunity to communicate directly with their customers. However, when it comes to winning the Buy Box, sellers have little choice but to use Fulfillment by Amazon.
On the other hand, the program also has just as many advantages. Sellers significantly simplify their work – especially for many sellers who use Amazon FBA as small entrepreneurs, the program is extremely important. Many large companies also appreciate that delivery from Amazon is fast and hassle-free, the costs of building or renting a warehouse are eliminated, and customer service operates around the clock. It is only because of this that many sellers are able to successfully sell on Amazon at all.
Thus, it is quite possible today to run a business profitably in the online market. However, it is necessary to understand the fees, for example, what storage costs and what shipping costs arise, and to correctly factor them into the calculation. A thorough product analysis is also important. Once the business starts operating in Russian, nothing prevents expansion into Europe or even the USA.
Frequently Asked Questions
Fulfillment by Amazon (FBA) is the online giant’s own logistics program. By ordering this service, sellers in the market transfer the entire order fulfillment process to Amazon. This includes both storage and picking and packing of orders, as well as shipping and managing returns. Even customer service is handled by Amazon. Many sellers use FBA as it increases their chances of winning the Buy Box.
FBA service fees are calculated not as a fixed amount, but based on the size and weight of the product and are divided into storage and shipping costs. From January to September, for example, storage costs amount to €15.60 per m3 and per month.
Currently, the shipping cost per sold unit ranges from €0.80 to €30.60 depending on the size, weight, and destination.
Fulfillment by Amazon is suitable, for example, for small sellers who do not have their own warehouse or logistics. But large sellers should also consider FBA, as using the service can significantly impact winning the Buy Box. For heavy, bulky products or those that sell slowly, however, FBA is not always suitable.
Photo in order of images: © erikdegraaf – stock.adobe.com / Screenshot @ Amazon
