How does Amazon FBA work? Everything you need to know about the popular fulfillment service at a glance!

(Last updated on July 29, 2022) Most sellers are likely familiar with it: Fulfillment by Amazon, or in German “Versand durch Amazon.” This encompasses a whole range of services that the e-commerce giant offers to sellers on its marketplace. Sellers can book these services as a package, thereby delegating the majority of the tasks associated with fulfillment to Amazon. The FBA business has thus become one of the most popular business models among marketplace sellers, as it makes selling on Amazon remarkably easy.

However, those who want to start with Amazon FBA should inform themselves well in advance. The service is not suitable for every seller and participation may not be economically worthwhile for everyone. Nevertheless, there is a reason why the service is so popular: With the FBA program, Amazon has enabled sellers to meet the high standards of the e-commerce giant without additional effort. This is a significant relief for many sellers and, for others, it is the opportunity to expand their business.

In this blog post, we want to clarify the important basics and then delve deeper into the topic of “FBA at Amazon”: What costs do sellers need to plan for, how does the order fulfillment work, and when is it worthwhile for sellers to use the service?

Amazon FBA: What is it?

Referred to as “Fulfillment by Amazon,” this is the in-house fulfillment service of the online giant. Marketplace sellers can book this service for a fee. Amazon then takes care of all the logistical steps necessary to fulfill an order for FBA products. This includes, among other things,

To do this, FBA sellers send their goods to an Amazon logistics center, from where the shipping provider initiates all further steps. This also includes the demand-based distribution of inventory to other logistics centers.

With Amazon FBA, little experience in logistics is required.

For many Amazon sellers, FBA offers clear advantages: Even as a small business with perhaps only a handful of employees or little experience in e-commerce, you can build a large product range and gain access to millions of customers solely through Amazon FBA in Germany. This is because using the service also automatically enrolls you in the Prime program, which is particularly popular with customers due to the fast shipping.

Many users primarily order Prime products and filter out other offers in the search results. While there is also the option to sell on Amazon without FBA but with Prime status, sellers must first prove that they can meet the high standards with their own logistics. For many smaller sellers, this would be impossible.

Amazon FBA is not a guide to printing money.

Becoming an FBA seller on Amazon is relatively easy compared to building an online shop. However, sellers are also subjected to the stringent demands of the American corporation. The gold rush mentality that prevailed among marketplace sellers a few years ago is long gone. Nowadays, it requires a lot of work and some expertise to make money with Amazon FBA.

This is largely due to the high competitive pressure present in the marketplace, especially since the corporation itself also competes as a seller. Many products are now offered by multiple sellers, leading to competition not only between different products but also for the same product. The so-called Buy Box is particularly fiercely contested.

Seller Performance as a Criterion for the Buy Box

On Amazon, there are two types of products: Private Label and branded goods. While Private Label products are offered by only one seller, branded goods typically consist of well-known brands whose products are resold by multiple resellers. However, not every seller gets their own listing; instead, all sellers are grouped under the same product listing. Only those who are in the Buy Box at the time of a sale receive the order.

This transport bag for small pets is sold by two different sellers. However, only one can be in the Buy Box – currently, this is the seller “Mariot.” The second seller, named “Highfunny,” is mentioned further down and quite inconspicuously. Since 90% of users shop through the Buy Box, this seller usually misses out unless they win the Buy Box. As is also evident, while Mariot sells the product, it is shipped by Amazon. Therefore, FBA is being utilized for this product by the current seller.

The algorithm favors FBA sellers in the Buy Box.

One might speculate that Mariot is in the Buy Box primarily because they use Fulfillment by Amazon, as such sellers are favored over their counterparts who only use Fulfillment by Merchant (FBM). However, an important factor in the battle for the Buy Box is overall seller performance, which includes shipping speed and the quality of customer service.

Amazon naturally gives FBA sellers top marks in these areas, as the e-commerce expert itself handles these tasks. Delivering the same level of service as an FBM seller is nearly impossible or at least very difficult to achieve. Therefore, as a seller of branded goods, it is almost essential to work with Amazon FBA.

Advantages of FBA

In summary, the following advantages of FBA can be highlighted:

Disadvantages of FBA and How to Eliminate Them

Amazon FBA: Costs and Fees

Of course, the FBA service from Amazon Germany is not offered out of pure goodwill. The company aims to profit from it and therefore charges additional Amazon FBA fees alongside the mandatory sales fee. These fees particularly depend on the storage location, product type, dimensions, and weight of the item.

Additionally, using Amazon FBA incurs extra storage costs per cubic meter per month. But beware! The storage fees increase for goods stored for more than 365 days to €170 per month per cubic meter. Starting from May 15, 2022, an additional charge of €37 per cubic meter will also be applied for a storage duration of 331 to 365 days. This applies to all categories except:

Tip for the savvy: Amazon does offer an FBA calculator, but only for shipping costs. However, some others have filled this gap and developed such pricing calculations for FBA-related Amazon fees, such as Shopdoc. Here’s the original from Amazon: FBA Fee Calculator. And here’s the calculator from Shopdoc.

For everyone else who prefers to keep track of the individual items instead of using an automatic Amazon FBA calculator, you can find the fees for Europe here: Current Amazon FBA Shipping Costs and Fees.

Amazon FBA Costs at a Glance

So how high are the actual Amazon FBA costs? As is often the case, this cannot be answered with a blanket statement. FBA fees are often only related to shipping costs and storage fees. However, there are actually additional costs that must be considered when calculating an FBA business.

Costs Before Sale
Business registration	€25-65 / one-time fee
Amazon Seller Account	€39 / month
Amazon Fulfillment Costs
Sales Commission	5-20% of the selling price
Closing fees (media products)	€0.81-€1.01 / unit
Amazon FBA Storage Costs	€16.69-€41.00 based on cubic meters and season / month
Long-term storage fee	€37 per cubic meter for 331 to 365 days, €170 per cubic meter / month for over 365 days
Shipping Costs	individual, based on product type, size, and weight
Fees for returns and disposal	individual, based on size and weight
Processing fee for refunds	20% of the sales fee, up to €5.00
Amazon Advertising	individual
Other Costs
Tools	individual
Tax Advisor	individual

Finding the Right Amazon FBA Product – How Does It Work?

In fact, product research in the Amazon FBA business is just as important as it is for Private Label. While virtually every legal product is offered on the online marketplace, this does not mean that the effort for Amazon FBA is worthwhile for all products.

There are now several useful Amazon FBA tools for proper product research, but sellers can also take advantage of their competitors’ inventory levels or the bestseller rank to ensure an acceptable margin in the end. Products that become slow sellers or have little margin should accordingly be removed from the assortment.

Properly Packaging FBA and Other Amazon Products: Guidelines

For many marketplace sellers, the question eventually arises of how to properly package their Amazon FBA items before sending the goods to a logistics center of the e-commerce giant. In case of non-compliance, Amazon reserves the right to reject improperly packaged products. This would be frustrating, costly, and waste unnecessary time.

Therefore, Amazon FBA sellers should review the packaging guidelines before sending their goods. For example, all parts of an SKU must be included in a single package, each unit must be labeled with a scannable barcode, and the packaging must have a clear product designation. For special products such as fragile goods, Amazon also requires FBA packaging that accounts for this circumstance.

Expand Step by Step with Amazon FBA: Pan EU and USA

With Amazon FBA, sellers tap into a huge market in Germany alone – but this is far from the end of the line. The American corporation has recognized that international sales can also be profitable. With the Pan EU program, Amazon FBA sellers can become global players – and it’s relatively easy. Products can be stored in the European Amazon logistics centers and shipped from there. Sellers can easily specify which marketplaces they want to serve in their seller account.

For entering the FBA business or for small companies, the European Fulfillment Network (EFN) is more suitable. In this case, the goods are stored in local logistics centers and shipped across Europe from there. A key advantage of EFN over the Pan EU program is that sellers only need to be tax registered in the country of storage, not in the destination country.

But that’s not all. Through FBA, sellers can connect to Amazon USA, the largest online marketplace in the world. The sales potential is enormous, and the legal hurdles are smaller than many think. Anyone looking to make money with an 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 European warehouse of their choice. From there, Amazon takes care of the demand-based storage in other logistics centers and the respective shipping processes to the destination country, customer service, any returns, etc.

Who is Amazon FBA suitable for?

Amazon FBA undoubtedly offers many advantages. But is the service really suitable for everyone who sells on Amazon? We believe that Amazon FBA is intended for anyone who:

Potential of Amazon FBA in the Future

You may have wondered whether Amazon FBA still has potential in the future. Many Amazon sellers often hear that the marketplace is already “overcrowded.” As a result, many fear that profits can no longer be made, and they often blame Chinese suppliers of cheap products for this. But is it really that hopeless?

Customer satisfaction is of utmost priority for Amazon, with product quality playing a significant role as well. Therefore, sellers or companies that offer high-quality products have a clear advantage, and providers of cheap products cannot compete.

It should also be noted that Amazon’s share of online retail in Germany has been over 50% since 2020 – a clear dominance. Additionally, the e-commerce giant is continuously opening more new marketplaces worldwide, thereby expanding steadily. This means more potential customers and more sales opportunities for FBA sellers.

Of course, 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 providers, 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 on the Amazon FBA program? Then you can next focus on the necessary steps. Before you become an FBA seller, several things should be taken care of in advance. These include:

Next, it’s all about the actual Amazon FBA business. Especially in this phase, it is important to take enough time and carefully consider each step. The key steps include:

To learn more about each individual step, click here: The Ultimate Amazon FBA Guide (Including Checklist).

Conclusion: Amazon FBA – Small Startup Capital, Big Opportunities

Yes, Amazon FBA also has disadvantages. Sellers transfer the entire fulfillment process, including customer service, to the online giant, thereby losing the opportunity to engage 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 has just as many advantages. Not only does it greatly simplify the work for sellers – especially for the many sellers who operate Amazon FBA as small businesses, the program is immensely important. Many larger companies also appreciate that shipping with Amazon is fast and smooth, the costs for building or renting a warehouse are eliminated, and customer service operates around the clock. It is precisely this that enables many sellers to successfully sell on Amazon in the first place.

It is still quite possible today to run a business profitably on the online marketplace. However, it is necessary to deal with the fees, such as what storage costs and shipping fees are incurred, and to correctly incorporate these into the calculations. A thorough product research is also essential. Once the business is running in Germany, there is nothing to stop expansion into Europe or even the USA.

Frequently Asked Questions

Image credits in the order of the images: © erikdegraaf – stock.adobe.com / Screenshot @ Amazon