How does Amazon FBA work? Everything you need to know about the popular fulfillment service at a glance!
(Last update on 29.07.2022) Most merchants are likely familiar with it: Fulfillment by Amazon, or in English “Shipping by Amazon”. Behind it lies a whole range of services that the e-commerce giant offers to sellers on its marketplace. These can book merchants in a package and thus delegate the majority of the tasks that arise from fulfillment to Amazon. The FBA business has thus become one of the most popular business models among marketplace merchants, as it makes selling on Amazon incredibly 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 not everyone finds participation worthwhile from an economic perspective. 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. A tremendous relief for many sellers, and for others, it is the very opportunity to expand their business.
In this blog post, we want to clarify the important basics and then dive deeper into the topic of “FBA at Amazon”: What costs do merchants need to plan for, how does the processing of orders work, and when is it worthwhile for merchants 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. Then Amazon takes care of all logistical steps necessary to process 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 merchant initiates all further steps. This also includes, for example, the demand-oriented distribution of the inventory to the other logistics centers.
With Amazon FBA, little experience in logistics is required
For many Amazon sellers, FBA has clear advantages: They can build a large product range even as a small company that may only have a handful of employees or little experience in e-commerce, and gain access to millions of customers solely through Amazon FBA in Germany. Because using the service is also automatically linked to participation in the Prime program, which is particularly popular with customers due to the fast shipping.
Many users even 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, merchants must first prove that they can meet the high standards with their in-house logistics. For many smaller merchants, 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, merchants also expose themselves to the tough 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 that exists in the marketplace, especially since the corporation itself also participates as a seller. Many products are now offered by multiple merchants, so there is competition not only between different products but also for the same product. In particular, the so-called Buy Box is highly competitive.
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 is offered by only one seller, branded goods usually consist of well-known brands whose products are resold by multiple resellers. However, not every seller gets their own offer page; instead, all providers are collected on 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 smaller pets is sold by two different sellers. However, only one can be in the Buy Box – currently, this is the seller “Mariot”. The second provider named “Highfunny” is only mentioned further down and quite inconspicuously. Since 90% of users shop through the Buy Box, this seller usually has the disadvantage unless he wins the Buy Box. As is also evident, while Mariot sells the product, it is shipped by Amazon. So FBA is being used for this product by the current seller.
The algorithm favors FBA sellers in the Buy Box
One could speculate that Mariot is in the Buy Box primarily because he uses Fulfillment by Amazon, as such sellers are favored over their colleagues who only use Fulfillment by Merchant (FBM). However, an important factor in the battle for the Buy Box is the overall seller performance, which also includes shipping speed and the quality of customer service.
Amazon naturally awards FBA sellers the highest rating in these areas, as the e-commerce expert itself takes on these tasks. Delivering the same performance 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 altruism. The company also wants to profit from it and therefore charges additional Amazon FBA fees alongside the mandatory selling fee. These depend particularly on the storage location, product type, dimensions, and weight of the item.
In addition, using Amazon FBA incurs additional storage costs per cubic meter per month. But beware! The storage fees increase for goods stored for more than 365 days to 170 euros per month per cubic meter. Starting from May 15, 2022, an additional charge of 37 euros 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 Clever: Amazon offers an FBA calculator, but only for shipping costs. However, some others have filled this gap and developed such a price calculation for the FBA-related Amazon fees, e.g. Shopdoc. Here is the original from Amazon: FBA Fee Calculator. And here is the calculator from Shopdoc.
For all others who prefer to keep track of the individual items instead of using an automatic Amazon FBA calculator, the fees for Europe can be found here: Current Amazon FBA Shipping Costs and Fees.
Amazon FBA Costs at a Glance
What are the actual Amazon FBA costs? This cannot be answered in general as is often the case. Often, FBA fees are 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 Euro / one-time |
| Amazon Seller Account | 39 Euro / month |
| Amazon Fulfillment Costs | |
| Sales Commission | 5-20 % of the Selling Price |
| Closing Fees (Media Products) | 0.81-1.01 Euro / unit |
| Amazon FBA Storage Costs | 16.69-41.00 Euro based on cubic meters and season / month |
| Long-Term Storage Fee | 331 to 365 days 37 € per cubic meter, after 365 days 170 € per cubic meter / month |
| Shipping Costs | individual, based on the product type, size, and weight |
| Fees for Returns and Disposal | individual, based on the size and weight |
| Processing Fee for Refunds | 20% of the sales fee, up to 5.00 Euro |
| Amazon Advertising | individual |
| Other Costs | |
| Tools | individual |
| Tax Consultant | individual |
Finding the Right Amazon FBA Product – How Does That Work?
In fact, product research in advance is just as important in the Amazon FBA business as it is with Private Label. Although almost every legal product is offered on the online marketplace, that does not mean that the effort for Amazon FBA is worthwhile for all products.
For proper product research, there are now several useful Amazon FBA tools, but sellers can also take advantage of their competitors’ inventory or the bestseller rank to ensure an acceptable margin in the end. Products that become slow movers or have little margin should accordingly be removed from the assortment.
Properly Packing FBA and Other Amazon Products: Guidelines
For many marketplace sellers, the question eventually arises of how to properly pack their Amazon FBA items before sending the goods to a logistics center of the e-commerce giant. Because in case of non-compliance, Amazon reserves the right to reject improperly packed products. That would be frustrating, expensive, and waste unnecessary time.
Therefore, Amazon FBA sellers should review the packaging guidelines before sending their goods. For example, the individual parts of an SKU must be contained 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 takes this circumstance into account.
Expand Step by Step with Amazon FBA: Pan EU and USA
Sellers tap into a huge market with Amazon FBA in Germany alone – but that is by no means the end of the line. The American company has recognized that international sales can also be profitable. With the Pan EU program, Amazon FBA sellers can become global players – and relatively easily. 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 appropriate 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 offers many advantages without question. 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 have probably wondered whether Amazon FBA still has potential in the future. Because Amazon sellers often hear that the marketplace is already “overcrowded.” Many fear that no profits can be made anymore, and they hold Chinese providers of cheap products partly responsible for this. But is it really that hopeless?
Customer satisfaction is of the highest priority for Amazon, with product quality also playing a significant role. Thus, sellers or companies that sell high-quality products have a clear advantage, and providers of cheap products cannot keep up.
One must not forget that Amazon’s share of online retail in Germany has been over 50% since 2020 – a clear dominance. Furthermore, the e-commerce giant is continuously opening more new marketplaces worldwide and is thus steadily expanding. This means more potential customers and more sales opportunities for FBA sellers.
Of course, there are currently many sellers on the platform. Nevertheless, this does not mean that it is too late to successfully enter the FBA business, as the demand is also extremely high and is likely to continue growing internationally in the future. And regarding the 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 deal with the necessary steps. Before you even become an FBA seller, several things should be taken care of in advance. These include:
Next, everything revolves around the actual Amazon FBA business. Especially in this phase, it is important to take enough time and think through each step carefully. The most important steps include:
To learn more about each individual step, click here: The Ultimate Amazon FBA Guide (Including Checklist).
Conclusion: Amazon FBA – small starting capital, great opportunities
Yes, Amazon FBA also has disadvantages. Sellers transfer the entire fulfillment including customer service to the online giant and thereby forfeit, for example, the opportunity to engage directly with their customers. However, when it comes to winning the Buy Box, sellers have little to no other choice but to use Fulfillment by Amazon.
On the other hand, the program has just as many advantages. Not only does it greatly ease the work of 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 only through this that many sellers are able to sell successfully on Amazon at all.
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 include these in the calculations. Proper product research is also essential. Once the business is running in Germany, nothing stands in the way of expanding to Europe or even the USA.
Frequently Asked Questions
Fulfillment by Amazon (FBA) is the in-house logistics program of the online giant. When marketplace sellers book this service, Amazon takes over the entire fulfillment process. This includes both storage and picking and packing of orders as well as shipping and returns management. Even customer service is then handled by Amazon. Many retailers use FBA, as their chance of winning the Buy Box increases.
The fees for the FBA service are not flat-rate, but are calculated based on the size and weight of the product and are divided into storage and shipping fees. From January to September, the storage costs, for example, amount to €15.60 per m3 per month.
Currently, the shipping fees per sold unit range between €0.80 and €30.60 depending on dimensions, weight, and destination.
Fulfillment by Amazon is worthwhile, for example, for smaller retailers who do not have their own storage space or logistics. But larger sellers should also consider FBA, as the use of the service can significantly influence the profit of the Buy Box. For heavy, bulky products or those that sell slowly, FBA is not always suitable.
Image credits in the order of the images: © erikdegraaf – stock.adobe.com / Screenshot @ Amazon
