I first committed to seriously experimenting with Amazon’s in-house “FBA” fulfillment services in late October 2013.
I was only one month into the decision to quit my accounting job to try selling online full-time, and time management was already a major challenge. I was having more success than I had expected finding products to sell, but my living space was covered in these items. Listing and shipping them all was a major chore and bottleneck.
During October 2013, less than 18% of my $2200 in profits came from FBA sales. I set a goal to try to get that to over 40% in November. I was not successful. Profits were up over $5000 on the month – which was great – but fulfillment had still been a major issue.
Then the floodgates broke. In my third month selling online full-time, I made $8993.97 profit. Over $7000 of that profit was from FBA sales. I haven’t looked back since. We now sell millions each year via the FBA program. As of September 2021, FBA is still my preferred fulfillment option too, for a variety of reasons which I will go over below.
I get a lot of questions about FBA, so I put together this guide to help you understand how FBA works and how you can leverage it to get more sales for your online selling business. Whether you are brand new to selling online or trying to figure out how to make your next million in sales, this guide should be able to help you.
There’s a lot of FBA guides out there that are written by people who have never even used the program. I’ve been using it for over a decade, and I hope you find the insights and perspectives I can offer useful. Enjoy.
What is Amazon FBA?
FBA stands for Fulfillment by Amazon. This program allows you to send products you want to sell to Amazon’s fulfillment centers before an order is placed, then the fulfillment center handles the storing, packing and shipping of orders once a customer buys your item. Amazon also handles returns and exchanges for FBA items.
While FBA can be an amazing option for sellers, it isn’t mandatory to sell products on Amazon. We’ll go over the other options a bit later in this post.
Amazon FBA is a tool that offers many benefits to the seller and frees up time to focus on sourcing, marketing and ultimately selling more products.
FBA vs Prime
Prime and FBA are often used interchangeably, but they are not the same things.
FBA is a type of order fulfillment. Prime is a membership that consumers can purchase that unlocks free, 2-day shipping on many items. Sometimes it even unlocks free one-day or same-day shipping.
Why You Should (or Shouldn’t) Choose FBA
At its most basic, Amazon is an online marketplace where sellers advertise and sell products. In addition to listing and selling products, the seller has to decide how they want to “fulfill” their orders. Order fulfillment includes shipping, customer service, and returns.
Here are the three main ways you can fulfill orders on Amazon:
- FBA (Fulfillment by Amazon)
- FBM (Fulfillment by Merchant)
- SFP (Seller-Fulfilled Prime)
Each type of fulfillment has benefits and drawbacks.
Amazon FBA
Amazon FBA is a hands-off approach where the seller ships everything to an Amazon warehouse and lets Amazon handle the rest. When using FBA, your products will benefit from the Prime logo displayed next to your offer, fast shipping, free returns, and quick customer service provided by Amazon.
The two main drawbacks of FBA are that you’ll sometimes pay more in fulfillment than if you shipped on your own and you’ll have less control of your inventory.
Fulfillment by Merchant
Fulfillment by Merchant (FBM) just means that you’ll be responsible for fulfilling your own orders. This can mean that you will be doing everything yourself, or you could use a third-party fulfillment center.
To get an idea of the costs of FBA vs FBA, let’s take a look at an item on the FBA revenue calculator:
This was an actual item we sold FBM in my business, and we paid $8.95 to ship this item to the customer.
If we would have sold this item FBA, we would have paid $5.68 in FBA fees, about $0.50 to ship the item to FBA warehouses, and about $0.14 in storage fees. The total FBA fees would be $6.32.
On this item, we actually would have saved $2.63 by selling it using FBA as the fulfillment method.
This item was an exception as the vast majority of items we sell in my business are via FBA, but we were doing a test of a new internal tracking system for FBM inventory which is why we used FBM for this item.
In my experience, if you are selling items that weigh more than a pound you will generally save money by using FBA vs FBM. There are exceptions, and you can always check using the FBA Revenue calculator.
In my experience, FBA is usually worth it. When you fulfill your own orders, you’ll assume responsibility for storage, shipping, returns, and customer service. There are a lot of costs involved with this process, plus your products do not have access to the Prime label or free fast Prime shipping options for customers.
And the biggest benefit of FBA is that you don’t need to be physically with your inventory as it sells. Whether you are at home or on vacation, Amazon is shipping your items for you as they sell.
Seller Fulfilled Prime (SFP)
The final type of fulfillment you’ll hear about is Seller Fulfilled Prime. With Seller Fulfilled Prime, you handle all the fulfillment but still get to use the Prime badge.
This program is really only for very large sellers and isn’t even open for enrollment right now, so focus on FBA and merchant fulfillment.
When & Why I Use FBA
I’ve been selling online for over a decade, and my business now sells many millions each year.
The short answer to when we use FBA in my business is whenever possible.
Over 98% of the items we sell on Amazon in my business are sold via FBA. The benefits of the program far outweigh the costs and have allowed me to scale my business significantly faster than if I was shipping all orders direct to customers.
Why I Started Using FBA More
When I first started selling online, I didn’t use FBA nearly as much as I do now.
Before I went full-time, a lot more of my sales were occurring on eBay. I was also fulfilling a lot more of my own orders on Amazon.
This was fine when I was selling a few items per day, but as soon as I went full time I noticed that order fulfillment was taking up a huge amount of my time. At a certain point, the amount of time I was spending on fulfillment was directly preventing me from spending more time sourcing products to sell.
This led me to start thinking about which activity was more valuable, and it was clear that the extra money I could make by spending more time sourcing products and less time fulfilling easily offset any extra costs of FBA.
In other words, the numbers suggested I would make a lot more money if I used FBA.
Here are the actual profits I earned from each source over my first 3 months as a full-time seller.
My main takeaway at the end of October was that I wanted to get more FBA sales, and you can see how well that went for me.
Why FBA Continues To Be a Good Investment Even Though I Have Team Members Now
FBA helped me make more money as a solo seller, but what about once you hire people to work with you? Couldn’t you save money by paying people to do order fulfillment for you?
As you can see from the chart above, things really took off once I started treating selling online like a business. As it grew, there were several bottlenecks that prevented me from capitalizing on the strong sales and growth potential of the business.
The first bottleneck was time. I solved this by using FBA more, then hiring people to work with me to help process products to send to FBA warehouses.
Once I solved the time bottleneck, the next one was SPACE.
We were constantly tripping over each other in a frenzy to rush orders out the door to customers as well as shipping items to FBA warehouses. When we ran out of shelf space, we were unable to purchase more inventory even though we had strong demand for products we were selling.
We needed more space to house our inventory, and furthermore, we simply needed to spend our time in more efficient ways. We were focused on research, pricing, sourcing, hiring, listing, in addition to the many other tasks required to keep an ecommerce business running smoothly.
By implementing processes to get products shipped to FBA warehouses faster, we’ve been able to increase our turnover and get more sales.
How to Get Things to Sell Via FBA
FBA can only help you maximize sales and profits if you have products to sell. Using FBA is easy, finding the products is the challenge.
One of the biggest mistakes new sellers make is thinking that they have to have their own products and brands to sell on Amazon.
Of the tens of millions of dollars worth of products I’ve sold on Amazon, nearly all of them have been from products and brands that already existed. If you’ve read other posts on the site, you may have already read about me selling things like:
- Scrabble tiles
- Furbys
- Brita filters
There are a lot of big benefits to selling existing products and brands, including the fact that the upfront investment is lower and you can use Amazon sales data to figure out about how often the item will sell and how much profit you can make on each item.
Getting existing items to sell can be as simple as walking into a local store like Walmart and buying them. You’d think that there’s no way you could make money doing this, yet my business has sold many millions worth of products that we found this way.
If you want to learn more about the best ways to get products to sell on Amazon, check out the links to our What to Sell on Amazon and How to Sell on Amazon guides below.
Next Steps…
Step 1: Any questions?
If you have any remaining questions about FBA, please share them in the comments below.
Step 2: Want to replace your income and gain control over your schedule with an online selling business?
If you are interested in building an online selling business like mine that can provide you with a full-time income, sign up for this Fundamentals of a Successful Online Selling Business mini course. This will help you start smart and profitably from the very beginning.
Step 3: Additional reading…
If you want to read more about getting products to sell on Amazon, these guides will help: