It’s been brought up a few times but I kept on adding to it. This is pretty much all I can think of in terms of pros and cons. If you have anymore that don’t fall into the list below, feel free to add to it in your own post! Maybe an admin will sticky this or save it somewhere so people can make an educated decision (though I think the FBA sales team might have a thing or two to say about that.)
So, without further adieu, here it is!
The near-definitive FBA Pros and Cons List:
There are a MULTITUDE of things you will need to research before you dive into the dive known as FBA. From a business standpoint, you need to consider how your business functions, what it does, what it provides, its current (or feasibly short term future) infrastructure, cash flow, shipping abilities, etc. The list goes on and on.
I will give you the list of pros and cons for FBA and reasons you should and should not consider it (I have personal experience with both methods of fulfillment, so I can speak on the subject.)
Buy Box - You will win the buy box over a like-priced self-fulfilled seller a vast majority of the time. If you are not concerned with the buy box, as you are possibly the sole retailer, then this may not be an advantage.
Cost - This will appear on both lists. The cost is dependent of your product type, size, weight, and what shipping methods you have available to you. If you are located, for instance, in the middle of the country, then your shipping costs will be fairly inexpensive regardless of where you send your product, however if you are on either coast, you could do well to utilize Amazon’s discounted weight shipping for shipments. We sell oversized products that would normally incur dimensional weigh charges galore. We don’t worry about that with FBA.
Laissez Faire - It means “Hands Off.” With FBA, you essentially can “send it and forget it” unless you warranty/service your own products (like we do with computers.) We also sell a multitude of other products which we never have to worry about answering questions to due to Amazon’s customer service reps taking over. This also means that returns get handled by them without you needing to step up to the plate.
Volume - I operate a 2,000 sq ft warehouse with half of that devoted to the manufacture and service of our computers while the other half is offices and shipping. We have enough product at FBA to fill up a Costco. This has driven our costs for warehousing way down without the need to manage, climate control, insure, and protect hundreds of thousands of dollars worth of goods in our own facilities. The other tidbit to this is that our shipping section is completely empty a majority of the time as it is used for prep only, and once it goes out, it’s gone. We can bring more in because we don’t have to store it, which means we get more out, which means we save more, which means lower prices, which means we can compete better. It takes money to make money, as it were.
Sales Increase - Because we win the buy box by default over non FBA sellers, we have a much higher sales volume than those that self-fulfill. We have noticed a marked increase in sales because of FBA, but also a marked increase in returns, which will lead to my double edged sword in the cons section…
Skip Across the Water - You can now offer, without worry, your products to Alaska, Hawaii, Puerto Rico, and army postal services. Once listed FBA, you don’t have to worry about the surcharges or delays of Hawaiian buyers, nor do you have to create a geographical black hole for potential customers in those regions due to time and/or cost restrictions. If you have a product that is critically important for any of those regions and feel you can benefit from offering your wares to those regions, FBA is a very wise choice. People love to send care packages to our brave men and women stationed abroad.
Uniform Profit Forecasting - When you use FBA, you will know exactly how much you will receive in terms of profit. This is because the cost of selling is the same no matter what part of the country (OR Alaska/Hawaii/Puerto Rico) they travel to. You won’t have to average out or determine the relative costs of shipping to NY from CA or CA to CA. This makes forecasting easier for that persnickety CPA you hired to do your books.
Ease - If you get big enough or find yourself the ability to send of pallets directly, you will find it much easier than having to store multiple sizes of boxes, packing supplies, endless paper reams, toner cartridges/thermal paper galore, AND warehousing all your stuff. Most FBA’ers use the FBA service out of their garage, and most do well with only their garage available. The reason why most falter is because of poor business decisions.
Feedback Protection - This is a good one for lower volume people. For those with higher volume, it will not matter much. I have done the whole “Self-Fulfilled” run, and even despite my best efforts (getting the package out the same day as ordered, even when it wasn’t supposed to go out until the next day) packages will still be delayed. One of mine went from California a day before it was supposed to (ordered at 7:00PM PST, which meant Amazon said it would go out the next day) and it STILL arrived one day after the expected arrival date with no delays. While not a critical metric, it does expose you to a certain amount of risk in regards to your ODR %. Unless the product is truly defective/not as described, you are pretty safe from most feedbacks that come your way. Package got lost in transit, customer didn’t ask you where it was and went straight for the jugular with a 1/5 feedback? Let Amazon know and they will strike it from record, protecting your ODR. If a package I sent got lost, I would be at the mercy and understanding of the never-reply customer, which means positively bubkiss if you’ve seen other posts on the forum.
Product Protection - If a package gets lost at Amazon, they reimburse you. If it gets run over by a forklift, they reimburse you. If one of their associates gets REALLY hungry and eats it, they reimburse you. If it gets lost on its way to the customer, they reimburse you. If it gets damaged on its way to the customer, they reimburse you. If the customer returns it and it gets lost/damaged, they reimburse you (with the exception of Defectives.) If the customer says they don’t want it, “return it” but never return it, they reimburse you. If it gets lost on its way back to YOU, they reimburse you. Basically saying, they will cover your product from the moment it leaves your door (with Amazon-partnered carriers with the exception of LTL, and even sometimes then.) to… well, the moment it arrives back at your door, if applicable.
Account Protection - You will not be responsible for any chargebacks or A-Z claims with the exception of any earmarked as Defective/Not As Described/Something that was reasonably within your control, and even then that’s only beyond the 30 day return period. Chargebacks will not count visibly against you, and I don’t believe A-Z claims can be filed, as they customer will simply be told to return the product.
That’s a lot of pros and good things to keep in mind/consider.
Cost - If you have a contract/discount through a shipping company and you can ship your widget of 1 pound across the states for $2, while Amazon will cost you $3, then FBA would not be advantageous.
Lack of Control - You can’t tell the customer to “try x” before returning in the event of a “how to use” product. This is because the customer will simply return it to Amazon as Defective solely because they don’t know what they are doing. Or they changed their mind. Or their brother Jimmy said that Y product is better than the piece of X you just sold them. There’s a million different reasons; the customers are getting smarter about their returns and it’s hurting us badly, but we always have to roll with the punches. Thus, the cost of doing business. You will also be very limited in what you can do with your inventory overall, shy of moving from them to you or from you to them. They will tell you where to send it, they will decide when they want to return it back should you place a recall, they will decide if you can or cannot receive your product back because it somehow ended up as “Hazmat.” The list goes on and on… but your abilities to control your products doesn’t.
Inbound shipping Delays - Located in California? Sending your product to Carlisle, PA? Yeah, you’ll need to wait for the little putt putt truck to make its way down there before Amazon even gets it on their dock. Then, it’s still not over: it needs to be checked in. Oh wait, but that’s still not enough! You will need to wait for it to be received. Thought you were finished now? Hah! If you have a certain amount of product (which varies by product) then Amazon will, at their discretion, take your inventory that just took 8 business days to get transported, delivered, received, checked in, and stocked and redistribute it out to their many facilities across the US. That means another 4 days before your product is fully stocked, and if you run out of stock from the first facility you are stuck waiting for the rest to be received. All this leads to the inverse should you not have to deal with this in the form of…
Multiple Shipment Creation - When you have a single product or even multiple products that needs to go out, but you have multiples of them, Amazon will tell you where to send it. This will require more time, planning, cost, and organization on your part to get your stuff out correctly. Every product needs to be in the right box going to the right location, and Amazon doesn’t like it when you mess that up. Even if you could live right next door to one of their warehouses, you could end up sending your product across the country because they said so, and there’s nothing you can do about it. Well, except pay a fee, but even then that only promises that each single sku of a product will go to the same warehouse, but if you have multiple SKUs you can still be stuck shipping to multiple facilities.
Why is Nevada asking me for taxes? - This is somewhat of a debated item but something you should definitely keep solid note of. Taxes, in the form of sales taxes, need to be paid to States. They are bleeding. They are crying. You will be bleeding and crying if you don’t pay your sales taxes. Now I’m sure you’re thinking that “Great, I collect them for my state because that’s where I am!” but there’s a concept to think about: your STUFF is now in another state. Or two. Or 8. It can vary with what your product is. The issue created is now your stuff, in said other state, is now in a nexus that you control. That state that has your hair cream could ask you to pay sales tax on all orders since you technically have a nexus. What does this mean for you? You get to pay Amazon commission to collect another state’s sales tax in the form of Sales Tax Commission! You get to fill out however many state Tax Forms as Amazon has warehouses! Countless more work. Now, again, this is still being debated as to what defines a nexus as it varies from state to state, how much is enough to be chased down by the states, etc, but this is purely for serious consideration.
Returns Increase - With increased sales come increased returns, but moreso because of how Amazon markets themselves. The “Easy returns process” makes it so it’s… well… easy to return something! As such, you will have many impulse buys, many experimental buys, many things you may not understand WHY they ever bought them (I’m still trying to figure out why a 65+ year old male bought… and returned… a mouse pad covered in flowers.) Your returns will double or triple with FBA, but also consider what they might have been without it and what your volume would have truly been.
Fees Fees Fees! - There’s a fee for everything, a fee for this, a fee for that, a fee to THINK about the fees. They do come with their own reason and within reason (again, my Costco’s worth of stuff only costing me a few hundred bucks a month in storage fees is a consideration) but for most, especially if you start out small, can be overwhelming.
Delayed Payments - Sometimes, a package that someone orders as part of a multi-facility (products coming from a bunch of different facilities) that doesn’t have prime will hold up your product as “reserved” for a week or more. Say that product is a $500 item sitting is their Phoenix facility and you needed the cash from that, but that little bottle of hair cream that they ordered happened to be in their Pennsylvania facility. Your customer is in California, so they are truck shipping the hair cream from Carlisle PA to PHX6 in Arizona. On the back of mule, sometimes. That week it takes to get there, THEN to repackage the order holds your product AND money, delays your payment because you don’t get the money deposited into your account until the product ships to the customer. Then, it depends on your disbursement cycle. This is a rare situation, but it happens. When you self-fulfill, the second you tell Amazon a tracking number and that the package has been sent, they give you the money.
All of these are things to consider when doing FBA. Please research all the fees and costs of doing FBA then make a business decision to see if it is right for you. Remember, FBA is a tool. It is NOT a business model. Remember this and use it as such.