There is no doubt that Amazon provides a stellar system for merchants to reach out to their customers and fulfill orders in an efficient manner. That is the reason why over 300 million people globally buy on the Amazon marketplace each year and over 2.5M third-party sellers (FBA and FBM) are active on the platform.
However, selling on Amazon comes with its own set of challenges and drawbacks. What makes matters more complicated is the fulfillment process carried out by Amazon and the exorbitant fees that take away control from the original merchant and make fulfillment a costly affair.
This is why the majority of Amazon sellers prefer to adopt a different strategy as they grow in revenue and customers. They may turn to the Fulfilled-by-Merchant strategy or may do a combination of FBA and FBM. Some may completely part ways with Amazon and manage sales channels, orders, inventory, and fulfillment independently. This helps them retain control and lower operational costs at scale.
Here is a guide on the most common challenges merchants on the Amazon platform face and what they need to bring their fulfillment process in-house.
Compromised Cash Flow
Amazon has a strict structure around payouts. Usually, the payouts are made every two weeks.
On the other hand, vendors need to pay to acquire/produce inventory that they later sell on Amazon and other channels. Many manufacturers in China, for example, expect a 25% payment upfront. The manufacturing process, coupled with shipping, customs clearance, and Amazon payout cycles could mean a merchant gets paid after 3-4 months post the advanced payment for obtaining the goods. This way, the Amazon sellers are subject to long periods of time before they achieve any return on their investment in inventory.
Cash flow is certainly a massive challenge faced by merchants that sell on Amazon. One solution to this problem is setting up one’s own sales channels such as an e-commerce store. This way a merchant can retain control over sales and also be the direct recipient of payouts anytime a sale is made. This also helps in eliminating Amazon as an intermediary in the payments process. More details of how Amazon charges for its services can be found later in the article.
High Degree of Competition
Amazon allows a large number of sellers to sell the same product. At the same time, the barrier to entry for sellers on the Amazon platform is extremely low.
Unless the merchants are selling an exclusive product, they are always competing with a large number of other players. The excessive competition also makes it typically hard to be discovered by enough customers to convert more sales. The said competition isn’t just local. Out of the 900,000 Amazon sellers registered in the United States, almost 38% of them are based out of China where manufacturing goods is a lot cheaper giving them an opportunity to penetrate the market with lower prices. In fact, in 2020, 2/3rd of all Amazon FBA sellers interviewed in a survey expressed concern and fear over the increased competition leading to a steep decline in prices.
Having one’s exclusive sales channels and marketing mediums provides merchants a chance to create a unique positioning for their products and go one step further in building the brand that they wish to.
Amazon has strict guidelines on how products must be sent to the Amazon Fulfillment Centers. The company has over the years suggested certain box sizes and deviations from them could either slow down the process or worse, may render the entire consignment improper. In the latter case, the items are sent back to the merchant and all costs associated with the activities completed previously are borne by the merchants. The charges for both the delivery and the return from the Amazon warehouse are paid for by the Amazon fba seller. This also poses a major opportunity cost since the inventory stuck in transit/inspection could have been sold on other channels. There are various other reasons why Amazon could reject shipments such as unaffiliated shipping partners, failing to meet Amazon pallet requirements, cancellation due to delay, etc.
Both FBA and FBM merchants are bound by policies that dictate their packaging process. The packaging process typically consists of two pillars, the labeling and the actual packaging of individual products and the consignments sent out to the Amazon Fulfillment Centres. Amazon expects each merchant to follow international labeling standards for their manufacturing labels, Amazon labels (such as FNSKU), and brand owner labeling (to prevent counterfeiting of high-value items). Amazon sellers also have a choice to let Amazon produce labels for their individual product units. However, the FBA Label Service may turn out to be costly for low-margin products as Amazon charges about £0.15 or $0.20 for each unit it generates and places a label on.
Once the merchant has taken care of the labeling and the barcodes, the next step is to adhere to all the packaging requirements for selling on the Amazon platform. Amazon has rigid guidelines around loose products, sets, boxed units, polybagged units, and case-packed products where each box with the same product must have the same number of units and the same SKUs. This ends up adding to the operational complexity and the costs associated with the fulfillment process.
Merchants do also have the alternate FBA Prep Service, where Amazon prepares the consignments to be sent to the Fulfillment Centers and properly packages the products. However, the cost of this service can range anywhere from $0.95 to $3 and isn’t available for each category of product. Similarly, merchants can also choose to buy the recommended packaging material from providers of Amazon Preferred Packaging, but, this again isn’t cheap and may not be suitable for lower margin products.
Strict Inventory Expectations
Merchants on Amazon are expected to maintain prescribed levels of inventory at all points. Too little inventory with high turnover means frequent stockouts. High levels of inventory that doesn’t liquidate for longer periods of time means high storage charges and penalties imposed by Amazon. Both situations tend to impact a seller’s performance on the Amazon marketplace. Businesses in today’s age need an algorithmic forecasting and recommendation system to attain optimal inventory levels based on historical inventory and sales data. This helps companies save on inventory holding costs and drive higher customer satisfaction and retention.
Amazon doesn’t just have restrictions around inventory levels but it uses a metric called Inventory Performance Index (IPI) to assess a seller’s handling of inventory. The metric is based on the 12-month performance of four components, excess inventory, sell-through rate, stranded inventory, and in-stock inventory.
There are quite a few disadvantages associated with a low IPI score. First, Amazon sellers with lower IPI scores may have their products show up lower in the search results. This leads to them losing their product positions to their competitors in an already highly competitive environment. A lower IPI score can also lead to sellers losing on the Amazon Buy Box leading to other vendors for the same being prioritized in the product page on the platform.
They may also lose their Amazon Prime status making their listings less appealing to the consumers in the age of rapid and expedited deliveries. This way, an Amazon seller is totally dependent on Amazon for how well their products are discoverable to the consumers and if they get the Amazon Prime tag. Currently, due to the COVID-19 pandemic that has caused severe disturbances to inventory and supply chain operations, the recommended IPI score is between 300-700. However, as of the 2021 Holiday Season, Amazon has also started using the IPI to prescribe certain limits on the restock quantity and the storage space allocated to a fba seller with some sellers only being allowed up to 25 cubic feet worth of inventory.
Vendors with IPI scores of less than 500 are subject to losing out on allocated storage space and are supposed to operate under the limits imposed on them. There is no way a merchant can appeal these restrictions and has to wait till the next quarter when the inventory performance is reassessed and new IPI scores are computed.
High Amazon Fees
Amazon charges medium to high Amazon fba fees for its services at every step of the process. These charges range from one-time to regular. As these charges pile up, some Amazon FBA sellers have even recorded up to 53% of their entire revenue going to Amazon in the form of various fees and charges. Even for the FBM or Fulfillment-by-merchant model, sellers have had their Amazon-related costs as high as 27% only for the product listing and any search ads they may have run.
First-off, Amazon charges 39.99 for setting up an Amazon seller account for ‘Professional Sellers’. This is a recurring monthly payment irrespective of the number of products and volume of sales. Additionally, merchants must also pay the referral fee or commonly called the commission. This ranges anywhere from 6-45% depending on the retail price and the product category. The referral fee is bound by the ‘Minimum Referral Fee’ which sets the lower threshold for the commission in each category. The Minimum Referral Fee is typically 0-2% depending on the category.
The biggest contributor to the costs is by far the fulfillment fees under the Amazon FBA program. Amazon clubs the picking, packing, and shipping costs as one and it is to be paid for by the merchants. These costs can range anywhere from $2 to $6.8 in the US depending on the size, weight, and category of the products. Additionally, a lot of sellers do fall prey to the storage fees if their inventory is not liquidating quickly enough. Amazon normally charges $.75 per cubic foot for most parts of the year but during the October-December period, the charge is around $2.4 per cubic foot of storage space used. In order to keep up with the demand and the competition during this period, sellers end up paying exorbitant amounts towards storage that hampers their profitability.
To top it all, it is becoming increasingly difficult for merchants to rank higher on search results without the use of paid advertising. 3 out of 10 top results on Amazon are normally the products being promoted for the keyword/category. In fact, Amazon earned over $9.7B from their advertising segment only in 2021. This leads to sellers bearing more costs in addition to their regular promotion and marketing spends.
As manufacturing and trading companies grow in revenue and volume of units sold, there is an innate need for them to set up their own fulfillment operations. This involves setting up their own order fulfillment warehouses and tying up with a shipping service such as FedEx, UPS, etc. Taking ownership and control of the entire fulfillment cycle proves to be beneficial to a growing company in many ways such as:
Consistency in Storage Fee
Having one’s own warehouse prevents sellers from any fluctuations in storage fees due to seasonality or their previous inventory performance, which Amazon assesses using the IPI.
No Seasonal Restrictions
As discussed above, Amazon may at any point in time, impose limitations on the storage space allocated and the restock quantities allowed to a merchant. This is the reason why the number of FBM sellers grew by over 20% in 2021. FBM allows sellers to have full control over their warehouse space utilization.
Control over Fees and Costs
Businesses have a lot more control over their cost structures when they have independent fulfillment operations and are not subject to Amazon’s exorbitant pricing.
Should a company wish to move its inventory out of Amazon’s warehouses, it is subject to high fees and taxes. This is a major issue faced by sellers and is all the more severe in the age of the pandemic where 93% of all SME Amazon sellers have experienced supply chain disruptions. However, this can be prevented with the company's own independent warehouses.
The pandemic has been a challenging period for all retailers alike, e-commerce or not. One important lesson learnt is that Amazon doesn’t always have the sellers’ best interests in mind. That’s why so many companies, from multi-billion dollar Nike to SMEs are parting ways with Amazon and taking charge of their fulfillment process. A lot of scaling businesses are beginning to realize that the benefits of taking ownership of their operations far outweigh the vast network Amazon provides.
The move from an arrangement like the Amazon FBA to insourced fulfillment is complex and challenging for large and small businesses alike. Firstly, they must find and compare different shipping services that can provide the transportation infrastructure suitable for their products and the target market. Similarly, they also need to have a robust Warehouse Management System (WMS) that can assist and automate the activity of providing data-driven actionable insights for better inventory control, multi-channel order management and batching, picking and packing processes, and overall fulfillment efficiency.
Schedule a demo today to understand how Hopstack’s AI-driven WMS can help you supercharge your warehousing operations and can make the switch to in-house fulfillment seamless!
Is Amazon FBA worth it in 2023? ›
Summary – Is Amazon FBA Still Worth It In 2023? Yes, it's still an excellent opportunity to start a sustainable, scalable business in 2023 and beyond. The e-Commerce market is moving in the right direction for brand-new sellers.What is the biggest challenge Amazon is facing? ›
Cashflow is easily one of the biggest challenges that most Amazon sellers will face (and really, this can apply to other ecommerce businesses as well).What is Amazon's new policy 2023? ›
Effective March 1, 2023, we're replacing the weekly restock limit and quarterly storage limit with a single monthly capacity limit per storage type to give you more predictability and control over your inventory.Is selling on Amazon profitable 2023? ›
As compared to other business models, the Amazon marketplace generally makes higher profit margins. According to the Jungle Scout survey, most sellers earn a monthly revenue of between $500 to $5, 000 per month, but you will find prime sellers that make more money that can go up to $100,000 per month.Can I be a millionaire by Amazon FBA? ›
Becoming a millionaire through Amazon FBA is not going to happen overnight. If you are willing to put in the effort, there is no reason why you can't achieve this level of success. You need to build a brand that customers can trust and that they will want to buy from again and again.What are Amazon's three big ideas? ›
According to Amazon Founder and CEO, Jeff Bezos, “The three big ideas at Amazon are long-term thinking, customer obsession, and a willingness to invent,”. With that mentality, he pioneered new industrial sectors and changed the ordinance of commerce.Why do sellers leave Amazon? ›
Reason #1 why people quit Amazon: not understanding the rules. Reason #2: focussing on the negative. Reason #3: not finding profitable products to sell. Reason #4: not knowing their numbers well enough.What are some Amazon threats? ›
- Unchecked Agricultural Expansion. Uncurbed expansion of ranching and unsustainable farming practices clear forests and leaves areas more prone to fires that can quickly become uncontrolled.
- Illegal and Unmitigated Gold Mining. ...
- Illegal Logging.
But, with such great size, comes a set of unique risks. The biggest risks of investing in Amazon.com, Inc. (NASDAQ: AMZN) stock are increasing competition, profit potential uncertainty, revenue growth uncertainty, speculative valuation and share price volatility.What are the common inventory issues faced by Amazon sellers? ›
- Running out of inventory.
- Overstocking inventory.
- Stranded inventory.
- Aged Inventory Surcharge (previously known as long term storage fees)
- Keep a close relationship with your supplier.
- Maintain around 60 days of supply.
- Reduce excess inventory.
- Plan for the unexpected.
What is Amazon's future strategy? ›
Its plans include investing heavily in expanding fulfillment centers and other logistics capabilities. Driving further growth in the number of sellers and packages going through Fulfilled by Amazon (FBA) is a key focus.What is the future plan of Amazon? ›
Investing in India
Bezos also announced that Amazon would be exporting India-made goods worth $10 billion (£8bn) by 2025, with the company keen to secure a firm position in the country's retail market.
Prime members can access thousands of books, magazines, comics and audiobooks completely for free with Prime Reading. You also have access to one free pre-release e-book per month, chosen by Amazon editors as top new releases. Take Our Poll: Are You In Favor of More Inflation Relief in 2023?What is the average FBA income? ›
As of Mar 4, 2023, the average annual pay for an Amazon FBA in the United States is $43,935 a year. Just in case you need a simple salary calculator, that works out to be approximately $21.12 an hour. This is the equivalent of $844/week or $3,661/month.Is Amazon FBA still worth doing? ›
But if you're someone who will work hard, not take no for an answer or take the first excuse to quit that comes your way, then selling on Amazon FBA is most definitely still worth it. It remains to be one of the clearest, most predictable routes to a 7-figure business in the 2020s.Is Amazon FBA a good side hustle? ›
It doesn't matter whether it's a hobby, your side hustle, or full-time income – you want your Amazon FBA business to be making you money and it can. Selling on Amazon FBA in 2021 is still worth it, there is plenty of money to be made if you go about it the right way.Who is the biggest Amazon FBA seller? ›
How much profit margin for Amazon wholesale FBA sellers in a single product? You can expect a margin of around 15-20% for wholesale products. Sometimes less, sometimes more. Depends on how much you can source products for.Can you make 6 figures with Amazon FBA? ›
It's arguably a better marketplace than eBay in which to set up a store if you plan to sell new goods. Building an FBA business is also a great way to create a profitable asset that can scale to a six- or even seven-figure value.How can I improve my Amazon strategy? ›
- Optimise Your Title. ...
- Pile on the Feedback. ...
- Guard Yourself Against Competitors. ...
- Automate Product Prices with a Repricer. ...
- Don't Skimp on Keywords. ...
- Sync Your Inventory. ...
- Improve Product Photos. ...
- Follow Amazon's Rules and Terms of Service.
What is your biggest weakness Amazon interview? ›
GG's Amazon Interview Weakness Answer
I would tell my interviewer that because of my very strong bias towards making everything perfect, the result is sometimes I find myself unable to take action because I always want it to be a bit better before I let it go.
Loss-leaders are the products sold at a loss to attract customers into a store. The assumption is that the shoppers who come to purchase the loss-leaders will also purchase profitable products. Of course, Amazon is a master of the loss-leader strategy.What is the secret to Amazon's success? ›
Jeff Bezos has openly shared his 'secret' to Amazon success is “obsessive compulsive focus on the customer”. Is Jeff Bezos revealing the truth behind his success? Yes, I believe he is. Steve Jobs contributed to Apple's success by doing the same thing — obsessively focus on customer experience.What is Amazon's biggest customer? ›
With 356 billion U.S. dollars in net sales, the United States were Amazon's biggest market in 2022. Germany was ranked second with 33.6 billion U.S. dollars, ahead of the UK with 30 billion U.S. dollars.What is the best product to sell on Amazon? ›
What items sell the most on Amazon? Some of the best selling categories on Amazon include video games, electronics, clothing, shoes, jewelry, books, home and kitchen, beauty and personal care products, and pet supplies.What should I not do when selling on Amazon? ›
- Trying to Have Multiple Seller Accounts.
- Registering for a Seller Account That Doesn't Suit Your Needs.
- Having Non-Moving Inventory.
- Running Out of Inventory.
- Messing Up on Fulfillment.
- Trying to Go Head-to-Head with Amazon.
- Applying eBay Rules to Amazon.
- Saturated products. ...
- Cell Phones & Accessories. ...
- Trademarked/Patented Products and Counterfeits. ...
- Items for less than $10. ...
- Fad & Seasonal products. ...
- Makeup Products. ...
- Fragile Products. ...
- Products that Have Too Many Variations.
“Amazon is facing a looming crisis,” says Jason Del Rey in an article for Vox. “It could run out of people to hire in its US warehouses by 2024, according to leaked Amazon internal research from mid-2021 that Recode reviewed.What industries are challenged by Amazon? ›
- Grocery Delivery. ...
- Brick-And-Mortar Retail. ...
- Meal Prep. ...
- Real Estate Referrals. ...
- Gadget Specialists. ...
- Movie And TV Content. ...
- Music Streaming. ...
- Social Media.
If Amazon had no tax breaks, it would have paid 21% of its profits in corporate income taxes, or $7.3 billion, the report said. Amazon avoided about $5.2 billion in taxes in 2021, it said. When asked about Amazon's tax payments in 2021, a spokeswoman referred questions to the company's blog.
What are the top two safety behaviors at Amazon? ›
- Tip #1 | Communication is key to Amazon warehouse safety. ...
- Tip #2 | Inside an Amazon warehouse, security processes are streamlined. ...
- Tip #4 | Improve warehouse safety by keeping work areas clean, well-maintained, and organized.
International Peers - Amazon.com Inc.
|Company Name||Amazon.com Inc.|
|Market Cap. last (mUSD)||962 423|
|Year-To-Date Price Change (in local currency)||11.8%|
- Companies face a variety of business risks that can threaten their ability to achieve their goals if these risks are not monitored and navigated properly. ...
- Financial Risks. ...
- Compliance and Legal Risks. ...
- Cybersecurity Risks. ...
- Operational Risks.
When Amazon either loses, has destroyed, or disposed of your inventory, you are entitled to money damages. Your money damages at arbitration include the sale price of your goods as if they were never lost or destroyed, minus the FBA fees.What is the minimum inventory for Amazon? ›
No, there is currently no minimum amount of stock required to begin selling on Amazon. With Amazon FBA, you can sell items as fast as you would like since the program is extremely flexible in terms of when users are required to sell.Are there sketchy sellers on Amazon? ›
Beware of shady sellers on Amazon
Not all Amazon sellers are on the up-and-up, and the products you're purchasing may be unsafe, mislabeled, banned, or just not at all what you were originally promised. In fact, that study found more than half of those items were problematic for a variety of the aforementioned reasons.
With its vast network of fulfillment centers and its PillPack acquisition, Amazon could offer cheaper and faster delivery, pricing out the retail pharmacies in the long run. Amazon also has footholds in the brick-and-mortar world it could eventually leverage, through Whole Foods and its Amazon Fresh grocery chain.What is Amazon's end goal? ›
Amazon's business strategy is based on one primary goal: to meet every customer need and want with a superior experience, so Amazon becomes part of every single purchase made.What will Amazon be in 2030? ›
Amazon Stock Forecast 2030-2034
In this period, the Amazon price would rise from $333.71 to $420.39, which is +26%. Amazon will start 2030 at $333.71, then soar to $340.74 within the first half of the year, and finish 2030 at $348.07. It is about +258% from today.
The future of Amazon is bright and also generates a dizzying amount of complex questions, but given its history to date, its ability to execute on multiple fronts, often in parallel, and still under the leadership of its dynamic, visionary founder, there's little doubt that, over the next decade, Amazon will continue ...
Does Amazon have a 5 year plan? ›
2024-2028 Monthly Planner 5 Years- Make It Happen Today: 60 Months Yearly Planner Monthly Calendar, Floral Agenda Schedule Organizer and Appointment ... Federal Holidays and Inspirational Quotes.Who is Amazon's competition? ›
Amazon's retail store rivals include Target, Walmart, Best Buy, and Costco. For subscription services, Amazon competes with Netflix, Apple, and Google. In the web services category, Amazon has several rivals such as Oracle, Microsoft, and IBM.Is Amazon worth it 2023? ›
Summary – Is Amazon FBA Still Worth It In 2023? Yes, it's still an excellent opportunity to start a sustainable, scalable business in 2023 and beyond. The e-Commerce market is moving in the right direction for brand-new sellers.How much is Amazon Prime 2023 monthly? ›
Current Amazon Prime membership pricing: $14.99 per month. $139 per year. Prime Video membership is $8.99 per month.How much will Amazon Prime cost in 2023? ›
A standard Amazon Prime membership will run you $14.99 per month, or $139 for a one-year subscription. Meanwhile, students and qualifying government assistance recipients can sign up for Prime for up to 50% off.Is Amazon FBA a good idea to start? ›
FBA is an excellent way for many people to find their online sales and marketing niche on the Amazon Marketplace and other channels. Everyone knows that Amazon works with third-party sellers, but many don't know the full extent.How long does it take for Amazon FBA to make money? ›
If you're wondering, “How long does it take to make money on Amazon FBA?” It depends on your budget, time commitment, and product. The average person can make money within 3-4 months of starting this journey.What is the disadvantage of Amazon FBA? ›
Cons of Using Amazon FBA
If you're not grossing enough each month, the FBA fees can really cut into your profit margin. There are also multiple fees for things like storage, packaging, shipping, listing and more (but there are also ways to lower Amazon FBA fees, too). Branding Limitations.
89% of Amazon sellers are profitable.
Even as rising costs create new challenges, 37% said their profits increased throughout 2022.
Will every seller who launches a product on Amazon be successful? Probably not — but if you put in the work, constantly improve and learn from your mistakes, you will be successful at selling on Amazon. Anyone can do it.
Is it hard to make money on Amazon FBA? ›
While making money on Amazon FBA may not be easy, it can be done if you put the time, energy, and work in. Follow the above steps and consider our tips as you set out on your journey as a seller on Amazon. Create a selling strategy, find a niche, do your research, and, above all, get the right tools for the job.Can you make a living off FBA? ›
It doesn't matter whether it's a hobby, your side hustle, or full-time income – you want your Amazon FBA business to be making you money and it can. Selling on Amazon FBA in 2021 is still worth it, there is plenty of money to be made if you go about it the right way.Can you make 10k a month with Amazon FBA? ›
Jacky declared in another video that spending just one hour a day to learn Amazon FBA can allow you to “quit your job in six months and make $10k per month just like I did.” In fact, Jacky says that she rakes in a staggering $30,000 to $50,000 per month by selling just five products on Amazon, per another clip.How much can Amazon FBA make a month? ›
In fact 70% of Amazon sellers make more than $1,000 per month with one in four (25%) making over $25,000 per month. Whilst the earning potential is significant, there are many factors that go into the actual Amazon sellers' profit taken home beyond merely annual sales figures.What percentage does Amazon FBA take? ›
Typically, this fee is a flat percentage, often 15% or less. However, you don't have to pay these fees upfront. Instead, referral fees are taken out of your Amazon account after the sale is made.