What is Amazon FBA and How Does it Work: A Complete Guide

Complete Guide to Amazon FBA: Minimize Fees & Avoid Pitfalls!

Yes, it takes care of order fulfillment, allowing you to focus on selling products.

But, you pay lots of FBA fees and face stiff competition. Hence, many sellers wonder if it’s worth getting into at all.

Long story short, Fulfillment by Amazon is still worthwhile. However, lots of newbies go about it the wrong way. In this article, I’ll explain how Amazon FBA works and the fees involved, exposing common pitfalls for new sellers.

Key Takeaways

• Amazon FBA entails Amazon taking care of order fulfillment while the seller focuses on providing excellent products.
• FBA sellers pay several fees, including referral, fulfillment, and inventory fees.
• Third-party apps like Helium 10 and Jungle Scout allow for better product research and increase the likelihood of success.

How Does Amazon FBA Work?

As the name implies, Fulfillment by Amazon (FBA) is an e-commerce selling model in which Amazon handles all order fulfillment. This involves every step, from storing your products to packing them and shipping them to customers.

All you do is send your goods to an Amazon fulfillment center. From there, Amazon receives orders for your products and packages them for shipping to your customers.

It’s so hands-on that Amazon also processes returns!

In conclusion, Fulfillment by Amazon frees you from worrying about getting products to your customers. It also allows you to offer services that make Amazon so popular – free shipping, Amazon Prime, and free returns.

What Are the Requirements for Starting Amazon FBA?

Becoming eligible for FBA is a straightforward process. To become an FBA seller, you need to set up these essential things.

Amazon Seller Account

If you don’t plan on selling many units at first, start with the Individual account, which is eligible for FBA and only charges $0.99 per sale. However, the Professional account, which costs $39.99 monthly, offers additional perks like the Buy Box, access to otherwise restricted products, and dynamic pricing.

FBA Eligible Products

Ensure you sell products in categories that FBA can fulfill and set the product listings to FBA. When the time comes, you must package your products according to Amazon’s FBA policy and place barcodes on them.

Get Suppliers

The next step is to partner with a supplier to manufacture your products.

You can find suppliers on popular marketplaces like Alibaba or through tools like Jungle Scout’s Supplier Database.

Relevant Software Tools

These aren’t compulsory, but they offer a lot of functionality. For instance, they allow you to conduct better research (product, keyword, market, competitor, etc.) and access data that Amazon doesn’t directly provide.

Features you enjoy with applications such as Helium 10 include sales estimations, product and keyword research, inventory management and prediction, market tracking, listing optimization, PPC management, and more.

How Much Money Do You Need to Start Amazon FBA?

You need just enough money to create a Seller account, order the first product batch, and pay for storage at Amazon warehouses. Other selling costs are removed after customers have bought from you and will only be charged to your credit card if the money in your Seller account is insufficient.

Here’s a breakdown of everything that may cost you money while starting as an Amazon FBA seller.

While some sellers begin their Amazon FBA careers with under $1000, spending above $5000 to launch an FBA business is typical.

Thankfully, FBA beginners can use the Zoof Spotlight tool to find the best products in any niche that fits within their budget. Simply feed the tool your budget, choose Amazon product categories you’re interested in, and let it load up options.

Alternatively, you can follow Helium 10’s Project $5K case study after signing up (get sign-up discounts here) to learn how to use its tools to turn a decent profit while starting with smaller capital.

How Do I Earn From Amazon FBA?

FBA sellers earn after Amazon deducts fees from a purchase. Likewise, there’s no minimum payout, and FBA sellers are paid every 14 days for orders delivered seven days prior.

For instance, if a customer makes a purchase on the 2nd of a month and it gets delivered on the 5th, the payment becomes available for disbursement on the 12th, seven days later.

Sometimes, Amazon holds back some funds in reserve to deal with issues like refunds and cashback.

To collect your earnings, you must add an ACH-enabled checking bank account.

After disbursement, you receive the funds within 3 to 5 business days.

How to Navigate Amazon FBA Fees?

Here are all significant Amazon FBA fees, plus how to minimize your payments to maximize business revenue:

Referral Fees

Amazon FBA referral fees are commissions you pay to sell on the platform, which are charged for every sale you make. Referral fees range from 5% to 22%, reaching as high as 45%.

The table below shows select referral fees for some product categories selling on Amazon.

FBA Fulfillment Fees

FBA fees cover packaging, shipping, handling, customer service, and returns.

These fees are fixed values based on the size and weight of your product. Likewise, they usually range from $2.5 to $7.25.

The best part of these fees is that they’re only deducted after sales. So, you won’t be paying out-of-pocket, only from the revenue realized.

Refund Administration Fee

You may have to refund a customer if they return a product. Of course, such returns must go through Amazon’s comprehensive return system before they’re deemed eligible for a refund.

Once you’ve paid a refund, though, Amazon will also refund your referral fee.

However, that’s not before the e-commerce giant charges an administration fee of $5 or 20% of the referral fee, whichever is less.

Inventory Storage Fees

Remember that FBA sellers have to send their stock to Amazon warehouses for easier and quicker fulfillment? Hence, you’ll pay Amazon for inventory storage – $0.78 per cubic foot for standard-size products and an additional $0.56 per cubic foot oversize on off-peak months.

For peak months (October to December), the fee jumps to $2.40 per cubic foot for standard-sized products and $1.40 for every additional cubic foot taken by oversized products.

Other Fees

Besides the significant fees mentioned above, you may sometimes pay extra fees.

For example, there’s an inbound placement service fee for distributing your goods to several warehouses and a low inventory-level fee for keeping relatively low stock compared to sales.

Additionally, you can pay Amazon to make labels for your products, ensuring better customization and improving your brand image with customers.

How to Save on Amazon Fees?

How can you minimize Amazon’s seller fees to increase your net profit without cutting corners? Below are several ways to do so.

Enroll in the SIPP Program

Amazon Ship In Product Packaging (SIPP) allows you to ship your packaged product from the warehouse without having Amazon repackage it with its material. That reduces the fulfillment costs, specifically the ones incurred by having Amazon use its in-house packaging for your products.

This saves $0.04 to $1.32 per order, quickly adding up over multiple orders.

Low-Price FBA Program

To automatically qualify for the low-price FBA program, a product must be priced at $10 or less. The benefit is reduced fulfillment fees.

However, this won’t work for sellers of large equipment, household furniture, or other Amazon categories where such low prices are impossible.

Ship to Only One Fulfillment Center

Opt out of shipping to several fulfillment centers to minimize the amount you pay for shipping and the FBA inbound placement service fee.

The best way to optimize for this is to get the data on where most of your customers come from. Then, ship to an Amazon warehouse near them.

That way, you minimize the associated costs while ensuring quick order deliveries.

Keep Enough Stock to Avoid Low Inventory-Level Fees

Amazon started charging low inventory-level fees to sellers who keep their stock relatively low compared to the unit sales. You can avoid this by constantly restocking and ensuring your inventory can last at least one month.

Even so, there’s an issue of overstocking a product, which can result in paying more for Amazon storage fees. That’s where helpful tools like Helium 10’s Inventory Manager can help you predict optimal stock levels.

This is primarily applicable to Amazon US sellers

What is Amazon FBA (Fulfillment by Amazon): Guide 2025

Amazon FBA is the most popular method of selling on Amazon. Over 90% of third-party sellers use FBA, a healthy portion of them making over $5 thousand per month in sales.

But if you want to make some real money, you need to know where to start. To find out how to effectively use Amazon FBA, check out our guide below.

Table of contents

1. What is Amazon FBA
2. How Does Amazon FBA Work
3. Amazon Fulfillment Pros and Cons
4. How to Start Amazon FBA and Become a Successful Seller
   1. Sign Up to Become a Seller
   2. Find a Product to Sell
   3. Enroll in the FBA Program
   4. Create a Product Listing
   5. Send Inventory to Amazon

   What is Amazon FBA?

   What does Amazon FBA stand for? The Fulfillment By Amazon. The definition of FBA is outsourcing product fulfillment to Amazon, meaning they handle the shipment and storage of your products.

   FBA sellers will always have the Amazon Prime label you see on the website. Both small and large sellers can take advantage of FBA.

   How Does Amazon FBA Work?

   Amazon FBA starts by having your products sent to fulfillment centers. From there, Amazon employees take your products, store them in its facilities, and ship them on behalf of you to your customers anytime someone clicks the “Buy Now” or “Add To Cart” button.

   

   

   Amazon FBA also handles your customer service, returns, and storage. So, if you are an ambitious seller with no warehouse, Amazon FBA can help you sell alongside veteran sellers.

   Amazon Fulfillment Pros and Cons

   To understand the pros and cons of using FBA, you need to know the alternatives. There are two: FBM (Fulfillment By Merchant) and using a third-party fulfillment company.

   First, let’s take a look at the reasons you should or should not pursue FBA.

   • FBA allows you to outsource shipping, customer service, and storage.
   • You can earn sales faster because FBA lets you reach a wide audience.
   • FBA can cost you less than using other shipping methods (third-party suppliers, DHL, UPS, and FedEx)
   • Most of your inventory management is automated, as Amazon sends you updates when you make a sale or lose inventory.
   • You can have stranded inventory stuck in an Amazon warehouse if Amazon is your only sales channel.
   • You can’t control the quality of shipping, which might be an issue if you send fragile items.
   • The service costs less than some third-party suppliers, but still quite a lot.

   To see how FBA compares to alternative options, check out these comparisons:

   Amazon FBM vs FBA

   FBM is when the seller (or merchant) handles shipment and storage themselves. Here are the pros and cons of FBM:

   • Pro: FBM is ideal if you have an existing logistical network. This is good if you want to avoid paying Amazon’s FBA fees.
   • Pro: Through FBM, you won’t need a minimum order that comes with outsourcing to third-party companies.
   • Con: FBM sellers often don’t rank as well as FBA sellers. Amazon prefers it when you use internal services.
   • Con: You have to handle customer service, returns, and fulfillment yourself, creating more hassle.

   Amazon FBA vs using third-party fulfillment services

   Alternatively, you can choose to use a third-party fulfillment service. Here is how external fulfillment services might compare to FBA:

   • Pro: Using outside fulfillment options might give you better distribution channels outside of Amazon.
   • Pro: Smaller, third-party fulfillment companies offer services Amazon might not provide.
   • Con: FBA still generally ranks higher than third-party services.
   • Con: The service quality might be dodgy with these smaller companies. You might also have to make minimum monthly orders.

   Ultimately, it’s hard to compete with Amazon FBA. Despite needing to pay fees, FBA sellers reach more locations and provide consistent services.

   How to Start Amazon FBA and Become a Successful Seller

   Now that you know a bit more about FBA and how it compares to other options. Now, you need to understand how to use it. Below, you’ll find our proven five-step process for Amazon FBA.

   1. Sign Up to Become a Seller

   Before you can sell on Amazon, you need a seller account. This account gives you access to Amazon Seller Central, which is where you’ll be managing your seller account.

   To start, go to Amazon’s sign-up page. You can use your normal Amazon account to save you time. Regardless, be sure it has accurate information, as you’ll need to confirm it later.

   

   

   You’ll need to provide information like your name, your address, and your contact information. Once you get through that, you’ll need to take four additional steps to verify yourself.

   These steps include verifying your bank account, sending front and back photos of your ID, and receiving a postcard with a code to verify your physical address. You will also need to take a video interview with Amazon, bringing your bank statements and IDs to prove your identity.

   You’ll also need to provide a regular payment card to sign up for an Amazon Individual or Professional Account. An individual account costs $0.99 per listing while a Professional Account costs $39.99 per month and charges $0 per listing. Professional accounts also get more advertising features, which is ideal if you plan on selling more than 40 items.

   2. Find a Product to Sell

   The most important part of starting your Amazon business is picking effective products. Choosing the right products can help you earn greater profits, feeding into the eCommerce business you want to be successful.

   To start, you need to know what to look for to make your product search easier. Below are some general suggestions you can use to find the best products:

   • Choose products that cost between $15 to $50. These will move relatively fast while ensuring you avoid cheap items that don’t make a profit.
   • Stick with small and light products. Small and light products require less cost to ship because of their weight and the number of boxes you can fit in a storage area. As a result, you save money on all fronts.
   • Focus on low-competition, high-demand products. To start, you generally want to avoid products that have too much competition, but still have high demand. Try and combine areas that have more than ten thousand sales, but not more than 100 reviews (or something nearby).
   • Be wary of seasonal products. Seasonal products, like snow boots, are generally only popular during a short period in the year. When selling them, be sure to plan for when those sales fall off.
   • Keep an eye out for gated products. These products require additional certifications or licenses. In some cases, they might also be trademarked by other groups. Account for the extra effort necessary to sell these products.

   Identifying all of these in your products will help you sell more effectively. But if you want to save time and research all factors at once, you’ll need to use two tools.

   Using the AMZScout Product Database to find products

   The AMZScout Product Database is a great starting point if you want to find a list of potential products. Below are the steps you can follow to get started:

   1. Open theAMZScout Product Database. You can log in to your account by taking advantage of the AMZScout Seller’s Bundle. No payment card is necessary to start.
   2. Set product criteria. You can set these using the search filters. For example, you might use our suggestion above to filter by number of sales. If you don’t know where to start, use our ready-made Product Selections.

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