What Is Amazon FBA and How Does It Really Work?

What is Amazon FBA?

If you’ve ever ordered something from Amazon and got it within two days with that little blue Prime checkmark, there’s a good chance it came from an Amazon FBA seller. FBA stands for Fulfillment by Amazon, a program that lets sellers store their products in Amazon’s warehouses so Amazon can handle the packing, shipping, and customer service.

Instead of boxing and mailing every order yourself, you send your inventory to Amazon’s fulfillment centers. When a customer buys from you, Amazon picks the item, ships it, and even handles returns or questions. It’s like having a 24-hour logistics team that never takes a weekend off.

1. Why Sellers Use FBA

The biggest reason is convenience. Sellers don’t have to deal with storage, packaging supplies, or daily shipping runs. Amazon’s team takes care of it, which saves time and lets you focus on finding profitable products and growing your brand.

There’s also a powerful Prime advantage. Every product stored and shipped through FBA becomes eligible for Amazon Prime’s fast shipping badge. In 2024, most Prime members buy only items with that badge because they trust the delivery speed and customer service. As a result, FBA products tend to appear higher in search results and convert better.

2. How Popular Is FBA Today

As of 2024, roughly 82% of active Amazon sellers use FBA as part of their business model, according to Marketplace Pulse data. The trend isn’t slowing down because it removes so many barriers to selling at scale. For new sellers, it’s often the fastest path to compete with established brands without building a warehouse or hiring staff.

Some people call it the “smart version of dropshipping.” The difference is that you actually own your inventory, but Amazon does the shipping for you. That gives you control over quality while still benefiting from Amazon’s massive logistics network.

How Amazon FBA Works (Fulfillment Process)

If you’ve never used FBA before, it can sound more complicated than it is. The process follows a simple flow: you send your inventory to Amazon, they store it, and when an order comes in, they handle the rest. But each step has details that can make or break your success especially if you’re new.

Step 1: List Your Products

Everything starts in Amazon Seller Central, your control panel for selling. You create a product listing with a title, bullet points, and images. If your item already exists on Amazon, you’ll just add your offer to that existing listing. But if you’re launching something new, you’ll create a fresh ASIN (Amazon’s unique product ID).

Here’s a simple rule that still holds true in 2025: your listing is your salesperson. The title needs to be clear and keyword-focused within the first 80 characters, and the images should do the heavy lifting by showing real scale, packaging, and benefits.

Step 2: Prepare and Label Inventory

Before shipping your products to Amazon’s warehouse, you’ll need to prep them correctly. That means:

• Applying FNSKU labels (Amazon’s scannable product ID that ties inventory to your account)
• If your brand already has manufacturer barcodes like UPCs, EANs, or ISBNs registered through GS1, Amazon can track your products using the existing GTINs, which saves time and reduces relabeling work.
• Using proper packaging (bubble wrap, poly bags, or boxes depending on the item)
• Bundling products together if you’re selling multi-packs

Amazon checks every shipment when it arrives. If something’s mislabeled or packaged incorrectly, they’ll either re-label it and charge you a fee or reject the shipment altogether. This step is where many beginners slip up, so double-check the prep requirements in Seller Central before sending anything.

Step 3: Create a Shipping Plan

Inside Seller Central, you’ll tell Amazon how many units you’re sending, the box sizes, and the weight. Amazon’s system then assigns which fulfillment centers will receive your inventory. Sometimes they’ll split shipments between multiple warehouses so customers across the country get faster delivery.

Most sellers use Amazon’s Partnered Carrier Program because it gives heavily discounted UPS shipping rates. You can print your shipping labels directly from Seller Central and schedule Pick-up or drop off the boxes at any UPS location.

Step 4: Amazon Receives and Stores Your Inventory

Once your shipment reaches the warehouse, Amazon scans in each product and updates your inventory status in real time. From that moment, your items become “Active” and eligible for sale.

Amazon’s fulfillment centers use advanced robotics and tracking systems to store your stock efficiently. You don’t need to track which bin or shelf it’s on and Amazon handles that. Your focus should stay on sales, not logistics.

Step 5: Orders Are Fulfilled Automatically

When a customer buys your product, Amazon’s system takes over instantly. The order is picked, packed in an Amazon box, and shipped out to the customer, usually the same day. The customer gets their tracking number, and Amazon’s team handles any delivery questions or returns.

You’ll see the sale reflected in Seller Central within minutes. You don’t lift a finger during the fulfillment process.

Step 6: Customer Service and Returns

One of the biggest benefits of FBA is that Amazon manages customer service for all FBA orders. If a customer wants a refund, replacement, or has a delivery issue, Amazon takes care of it. This saves sellers hours each week and keeps customer satisfaction high.

That said, it’s still smart to check your return reports regularly. They can reveal product issues early, like packaging problems or quality complaints, that you might need to address with your supplier.

Benefits of Amazon FBA Business

Most new sellers join the Amazon FBA business for convenience, but the real value goes far beyond just shipping help. FBA changes how you operate — it lets you focus on growth while Amazon handles the heavy lifting. Below are the benefits that truly matter in 2025, not just the marketing bullet points.

1. Prime Badge = More Sales

Every product fulfilled by Amazon automatically gets the Prime badge, which is one of the most powerful trust signals in e-commerce. Over 200 million customers around the world are Prime members, and most of them filter their searches to “Prime eligible only.”

That single label can raise your click-through rate by 30% or more, depending on the category. It tells shoppers they’ll get fast shipping and reliable customer service — two things that instantly build confidence. Without FBA, it’s tough to compete for visibility because the Buy Box often favors Prime offers.

2. Amazon Handles Storage, Packing, and Shipping

Running an Amazon business means you don’t have to rent a warehouse, buy packing supplies, or hire a fulfillment team. You send your products to Amazon once, and they handle everything from there — storage, packaging, and delivery.

This doesn’t just save time; it gives you mental space. You can spend that time on product research, marketing, and managing cash flow, the parts that actually grow your business.

In 2025, Amazon operates more than 400 fulfillment centers globally, and sellers of all sizes use that network to scale without extra infrastructure.

3. Faster Shipping and Better Customer Experience

Amazon has built a logistics system that’s hard to match. With FBA, customers get their orders within one or two days, even during peak seasons. That reliability builds trust, and trust drives repeat purchases.

Even if you’re a small seller, your customers get the same delivery experience as they would from major brands. That levels the playing field in a way no other platform currently offers.

4. Amazon Manages Returns and Customer Service

Handling returns can be one of the most frustrating parts of e-commerce. With FBA, Amazon takes care of all that for you. When a customer requests a return, Amazon processes it automatically, refunds the buyer, and updates your account.

This keeps your response rate and order defect rate healthy, which directly affects your seller performance metrics. You’ll still want to check your return reports occasionally to catch any product issues early, but overall, Amazon’s support team does the heavy work.

5. Easy to Scale Without Hiring

One of the biggest advantages of building an Amazon FBA business is scalability. As your sales grow, you don’t need more space, employees, or shipping tools. You can sell 100 units a month or 10,000, Amazon’s system expands with you.

This flexibility is why FBA appeals to solopreneurs, small brands, and established companies alike. You can test new products, enter new markets, or even expand internationally using Amazon’s FBA Export or Global Selling programs without adding physical overhead.

6. Access to Amazon’s Analytics and Tools

When you use Amazon FBA, you also gain access to tools that help you make data-driven decisions. FBA Revenue Calculator, Inventory Health Reports, and Restock Inventory Tools show exactly how fees, sales velocity, and storage costs impact your profit. Brand analytics let’s you see the top search keywords customer are using and their buying jurney. Amazon Advertising Console let’s you create ads to get sales and organic ranking.

In 2025, these built-in analytics are more advanced than ever. They can forecast when you’ll run out of stock, flag slow-moving items, and even suggest optimal restock quantities based on your past sales history.

7. Builds Customer Trust Automatically

Customers trust Amazon’s name. When they see “Fulfilled by Amazon,” they assume fast delivery, easy returns, and reliable service. That credibility transfers directly to your brand, even if you’re new.

In the early stages of an Amazon FBA business, this built-in trust can help you get sales before you’ve built a reputation of your own. Over time, those satisfied customers become repeat buyers who might even follow your brand off Amazon.

8. Sell Globally with Amazon FBA

With Amazon FBA Export, sellers in the U.S. can reach customers in over 100 countries using their existing FBA inventory. There’s no need to create separate listings or handle customs paperwork. Amazon manages international shipping, customs clearance, and delivery while buyers cover import duties. It’s one of the easiest ways to test global demand for your products without additional logistics costs or setup.

For brands looking to expand further, Pan-European FBA enables sellers to store inventory in one European fulfillment center and let Amazon distribute stock across multiple EU countries. This gives your products local Prime eligibility, faster delivery times, and better visibility in European marketplaces helping your business grow internationally with minimal effort.

Drawbacks and Challenges of Amazon FBA

The Amazon FBA model is powerful, but it also comes with costs, competition, and risks that every seller should understand before jumping in. Knowing the downsides helps you plan better and protect your profit margins.

1. FBA Fees Can Eat into Your Profits

Amazon handles a lot for you, but they charge for it. The main costs include fulfillment fees (for picking, packing, and shipping), storage fees, and long-term storage fees for items that sit in the warehouse too long.

If your products are large, heavy, or slow-moving, these fees can quickly reduce your profit. That is why smart sellers calculate all expenses using the FBA Revenue Calculator before sending inventory to Amazon. It helps you see the exact cost per unit and find out whether your pricing still leaves a healthy margin.

2. Inventory Storage Limits

Amazon occasionally sets inventory storage limits, especially for new sellers or during busy seasons like Q4. This means you might not be allowed to send in as much stock as you want.

Running out of stock can hurt your rankings because your product disappears from search results until it’s available again. The key is to monitor your Inventory Performance Index (IPI) score. The higher your IPI, the more storage space Amazon will give you.

To maintain a good IPI, avoid sending too much inventory that does not sell quickly and keep restocking popular products before they run out.

3. Risk of High Returns

Because Amazon offers easy returns to customers, FBA sellers often see higher return rates than on other platforms. While Amazon manages the process, you still pay return-related fees, and sometimes returned items cannot be resold as new.

This is common in categories like clothing or electronics. Sellers need to track their return reports carefully to identify patterns. If one product gets too many returns, it might need better product photos, clearer descriptions, or improved packaging.

4. Competition is Intense

FBA opened the door for millions of sellers, which also means competition is tougher than ever. Many listings have dozens of sellers offering similar products at similar prices.

To stand out, focus on branding and differentiation. Use custom packaging, add bonus items, improve your images, and create stronger copywriting. In the long run, brand identity is what separates a sustainable Amazon FBA business from a short-term hustle.

5. Limited Control Over Brand Experience

With FBA, Amazon controls how your product is shipped and packaged. You cannot include marketing inserts that direct customers to your website or control how returns are handled. While this keeps the process consistent for buyers, it limits your direct connection with them.

This is why many advanced sellers use a hybrid model, combining FBA for most products with FBM (Fulfilled by Merchant) for specific listings that need custom handling or brand inserts.

6. Risk of Account or Policy Issues

Amazon’s policies are strict. If you accidentally violate a listing rule, mislabel a product, or receive multiple customer complaints, your account can be suspended temporarily.

To reduce this risk, always read the Amazon Seller Policy updates, follow category-specific rules, and monitor performance metrics like Order Defect Rate and Late Shipment Rate. Sellers who stay compliant and proactive rarely face serious issues.

Costs Involved in Running an Amazon FBA Business

One reason many beginners hesitate to start an Amazon FBA business is uncertainty about costs. It’s easy to underestimate how much money you’ll actually need, especially when looking only at product prices. In reality, running an FBA business involves several moving parts like product costs, shipping, storage, and Amazon’s own fees.

Understanding these costs upfront helps you avoid surprises and price your products correctly from day one.

1. Product Cost (Your Starting Point)

This is your main investment. It includes:

• Unit cost: What you pay your supplier per product.
• Packaging: Custom boxes, inserts, or branding materials.
• Shipping: Freight charges from supplier to Amazon’s warehouse (air or sea).

Example:
If you order 500 units of a kitchen gadget at $5 per unit and spend $1 per unit on packaging and shipping, your total cost is $3,000.

Always factor in quality checks, customs duties, and potential product testing fees. Skipping these can lead to costly mistakes later if customers start returning items.

2. Amazon FBA Fees

Amazon charges fulfillment fees for every order they handle. These cover picking, packing, shipping, and customer service.

As of 2025, FBA fees (per unit) roughly range from:

• $3.22 to $5.44 for small to standard-size items (under 2 lb)
• $8 to $15+ for large or heavy items

Fees increase slightly each year, so always check the FBA Fee Schedule inside Seller Central before listing your product.

If you sell products with a higher price point and good margins, these fees are manageable.

3. Monthly Storage Fees

Storage fees depend on how much space your inventory takes up in Amazon’s warehouse.

Standard storage fees (2025):

• January–September: Around $0.87 per cubic foot per month
• October–December (Peak season): Around $2.40 per cubic foot per month

Amazon also charges long-term storage fees for inventory that stays unsold for over 181 days. This is why smart sellers track their sell-through rate and restock only what they expect to sell within two to three months.

4. Referral Fees

Every sale on Amazon includes a referral fee, which is Amazon’s commission for giving you access to their marketplace and traffic.

It typically ranges from 8% to 15% depending on your product category. For example:

• Electronics: around 8%
• Home & Kitchen: around 15%
• Beauty & Personal Care: around 12%

You can check the exact percentage for your category on Amazon’s in our guide on Amazon seller fees.

5. Advertising and Promotion Costs

Amazon PPC (Pay-Per-Click) advertising is a major cost for most sellers, especially in the first few months. In 2025, average ACoS (Advertising Cost of Sales) across most categories is around 28%, though efficient sellers aim for 20–25%.

You’ll need to spend on ads to:

• Get initial sales momentum when no one knows your product.
• Organically rank your listing for important keywords.
• Build consistent sales velocity that would improve organic ranks.

Set aside healthy ad spend for your first product launch. Monitor results weekly and cut underperforming keywords quickly.

6. Miscellaneous and Hidden Costs

There are smaller costs that can add up over time:

• Photography: Professional images can cost $100–$300 per product.
• Software tools: Helium 10, JungleScout, or Sellerboard for tracking and analytics ($30–$80/month).
• Returns and refunds: Even if Amazon manages them, you’ll pay fees when customers send items back.
• Brand Registry or Trademark: Around $250–$350 in the U.S.

Example Breakdown of a $30 Product

In this example, the product earns a 40% margin, which is healthy for a growing Amazon FBA business. Aim for margins of 30% or higher so your product can cover advertising costs while still generating a healthy profit.

Amazon FBA vs. Other Fulfillment Options

One of the first decisions new sellers face is how to fulfill their orders. Should you let Amazon handle everything through FBA, or do it yourself with FBM or a third-party service? Each option has benefits depending on your product size, volume, and profit margins. Let’s break down the main differences so you can choose the right setup for your Amazon FBA business.

1. FBA vs. FBM (Fulfilled by Merchant)

The difference between FBA and FBM comes down to who handles the work after a customer places an order.

• FBA (Fulfillment by Amazon): You send your products to Amazon’s warehouse, and they take care of packing, shipping, and customer service.
• FBM (Fulfilled by Merchant): You store, pack, and ship items yourself (or through a third-party warehouse) when customers order.

When to use FBA:

• You want access to Prime customers and higher conversion rates.
• You sell small, fast-moving products.
• You don’t want to manage shipping or returns.

When to use FBM:

• Your products are large, heavy, or expensive to store.
• You want more control over packaging, branding, or customer communication.
• You already have your own warehouse or local logistics setup.

Many successful sellers use both. They send high-volume products to FBA for the Prime advantage and fulfill oversized or slow-moving products through FBM to save on fees. This is often called the hybrid model, and it’s one of the smartest ways to balance cost and scalability.

2. Amazon FBA vs. 3PL (Third-Party Logistics)

Some sellers use 3PL providers like ShipBob, Deliverr, or FedEx Fulfillment to handle inventory storage and shipping across multiple platforms — including Amazon, Shopify, and eBay.

The main difference is that FBA works only within Amazon’s ecosystem, while 3PLs allow you to fulfill orders from any online store.

Advantages of 3PL services:

• Multi-channel fulfillment (Amazon, Shopify, Walmart, eBay)
• More flexibility with packaging and inserts
• Potentially lower long-term storage rates

Disadvantages compared to FBA:

• No Prime badge, which can reduce conversion rates
• More setup work and contracts
• You manage customer service yourself

In short, if your main focus is building an Amazon business, FBA makes sense. But if you plan to expand across several sales channels, a 3PL provider may offer better flexibility and brand control.

3. Dropshipping vs. FBA

Many beginners confuse dropshipping with FBA, but they are very different models.

• Dropshipping: You list products online, and when a customer buys, the supplier ships directly to them. You never handle or store inventory.

• FBA: You buy inventory upfront, ship it to Amazon’s warehouse, and Amazon fulfills customer orders on your behalf.

Dropshipping has a lower startup cost but thinner profit margins and less brand control. With Amazon FBA, you invest more upfront but gain control over product quality, faster delivery, and higher customer trust through Prime eligibility.

Think of FBA as “dropshipping powered by Amazon,” except you actually own the products and can build a real brand that grows in value.

Is an Amazon FBA Business Right for You?

Before jumping in, it’s worth asking whether Amazon FBA truly fits your products and goals. The model works great for many sellers, but not for everyone. Your product type, budget, and business experience all play a role in how well you’ll do.

Let’s look at who benefits most from running an Amazon FBA business and when it makes sense to choose other options.

1. If You Already Run a Brand or Sell in Retail

If your products are already selling well through your website or retail stores, expanding into Amazon FBA can be a smart next step. You already know your audience and have proven demand and FBA just helps you reach millions more buyers.

This setup works especially well if your products are lightweight, easy to ship, and have healthy margins.

However, if your catalog includes large or low-margin items, FBA fees may add up fast. That’s when a hybrid strategy (using FBA for your bestsellers and FBM for oversized or seasonal products) becomes more efficient.

2. Product Fit

If you’re selling small, fast-moving items that customers want quickly, your products are probably a good match for FBA.

Amazon FBA works best for items that:

• Are small to medium in size
• Sell steadily throughout the year
• Can be shipped easily without damage
• Have room for profit after storage and fulfillment fees

Think phone accessories, home gadgets, or beauty items, anything that sells consistently and benefits from Prime shipping.

But if you sell furniture, gym gear, or other bulky products, your FBA costs might be higher than your profits. In that case, FBM or a third-party logistics partner might make more sense.

Use Amazon’s FBA Revenue Calculator before sending inventory. It helps you estimate fees and profit margins so you can see if your products are truly FBA-friendly.

4. Financial Readiness

If you’re considering launching an FBA business, you’ll need some starting capital.

You should expect to invest in:

• Inventory and shipping to Amazon
• Amazon’s Professional Seller Plan ($39.99/month)
• Product research and keyword tools
• Branding, packaging, and basic PPC ads

On average, sellers spend $2,000–$5,000 to get started. That might sound like a lot, but it gives you flexibility to test multiple SKUs, run small ad campaigns, and restock quickly if a product takes off.

If you’re starting lean, focus on one product with proven demand and reinvest profits to scale. FBA rewards sellers who think long term and manage cash flow carefully.

5. Comfort with Amazon’s Rules

If you prefer full control over your business operations, FBA might take some getting used to.

When you run an FBA business, Amazon handles your inventory, shipping, and returns, but it also enforces strict rules about how products are prepared and sold. You’ll need to stay current on packaging standards, fee changes, and account performance metrics.

Many sellers make the mistake of assuming FBA is “set it and forget it.” It’s not. The sellers who succeed are the ones who adapt quickly to Amazon’s system and use its tools to their advantage.

Remember, Amazon does the heavy lifting but you’re still responsible for product performance and customer experience.

6. Time Commitment

If you’re short on time but still want to grow an online business, FBA helps you focus on strategy instead of logistics.

Amazon takes care of storage and fulfillment, which means your main tasks are researching products, optimizing listings, and running ads. That’s a huge time saver compared to packing and shipping orders yourself.

Still, expect to put in consistent effort. Successful FBA sellers treat it like a real business by tracking sales, analyzing data, and improving listings regularly.

If you can dedicate a few hours a week and stay consistent, you’ll see meaningful results over time.

7. Profitability Outlook

Most FBA sellers don’t profit overnight, but the model is reliable once it’s set up properly.

Recent data shows around 64% of FBA sellers become profitable within their first year. Margins typically range between 15% and 30%, depending on the category and ad spend.

Your profitability depends on:

• Picking the right products
• Keeping costs under control
• Managing inventory to avoid excess fees

Track everything in Amazon’s Business Reports and Inventory Health tools. They’ll show you which products to scale and which to cut before they drain your margins.

Common Questions New FBA Sellers Ask

What’s the Difference Between FBA and FBM?

FBA (Fulfillment by Amazon) means Amazon stores your inventory, packs orders, and ships them directly to customers. You also get the Prime badge, which builds instant trust and often boosts conversion rates.

FBM (Fulfilled by Merchant) means you handle fulfillment yourself — from storing inventory to shipping and returns. FBM gives you full control, but you’ll miss out on Prime benefits unless you qualify for Seller Fulfilled Prime (SFP), which has strict requirements.

Many sellers use a hybrid model, relying on FBA for fast-moving, smaller items and FBM for oversized or slower-moving products. This balance helps control costs while still taking advantage of Prime visibility.

Can I Start an Amazon FBA Business on a Small Budget?

Yes, but you’ll need to plan carefully.
You can start an Amazon FBA business with a modest budget, but you should expect to invest in:

• Your first batch of inventory
• Shipping costs to Amazon warehouses
• The Professional Seller Plan ($39.99/month)
• Basic tools for research and listing optimization

Many new sellers begin with $2,000–$5,000, which gives enough room to test one or two products without running out of stock too soon. If your budget is smaller, focus on low-cost, high-margin items and reinvest profits as you grow.

The key is to treat your budget like startup capital, not pocket change small but smart decisions compound over time.

Do I Need an LLC to Sell on Amazon?

You don’t need an LLC to start selling on Amazon. Most sellers begin as sole proprietors using their personal tax information.

However, once your sales increase or you begin importing products, forming an LLC (Limited Liability Company) is highly recommended. It protects your personal assets if something goes wrong and helps with tax planning once your Amazon FBA business starts earning consistent profit.

Think of the LLC as the next step after you’ve validated your business — not a requirement to begin.

How Do I Find a Profitable Product to Sell?

Finding the right product is where most sellers win or lose.

Start by identifying products that are:

• Consistently in demand year-round
• Not dominated by large, established brands
• Small, lightweight, and easy to ship
• Priced between $10–$50, leaving room for profit after FBA fees

Use tools like Helium 10, Jungle Scout, or Amazon’s Best Sellers Rank data to analyze demand and competition. Before ordering, calculate your true landed cost (product, shipping, duties, FBA fees) to ensure your profit margins are healthy.