what is amazon fba

How Amazon FBA Works

With FBA, you ship your products in bulk to one or more Amazon fulfillment centers instead of shipping directly to customers. When a customer orders, Amazon's warehouse staff pick, pack, and ship the item, and Amazon's customer service team handles returns and basic support. You keep ownership of the inventory until it sells, but you no longer touch the box.

In exchange, Amazon charges fulfillment fees (per unit, based on size and weight) and storage fees (based on volume and time of year, with higher rates heading into peak season). There are also potential long-term storage surcharges for inventory that sits too long. The exact fee schedule changes periodically, so always verify current rates against Amazon's published fee schedule rather than relying on numbers you saw last year.

FBA is a major reason third-party sellers have become such a dominant force on the platform — third-party sellers now account for more than half of the physical gross merchandise sold on Amazon, and FBA is the fulfillment method most of them rely on to compete for the Buy Box and Prime eligibility.

FBA vs. FBM: What's the Difference

FBM (Fulfilled by Merchant) means you store and ship inventory yourself, either from your own warehouse or a third-party 3PL. FBA means Amazon does it. Most established sellers use a mix: high-velocity SKUs in FBA to win Prime badging, slower or oversized items in FBM to avoid storage fees eating margin.

The tradeoff isn't just operational — it's accounting complexity. FBA introduces inventory that lives outside your direct control, gets moved between warehouses, occasionally gets lost or damaged, and generates a fee structure with dozens of line items on every settlement report. FBM keeps fulfillment simpler but shifts more manual work (and shipping cost variability) onto you.

• •FBA: Amazon stores, picks, packs, ships, and handles returns
• •FBM: You control fulfillment end-to-end
• •FBA fees: storage + per-unit fulfillment + potential long-term storage surcharges
• •FBM costs: your own warehousing, labor, and outbound shipping

The Accounting and Tax Side of FBA

FBA doesn't just affect logistics — it changes your books. Inventory sitting in Amazon warehouses still needs to be tracked as an asset, reconciled against what Amazon's reports say is on hand, and adjusted when units go missing, get damaged, or are destroyed. Since 2025, Amazon reimburses lost or damaged FBA inventory based on the seller's manufacturing or sourcing cost rather than retail price — Amazon will estimate that cost unless you've supplied your own, which is a strong reason to keep accurate landed-cost records rather than let Amazon guess.

FBA also puts your inventory physically in multiple states, which historically could create sales tax nexus questions. Thankfully, nearly every state with a sales tax now has a marketplace facilitator law requiring platforms like Amazon to collect and remit sales tax on third-party sales, so Amazon generally handles the collection and remittance for you. That said, this shifted after the landmark South Dakota v. Wayfair Supreme Court decision, which let states require out-of-state sellers to collect tax based on economic nexus rather than physical presence — the ruling that made marketplace facilitator laws possible in the first place.

On top of that, sellers need to watch 1099-K reporting. The threshold for when platforms must issue a 1099-K has been in flux rather than fixed, so don't assume last year's rule still applies — check the current IRS guidance for the applicable threshold before assuming you're under it.

Because FBA generates so many small transactions — fees, reimbursements, refunds, storage charges, advertising costs — reconciling it by hand in a spreadsheet gets unmanageable fast. That's the gap purpose-built ecommerce accounting software is designed to close: matching settlement data to your books line by line instead of lumping everything into one 'Amazon deposit' entry.