Why Prep Centers Are Booming in 2025
Ecommerce is booming — and so is the infrastructure that powers it. In 2023, Amazon stopped offering in-house prep services, shifting responsibility to third-party providers. That decision left hundreds of thousands of Amazon FBA sellers in search of reliable prep centers to handle labeling, bagging, kitting, and compliance tasks.
For entrepreneurs, this change created a unique opportunity: starting a prep center business that supports Amazon FBA and other ecommerce sellers.
But launching a prep center isn’t just about renting warehouse space and stocking tape guns. It requires understanding compliance rules, building efficient systems, managing costs, and attracting a steady stream of clients. This guide covers everything you need to know to start — from business models and startup costs to software, marketing, and scaling into a full 3PL.
What Is a Prep Center?
A prep center is a facility that receives inventory from suppliers, prepares it to meet Amazon FBA requirements (or other marketplace standards), and then ships it to fulfillment centers or customers.
Common Services
- FNSKU Labeling: Applying Amazon’s barcodes to each unit.
- Poly Bagging & Bubble Wrapping: Packaging to protect items during storage and shipping.
- Kitting & Bundling: Combining multiple SKUs into one sellable unit.
- Inspection & Quality Control: Checking for damages or supplier mistakes.
- Forwarding to Amazon: Preparing shipments with Amazon’s labels and carton requirements.
- Storage: Short- or long-term holding of inventory.
- Returns Management: Handling customer returns and restocking.
Prep Centers vs. 3PLs
A prep center specializes in compliance and pre-shipment prep for FBA. A 3PL (third-party logistics provider) handles broader services: storage, direct-to-consumer fulfillment, returns, and multi-channel distribution. Many prep centers eventually evolve into 3PLs.
👉 Read more: Prep Center vs. 3PL — What’s the Difference?
The Prep Center Business Model
Prep centers earn revenue by charging for the services sellers can’t or won’t do themselves.
Revenue Streams
- Per-Unit Fees: Most common ($0.50–$1.50 per item).
- Per-Carton or Pallet Fees: For bulk shipments.
- Membership Models: Flat monthly fee + discounted rates.
- Storage Fees: Charged per cubic foot, pallet, or month.
- Add-On Services: Returns processing, branding, direct-to-consumer fulfillment.
Margins
Prep centers are not high-margin businesses. The key is knowing your numbers:
- Rent and labor can consume 50–70% of revenue.
- Materials (boxes, tape, bags) add another 10–15%.
- Software, insurance, and overhead take the rest.
Net margins often land in the 10–25% range, depending on efficiency and scale. That means profitability hinges on volume and tight cost control.
👉 Read more: Prep Center Startup Costs & Margins Explained
Garage vs. Warehouse: Where to Start?
Starting in a Garage
- Pros: Very low startup costs ($5k–$15k). Great for testing.
- Cons: Limited space, may deter bigger clients, zoning restrictions.
- Best For: New operators serving 1–3 small sellers.
Starting in a Small Warehouse (1–3k sq. ft.)
- Pros: Professional credibility, scalable, room for pallets.
- Cons: Higher overhead ($20k–$50k startup).
- Best For: Entrepreneurs with 5–10 clients and medium volume.
Starting Larger (5–10k+ sq. ft.)
- Pros: Ready for enterprise sellers, storage services, 3PL expansion.
- Cons: Expensive (often $100k+).
- Best For: Well-funded startups or existing logistics providers adding prep.
👉 Read more: Garage vs. Warehouse — Choosing the Right Setup for Your Prep Center
Services to Offer
Your service mix determines your positioning in the market.
Core Services (must-offer):
- Receiving
- Labeling
- Bagging/wrapping
- Bundling/kitting
- Forwarding to Amazon
Advanced Services (to differentiate):
- Long-term storage
- Returns handling
- Direct-to-consumer fulfillment (Shopify, eBay, Walmart)
- Custom packaging & branding
- Freight forwarding coordination
👉 Read more: The Complete List of Services Prep Centers Offer
Startup Costs & Budgeting
Key Expenses
- Facility: Garage or warehouse lease.
- Equipment: Pallet jacks, shelves, label printers, barcode scanners.
- Labor: Your time + employees/contractors.
- Software: Inventory management, client communication, invoicing.
- Insurance & Legal: LLC setup, liability insurance, contracts.
Conservative Example: Small Warehouse (3k sq. ft.)
- Rent + utilities: $4,000/month
- Labor (3 employees): $9,000/month
- Insurance & overhead: $1,500/month
- Supplies: $2,000/month
- Software: $500/month
Total Monthly Expenses: ~$17,000
Revenue at 30,000 units × $0.90 = $27,000 → Profit ≈ $10k before taxes (~27%).
👉 Read more: Prep Center Startup Costs — Full Breakdown
Software Stacks
Lean Startup Stack (<$5k budget)
- Inventory: Airtable or Google Sheets.
- Labeling: DYMO LabelWriter 450.
- Billing: Stripe + QuickBooks Simple.
- Communication: Email + Slack.
Mid-Tier Stack ($10k–$25k)
- Inventory: SoStocked or SellerCloud.
- Labeling/Scanning: DYMO 550 + handheld scanners.
- Billing: QuickBooks/Xero + Stripe integration.
- Communication: Airtable dashboards.
Professional Stack ($50k+)
- Warehouse Management System: 3PL Central, Skubana, or NetSuite.
- Full Client Portal: Real-time shipment tracking.
- Billing & Analytics: Automated invoicing + reporting dashboards.
👉 Read more: Best Software for Prep Centers — Lean to Pro Stacks
Location Strategy
Your warehouse location is a marketing hook.
Tax-Free States
- Oregon, Montana, Delaware, New Hampshire.
- Advantage: Avoid 5–9% sales tax → thousands saved annually.
Port Cities
- Los Angeles, New York/New Jersey, Miami.
- Advantage: Faster imports from overseas suppliers.
Near Amazon Fulfillment Centers
- Kentucky, Texas, Pennsylvania, California.
- Advantage: Lower domestic freight costs.
👉 Read more: Best Locations to Start a Prep Center in 2025
Marketing Your Prep Center
Social Media
- Facebook Groups: Engage in Amazon seller communities.
- TikTok/Instagram: Post behind-the-scenes prep content.
- LinkedIn: Network with brand managers and wholesalers.
SEO & Content Marketing
- Blog content: “Best Prep Center in [State].”
- Listings in prep center directories.
- Optimize Google Business Profile for local discovery.
Partnerships
- Freight forwarders → refer international sellers.
- Wholesalers → bundle services for buyers.
Referrals
Offer discounts for client referrals — word-of-mouth is huge in this industry.
👉 Read more: Marketing Strategies for Prep Centers
Building Systems & SOPs
Standard operating procedures (SOPs) are critical. They ensure speed, consistency, and fewer mistakes.
- Receiving SOP: Check cartons, document damages.
- Labeling SOP: Apply FNSKUs systematically.
- Packing SOP: Consistent packaging for compliance.
- Shipping SOP: On-time Amazon appointments.
- Staff Training: Seasonal surges require fast onboarding.
👉 Read more: SOPs & Staffing for Prep Center Operations
Scaling Into a 3PL
Once established, many prep centers evolve into 3PLs:
- Add multi-channel fulfillment (Shopify, Walmart, eBay).
- Offer custom packaging and branding.
- Handle returns at scale.
- Expand into multi-warehouse coverage.
👉 Read more: How to Scale a Prep Center Into a 3PL
Challenges & Risks
- Tight Margins: Profit depends on efficiency.
- Seasonality: Q4 volumes can overwhelm unprepared operators.
- Compliance: Mistakes = Amazon penalties.
- Client Churn: Sellers often switch if service is slow.
Mitigation: Strong SOPs, transparent pricing, proactive communication, and scalable staffing.
Final Thoughts
Starting a prep center in 2025 is a realistic path into ecommerce logistics. But it’s not a get-rich-quick venture. Margins are thin, competition is growing, and success requires operational discipline.
The entrepreneurs who succeed will be those who:
- Know their numbers.
- Build reliable systems.
- Market aggressively (especially on social media).
- Evolve into 3PL providers as demand grows.
With Amazon no longer offering prep, the industry has room for new entrants. If you can deliver reliability, compliance, and communication, there’s real opportunity to build a sustainable prep center business.
References / Sources
- Supply Chain Dive — Amazon to end FBA prep, labeling services in U.S. — article covering how Amazon’s move will affect sellers and the market. Supply Chain Dive
- BQool Blog — What Is a Prep Center? — explanation of prep center functions, how they help sellers, and their role in Amazon FBA. BQool Blog
- Red Stag Fulfillment — What Is a 3PL? — defines 3PL, roles, services, and how it differs from prep-only operations. Red Stag Fulfillment
- Efulfillment Service — Third-Party Logistics: The Meaning of 3PL & Why Online Retailers Need One — good foundational content on the 3PL model in ecommerce. efulfillmentservice.com