Imagine this scenario. You’ve done your market research, get your products, and have two hot items listed on Amazon, all recording massive sales. Your business is gaining momentum and surging forward. As a smart entrepreneur, at this point, you will probably begin to consider increasing your stock so you can maximize your profit, but one problem you may face is the issue of a store to accommodate extra shares. There is also a chance you may find it hard to maintain your fast delivery records with more stocks. Does this mean you should bin your hope of expansion? No, not at all. This is where Amazon FBA comes in.
FBA stands for Fulfillment by Amazon. It is a program that lets you, as an online seller, make use of Amazon’s many considerable warehouses to store and ship the products you sell through the Amazon website. It is one of two major fulfillment options offered by Amazon to sellers on their platform. The other is known as Fulfillment by Merchant (FBM)— a program by which the seller (you) handles packing and shipping of orders directly to customers. FBM sellers only make use of Amazon to reach potential consumers and generate demand.
Fulfillment by Amazon, on the other hand, basically involves sending your products to an Amazon fulfillment center. These products are then stored in warehouses. When a customer places an order for one of the products, Amazon physically picks, packages, ships and tracks the order for you. They also take charge of returns and refunds. This makes the burden off you and gives you more flexibility in your selling practices.
The FBA program is so streamlined yet powerful that when customers buy your product from Amazon; they will not know that they are purchasing from a third-party seller using Amazon FBA! They will think they are buying directly from Amazon. It is difficult for them to realize any difference between purchasing from a seller through Amazon FBA and from Amazon straight. They will see similar delivery options, the same return and refund policy, and the same stellar 24/ 7 level of service. Your product will also have access to one of the largest and most advanced fulfillment networks in the world without having to spend thousands of dollars on storage facilities and staff.
As an Amazon seller, the FBA offers a very profitable solution, and can certainly take off your neck, a lot of time-consuming tasks. Amazon sums up FBA pretty well in Seller Central: “You sell it, we ship it.” However, the solution is not a magic bullet, and it requires a concerted effort to get started.
Amazon FBA Statistics
According to a report published by Statista, FBA users make up 73% of Amazon sellers in the United States. The results vary according to the size of the sale. For merchants with purchases above 1 million dollars, only 10 percent use the services for all articles, 12 percent do not. They are putting all the traders into consideration, almost half of traders who use FBA for between 70 and 100 percent of all orders.
Prime users spend about $ 1300 every year. This means that you will likely gain more visibility and sales with Prime buyers when you use Amazon FBA.
Amazon makes use of the FIFO (First In, First Out) model to estimate the charges for storing your products in its warehouse.
When FBA was launched in Australia at the end of February 2018, it had a 33% adoption rate relative to other popular marketplaces sellers by the end of the year.
How Amazon FBA Works
Amazon takes control of all the hard work for you within FBA, so the way it works is pretty straightforward. Here is a step-by-step guide on how Amazon FBA works:
• You send your product to the Amazon warehouse
Amazon has around 100 warehouses across the United States, many of which are over a million square feet. You inform them about the products you’re sending and tell you which warehouses to send the products to.
• Amazon sorts and stores your products
Once your products are received in any of the Amazon warehouses, they will be sorted and added to the inventory. The products are then stored safely in the warehouses. If any of the products get damaged by chance in the warehouse, you will be reimbursed fully by Amazon.
• Amazon takes care of your orders
Once a customer places an order for your product, Amazon takes control of the entire transaction for you. They accept payment on your behalf and automatically update your inventory.
• Amazon ships your product
The ordered product is picked from the storage by one of Amazon’s warehouse workers or robots. The product is packed into a box and shipped to the customer.
• Amazon takes care of customer service
Once the product is delivered to the customer, Amazon follows up to ensure the client is satisfied with the shipment. Amazon also takes control of returns or questions from the customer. However, you’re to take charge of responding and taking actions on the feedback you receive on your product listing.
• Amazon pays you
Every two weeks, Amazon adds up all your sales, deducts your seller fees, and pays your profits directly into your bank account.
Advantages of Using Fulfillment by Amazon (FBA)
The FBA program allows you to grow whatever business you do and lets you get your products in front of millions of potential customers. Amazon has a legion of loyal shoppers, which can translate to increased sales for you. Some of the top benefits of using Fulfillment by Amazon include:
1. Simple logistics and shipping
Managing your fulfillment can be challenging, especially if you’re a newbie. It can take up a large chunk of your time and yet still bring forth loss. It can even get worse when you start receiving more orders as this would mean spending more time packing and shipping, or more money hiring more employees for the job. FBA makes room for outsourcing to Amazon while taking advantage of their experience and expertise.
2. Reduced shipping prices
Amazon makes use of major shipping companies that give them steep discounts on shipping costs. As an FBA user, you will enjoy those discounts in the form of subsidized shipping rates when shipping your inventory to Amazon. You will be paying less in shipping than if the items were being sent from your individual’s account. You can also take advantage of the free shipping if any of your orders fall into the Amazon’s open super saver shipping category. And most importantly, Amazon offers Prime members free two-day shipping on all FBA products – a huge incentive that can translate to higher sales for FBA businesses.
3. Management of returns
Managing and processing returns can be a pain in the ass for many business owners. But with FBA, you transfer all the entire processes to Amazon, from handling all of the administrative issues to dealing with unsatisfied customers and overseeing returns and refunds. Amazon also takes charge of attending to customer inquiries, reversing logistics, and returning shipping labels. Though you get charged to enjoy all these, you’ll agree with us that the price is far less than the amount of work they take off your shoulders.
4. Excellent Customer service management
If there’s one thing Amazon is well known for, it’s its fantastic customer service that continues to get better each year. By registering as an FBA business, Amazon completely takes over your customer service management, easing the stress of attending to a series of inquiries and complaints. One great benefit is that they continue to attend to your customers even while you’re asleep, thanks to their 24/ 7 support services.
5. Fast delivery
Amazon boasts of hundreds of fulfillment centers around the globe. This means your products can be comfortably delivered to your customers within a short period no matter where they are located. Once a shopper places an order, Amazon automatically figures out which fulfillment center is nearest to the shopper and ships it there.
6. Shipping Standardization
Amazon handles and processes all FBA orders precisely the same way it treats its merchandise. This implies that when a buyer orders for your item, Amazon will pick the item from their inventory, pack it, and ship it to the buyer. However, you can feature a product on your website, and, through the FBA service, still have Amazon take control of all of the heavy lifting.
7. Earn Consumers’ Trust
Amazon is an average American’s delight. Americans don’t just love the company; they trust it. They know that whatever they order with two-day shipping, they can sleep soundly knowing that they will receive their orders in 48 hours. When you join FBA as a seller, your product listings will prominently display “Fulfilled by Amazon” for all shoppers to see. Buyers appreciate this quality, making them more likely to patronize you. Potential consumers, who expect excellent customer service, will trust you. Shoppers will automatically trust you more, thus increasing your sales.
8. Potentially unlimited storage space
FBA gives you access to unlimited storage space for your products. This relieves off you the worry of the size of storage space you need for your products. You don’t also have to worry about paying for a warehouse, as it is taken care of by Amazon. The good thing is that there is no minimum amount of inventory you can send so that you can send in as little as one product without any issue. And if your list performs excellently well and your products sell quickly, Amazon will give you unlimited storage.
9. Fulfillment of orders from other channels
The FBA shipping app lets you automate Amazon’s Multi-Channel Fulfillment (MCF) service, which allows you to handle and ship inventory that is being sold on other channels (e.g., BigCommerce) while still getting Amazon to fulfill those orders. The service automatically delivers orders to your Amazon store from your BigCommerce store for fulfillment. It also sends data such as tracking information and order updates to your customers from your BigCommerce store.
10. More Time to Grow Your Business
With Amazon FBM, you take care of all the inventory, the labeling, packaging, the shipping, the tracking, and the customer service. If you’re just starting your eCommerce business, you most likely won’t have room for all of these. But with Amazon FBA, you will be handing off those responsibilities to Amazon which gives you way more time to concentrate on other things like market research, keyword research, product development, SEO, online advertising campaigns, partnerships, and more that are also vital to the growth of your business. Not putting enough time and effort into these practices may affect your business. Learn more about how to grow your Amazon FBA business and earn more money.
11. Automatic Access To Prime Audience
About two-thirds of U.S. households use Amazon Prime. Close to 85 million consumers use the premiere service. It is almost impossible for someone subscribing to Amazon Prime to buy products that aren’t Prime eligible. Apart from having access to a larger volume of products, Amazon Prime users also enjoy faster delivery than other shoppers. When you use FBA, your product will carry the Prime logo, allowing your brand to use Amazon Prime to take advantage of the premier buyers. You also get the opportunity to reach new and existing customers who are looking for free one- or two-day shipping, targeted at Prime-eligible items, and only convert if the Prime badge is visible.
12. Access to the Coveted Buy Box
It has been found that 82% of Amazon desktops purchase use buy box or mobile. The buy box is seen as the white box located on the right-hand side of a product details page where the “Buy Now” and “Add to Cart” buttons are located. In short, it’s where the bulk of the money is made on Amazon. The Amazon algorithm automatically determines which seller is represented in the buy box and for how long. Though the algorithm works uniquely, FBA is one of the factors Amazon likes to see within your shipping methods, so it is highly likely that you will get access to the buy box on your other product listings.
13. Increased visibility
As an FBA business, your product will gain better visibility and rank higher in the search results. Additionally, your items will be listed by price only instead of by total price (the price of the product plus shipping costs) done for non-FBA products, thus increasing your chance of being one of the first items in the search results.
14. Reduced overhead costs
As an FBA business, you don’t have to bother about administration storage costs and employees. So you’ll be able to concentrate on selling more products and increasing your profits!
15. Opportunity to run your business anywhere
Being an FBA seller allows you to sell your products from anywhere in the world. You can be anywhere in the world and still be generating consistent sales. Amazon will take charge and manage all your orders 24/ 7.
16. Ease of Use
One of the most significant benefits of FBA is its overall ease of use. If you’ve been spending way too long elbow deep in dealing with customer complaints, spending hours in post office queues or in preparing deliveries, imagine never having to touch a product, dispatch order, or deal with a return ever again. This is what FBA offers you. FBA allows you all the essential time you need to focus on other crucial aspects of your business, such as creating brand awareness and sourcing new inventory.
Disadvantages of Using Fulfillment by Amazon (FBA)
Above mentioned benefits are indeed fantastic, even perhaps too good to be real! But is FBA without any disadvantages? Amazon, undoubtedly, has an intimidating reputation and so it would be easy to think that their FBA service is perfect for all businesses. However, this is not entirely the case. Amazon FBA isn’t a celestial bounty of warm hugs and good times. Though Amazon FBA is an excellent resource for any business, it is not without its drawbacks. Having explored the many benefits, it’s only right that potential disadvantages are highlighted so those intending users can make informed decisions.
1. FBA is expensive
As you may have noticed from previous sections, Amazon FBA costs money. Amazon charges a lot of fees for its FBA service, including storage fees and fulfillment fees, and these costs can run pretty high. Vendors also have to pay removal fees for damaged and defective inventory as well as disposal prices to get rid of unsellable products. Although firmly believe that these costs are ultimately worth it, we understand that your business may not be in a position to take them on alongside other vital expenses like marketing and manufacturing, especially if you’re just starting your business. Moreover, these fees can pile up quickly, particularly with oversized or slow-moving products. You may need to understand how instantly your inventory moves in; you intend to reduce storage fees. It may also take some extra cautioning to ensure your products remain profitable after paying all these fees. You’ll need to ensure that your products are still cost-effective after taking into account your FBA fees.
2. Long-term storage fees
Storage fees are reasonable since Amazon would be storing your products on your behalf. However, if your items sit for over six months, you incur long-term storage fees, which may affect your profitability. Amazon deals with selling products, not storing them. So they make sure you pay sky-high storage fees if you let your inventory sit too long.
3. Risk of increased returns
Amazon takes over the major business processes, including ensuring seamless and easy returns. One drawback to such an arrangement is that buyers are likely to make more returns without a concrete basis.
This issue can be managed in some way by always ensuring you supply only quality products, and your customers do not feel the need to seek returns when they receive their orders. However, there will still be those buyers who do impulse and test buys, have buyer remorse and return an item. Amazon’s simple return policy FBA does make it easy for this to occur. There’s also the possibility that Amazon might deem a returned product unsellable, and you may have to incur extra cost for the product to be removed from your inventory. This should not necessarily discourage you from using FBA, but you should prepare your mind for such situations.
4. Prepping your product for Amazon FBA can be tricky
Amazon has strict guidelines when it comes to preparing and shipping items to their warehouses. Apart from correctly entering all details into Amazon’s database, the products must be properly labeled before being shipped to the right warehouses. Failure to follow all the guidelines may lead to your inventory being rejected at the warehouse leading to frustration and delays, not to talk of the extra work. The truth is following all of the instructions isn’t that easy and may take some practice to get used to if you’re just getting started.
5. Tracking inventory can be hard
You may find it quite challenging to keep track of what products you have available, what items you need to order, and what is not selling when you are not the one in charge of the sales. Out of sight is out of mind. It can even be more challenging if you have to keep inventory changes in unison if you sell on multiple channels. The good thing is that apps like the ByteStand app let you automate the management of your inventory between Amazon and BigCommerce.
6. Product packaging is not branded with your logo
Amazon sells your products using their name. This means that when a buyer receives their order, dispatched by Amazon FBA, the packaging will carry Amazon’s logo. This can make it more difficult if you’re aiming to establish your reputation as a brand long-term as your identity is not visible on your packaging. If brand awareness is one of your business goals, be sure to evaluate its significant a disadvantage to your business, against the many other advantages Amazon FBA offers.
7. Sales tax can be a problem
Tax collection in the United States varies across states. Each state operates based on different rules and guidelines. While it can be pretty straightforward if your business operates in just one state, it can be a bit complicated with FBA because of the different fulfillment centers. Inventory is shuffled continuously between these fulfillment centers, making it hard for sellers to determine where to pay their sales tax. Do you only collect state sales tax for where your business is registered or situated? Or for every state where your inventory is stored? There’s no straightforward answer. You can talk to tax partners to you help only and automate complex tax rules and guidelines for different regions.
8. Commingling merchandise can be scary
Amazon offers sellers the option of commingling or pooling their products with the same products from other vendors. This is usually done to boost efficiency as the option lets you save time on labeling and preparing your products. But the problem is that your products may be pooled together with others that are counterfeit and damaged. The chances are that you will receive negative reviews or be banned from selling on Amazon if your products are reported as fake or damaged.
9. Product Handling Issues by Amazon
Like every other business, Amazon is not without its challenges. There have been complaints of inventory getting damaged or lost while in the fulfillment centers. Though Amazon takes adequate responsibility and ensures sellers are reimbursed accordingly. However, seeing some cases go undetected is common, which leads to a loss on the sellers. To avoid such issues, sellers are advised to keep adequate inventory records right from the point of shipping.
10. Precise Product Guidelines
Certain products like bubble wrapping and poly bagging fall under Amazon’s particular product guidelines for ensuring the safe arrival of inventory at Amazon fulfillment centers. It is not to get precisely right if you do not have the experience. Amazon can, however, come to your rescue in this regard, but you would have to pay the preparation fee per item.
11. Lack of Control
If a lack of control and personal oversight makes you feel vulnerable, you should probably reconsider your decision to register for Amazon FBA. As an FBA business, Amazon controls most of the legwork for sales, payments, inventory, and returns. Generally, you will not know the minute details of your associated account’s fulfillment and customer relations. As a result of this, you may fall victim to wrongful FBA charges, which could add to a high figure of losses. Moreover, the chances are that the likelihood of misappropriating charges will increase with an increase in yearly sales. Though Amazon has a system in place to look after these errors and refund sellers when necessary, with significant sales volume detecting all the misappropriations is almost impossible. The good thing is you’re totally in charge of your profit margin and don’t have to depend wholly on Amazon as you always can seek reimbursements owed to you.