Amazon is a big eCommerce giant that sells various products through its platform. Independent sellers can sell their products through Amazon and get significant returns. Read on to learn what Amazon FBA is and how it works.
What is FBA?
FBA stands for Fulfilment by Amazon, a service that Amazon provides. The service allows Amazon sellers to store their products in Amazon’s warehouse and use Amazon to automate order fulfilment and shipping services. This way, Amazon sellers can outsource order fulfilment to Amazon, and when a customer makes a purchase, Amazon packs and ships the order and handles returns.
With FBA, the online seller can leave all the logistics work to Amazon and concentrate on other aspects of their business.
How does Amazon FBA work?
To use Amazon FBA, you must have a regular Amazon selling account. After creating your Amazon selling account, you should log in to Seller Central, and with a few easy steps, you can set up Amazon FBA. These steps are explained below:
1. Register the additional business place
After being accepted to the Amazon FBA program, the seller must register the Amazon fulfilment centre as an additional place of business with the tax authorities.
2. List your products
List your products and unit quantities in advance to be fulfilled by Amazon. To make proper listings and turn your Amazon business into profit, make sure you use keywords, listing optimization, attractive product descriptions and other marketing tactics while making the listing
3. Prepare products
Prepare and label your products and pack them per the packaging guidelines before safely transporting them to a fulfilment centre.
4. Ship products to Amazon FBA
Next, the seller must acquire the products and ship them to an Amazon warehouse after creating a shipping plan. You will get all the shipping details from Amazon and can choose to ship your inventory through Amazon or with a carrier of your choice.
5. Amazon will store products in its fulfilment centre
Once your products reach the warehouse, Amazon will weigh the packages and scan the labels before storing them securely. After this, the products will be made available for customers to buy. A storage fee will be applied, which will depend on the size/volume of the products.
6. The customer places an order
Once a customer places an order, you will receive a notice of the order.
7. Amazon FBA will ship your orders directly
After a customer places an order, Amazon will pick the product from the inventory, pack it and ship it to the customer.
8. Amazon FBA will provide customer support
After the shipping, if there are any returns/refunds or other customer care-related issues, they will all be handled by Amazon.
9. You will receive your profits
Amazon will deposit your sales profit directly to your bank account every two weeks.
Advantages of Amazon FBA
To decide whether Amazon would be the right choice for your business, you would have to know about the advantages and disadvantages of the solution. With help from my personal experiences, I have reviewed these for you! Below are some benefits that Amazon FBA provides to its sellers:
Effortless shipping and logistics
The main advantage of Amazon FBA is that sellers’ products get shipped to your customers at a lower cost. As Amazon FBA takes care of all shipping and logistics, you do not need a warehouse to store goods or employ staff for shipping or related queries from the customers. Amazon doing all this hard work for you means that you can concentrate on growing your business.
Shipping discounts
Using FBA means you display the prime badge on eligible products, and your customers also get an option to have free, fast delivery. A one- or two-day Premium delivery makes your products much more attractive to the buyers and increases your sales.
Amazon delivery is much quicker than you could probably manage, especially if you have only a couple of employees handling the logistics. Moreover, as Amazon is a big brand that makes thousands of daily deliveries, they get huge discounts from shipping companies. You can also benefit from it and ship your products to Amazon’s warehouses at a lower price.
Return management
Using FBA means you no longer have to worry about unhappy customers wanting to return your products. Amazon handles returns and refunds as they are seen as part of the fulfilment process.
Customers can connect with trained and professional Amazon customer support rather than contacting you for every problem. As Amazon support is available 24/7, your customers can contact them whenever they want without you being disturbed in the whole process. Thus, one more thing off your plate as you no longer have to run to answer your phone.
Build trust
Amazon is a significant and trusted brand. Your products being fulfilled by Amazon builds trust among consumers, which results in increased sales. If many brands on Amazon sell the same product, you can get your product differentiated from your competitors by using Amazon FBA. Thus, by using Amazon FBA, you can increase your sales.
More Storage Space
Something ecommerce businesses need to worry about is storage. As your products will be stored in the Amazon warehouse, you do not need to rent out a space to store your products. With Amazon, you can store as many goods as you have in their fulfilment centres. Even when your business grows with Amazon FBA and you start having many more products to deliver, the packing, providing and handling of customer care would never become too tricky for Amazon.
Disadvantages of Amazon FBA
With all the advantages of FBA, there might be a few circumstances where Amazon might not be the right choice for you. Read on to learn about the limitations of Amazon FBA.
It is not free
FBA is not free, and storage costs are involved based on the product category. If you are a business just starting, it might be difficult for you to shell out money for Amazon FBA. So, this solution is suitable for you based on the products you sell, volume, etc. I advise avoiding Amazon FBA for low-volume products. An FBA calculator will help you decide if this solution would be profitable for your business or not.
Branding and Customer Loyalty
By using Amazon FBA, your sales will likely increase; however, as you would not be dealing directly with the customers, many customers might not be aware of your brand. For them, it is Amazon’s product, and loyalty is associated with Amazon; thus, the big eCommerce giant becomes your competitor. There are few branding options available on Amazon and brands; you can only write your product descriptions and add photos.
Lost growth
As you would not be in direct contact with the customers, you would not have their email addresses and other details. You can share your various promotional emails or up-sell and cross-sell products to these buyers.
Long-term storage fees
As Amazon has connections with many other online sellers like you and needs to keep space for them also in their warehouse, thus, it requires sellers to pay for the items that sit for a longer period. If your product isn’t selling, Amazon charges extra for products that are not aggressively selling.
It makes sense to sell only popular products through Amazon FBA. You might have to get your products shipped back to your warehouse from the Amazon fulfilment centre to manage your finances.
Labelling
Amazon has a set of requirements that it wants the online seller to adhere to. Sellers need to pack and list the products according to the list before sending them to the Amazon fulfilment centre. You need to make sure that the products are prepared according to this list, which can be tricky at times.
Now that you know what Amazon’s FDA is and its various advantages and disadvantages, it is up to you to decide whether Amazon’s FDA is a good option for you. Every business is different and has different needs. Thus, you need to consider all the points before making the decision.
