What is Amazon FBA (The Definitive Guide)

Fulfillment by Amazon (FBA) is a premium service for sellers that allows them to use Amazon’s vast resources to sell their products across the marketplace with minimal effort. It’s a system in which Amazon handles everything required to fulfill client orders without seeking much input from merchants. 

What is Amazon FBA - Overview
Amazon FBA

Amazon FBA provides sellers with storage, packaging, and shipping assistance, allowing them to sell their goods more conveniently. Sellers merely need to ship their products to Amazon warehouses, and Amazon will handle the packaging, shipping, and other customer services.

How Does It Work?

The concept of FBA is simple to grasp. When you subscribe to FBA services as a seller, you gain access to various features of the Amazon business ecosystem. The seller will only ship the items to Amazon warehouses, where they will be stored until they have been sold. 

How amazon FBA Works

When a buyer places an order, Amazon automates the process and handles everything from obtaining the product to packaging and sending it to the customer while also handling returns/refunds and customer service.

Cost of Using FBA

Once you sign in for FBA services, there is a certain fee that needs to be paid. Let’s see how much Amazon charges its FBA sellers:

Fulfillment Cost

The Fulfillment cost is the fee paid by the seller to Amazon in order to execute the order. This amount may vary depending upon the product’s size and category. When a customer places an order with an FBA seller, the Amazon system is in charge of picking up the purchase, packaging it, and transporting it to the customer. It also offers after-sales services such as customer support and return/refunds. There is an Amazon FBA fee that you need to pay to enjoy this service.

Storage Cost

Storage cost, as the name implies, is the amount that Seller pays in order to store its inventory in Amazon’s warehouse. The cost of storage fluctuates depending on the size and listing of items stored.

Amazon charges a storage fee based on the amount of space you consume in its warehouse. The more area you utilize, the higher the storage fee will be. You can purchase monthly storage from Amazon but if you fail to sell the stock before your contract expires, you’ll have to pay a long-term storage fee estimated per cubic foot.

Advantages & Disadvantages of Using FBA

Here are some positives from the Amazon FBA service:

  • As an FBA seller, your products are automatically eligible for Prime service, which means faster delivery and happier customers. Overall, this aids in the growth of your Amazon online business.
  • Your products will have the Amazon brand name associated with them, which can have a significant impact on your reputation as a seller because customers are more likely to trust Amazon than an individual seller.
  • FBA is ideal for merchants that deal with large-sized products because Amazon warehouses have plenty of storage space. All you have to do is ship your product to Amazon, and each time an order is placed, Amazon will handle the processing.
  • FBA allows you to save money that would otherwise be spent on product packing and shipment.
  • FBA sellers do not need to be concerned about after-sale services. Amazon handles returns and refunds, as well as customer service, once the item is sold.
  • You are likely to pay much less for shipping the inventory to Amazon warehouses, thanks to the network of Amazon-affiliated logistics companies. 
  • Overall, as an FBA seller, customers receive Amazon’s outstanding prior and post-sales services, such as great packaging, speedy and free delivery, and easy returns, among other benefits. On a big scale, this establishes you as a reliable seller on the marketplace, giving you an advantage over your non-FBA competitors

Although Amazon FBA provides you with plenty of benefits, there are some downsides to it as well. Let’s take a look:

  • Amazon is well-known for its incredibly lenient return policy, and as an FBA seller, your return rate is much higher. In most cases, you may end up losing the profit since Amazon accepts a return even after the product has been opened and used for a limited period.
  • If your product does not sell before your monthly membership ends, you may be required to pay a long-term, costly storage fee in order to continue using the warehouse to hold inventory.
  • In a few cases, goods may be lost or destroyed during transportation or due to Amazon’s negligence. There is always the possibility of losing your money or merchandise in this situation.
  • Once the inventory has been dispatched to Amazon, you have no control over it. In the case of faulty or damaged products, there is little you can do but pay a fee to have the damaged things removed.
  • Finally, the FBA service is not intended for small enterprises. FBA fees, higher return rates, and other hidden charges such as product removal fees or disposal fees to remove broken and unsold items can eat into your overall profit margin.

FBA Mistakes You Should Avoid

While FBA can be very beneficial to your business, there are a few things to keep in mind to obtain the maximum profit out of it. Here is a list of the most common mistakes you should avoid in order to maintain your budget and financial gains:

  • As a seller, the quality of the product should be your prime concern. Make sure to have a proper inspection of the inventory once it’s delivered from the supplier. Because once it’s been shipped to the Amazon warehouse, it’s out of your control. In the event of a defective item, you will either have to pay the product removal fee or risk a return from the consumer, both of which will reduce your overall profit.
  • It’s a frequent misconception that if you shift to FBA, you’ll start making money right away. Except for the storage and fulfillment fees, proper cost research must be conducted before switching to FBA. There are numerous hidden costs that you may not be aware of at first and which can be detrimental.
  • FBA can’t guarantee you a successful business on Amazon if you don’t have the right product. This is the core principle of e-commerce. Make absolutely sure your product will be in high demand for a significant period, and that the pricing will be low enough to create a reasonable profit. To identify the most trendy yet profitable goods to sell on Amazon, proper market research is essential. There are various Amazon product research tools on the market for this purpose.
  • As an FBA seller, you should always maintain out-and-out paperwork related to your inventory such as stock, shipping, etc. At times, the inventory may get lost or damaged due to poor operations at Amazon. In that situation, you will need to produce all of the paperwork in order to protect the inventory and file a claim with Amazon.
  • Since Amazon is such a massive e-commerce platform that ships millions of orders every day, its operations are prone to errors and miscalculations. For example, customers may receive a refund for an item they did not return, or a returned item may not be added back to your inventory, and it may take you a while to figure out why. Maintain frequent inventory audits and adjustment reports to uncover such flaws sooner rather than later and seek compensation from Amazon.

FBA Alternatives

If you don’t want to pay Amazon exorbitant commissions and FBA charges while still having greater control over your inventory, there are various alternatives to FBA to consider. Take a look:

Seller-Fulfilled Prime

SFP, or Seller-Fulfilled Prime, is a diluted version of FBA that gives sellers more control over their inventory and customers. When a buyer places an order through SFP, the seller is solely responsible for processing the order. But here’s the kicker: the seller must follow Amazon’s premium delivery requirements in order to display their products in the Prime category on the Amazon marketplace. While SFP allows you more control over your inventory and order management, meeting the strict delivery deadlines may cost you a lot of money.

Fulfilled by Merchant 

Fulfilled by Merchant, or FBM is an alternative solution to FBA which might prove more cost-efficient to you. With FBM, when a customer places an order, Amazon notifies you of the order information. You are free to ship your product directly to the customer on your terms; delivery charge, delivery time, return policy, and so on. The crucial point to note here is that FBM sellers do not fall within the Prime category, which allows you to have more control over the inventory and the entire order processing procedure.

More Amazon Guide:

Final Thoughts: What is Amazon FBA [2022]

To summarise, FBA is a terrific solution for your Amazon business, but you must conduct extensive research before opting for it, especially if you are a small business or are just starting out as an online merchant. 

Research about your product and your potential customers, determine your requirements, and, most importantly, keep your budget in mind. A systematic approach to FBA can help you expand your brand in a relatively short amount of time, but any poor estimation can impair your overall profit. Make an informed decision.

FAQs On Amazon FBA

Is it suitable for all businesses?

Yes, FBA is suitable for all businesses including the ones where the product size is very large and you can’t afford the storage costs.

Why should you use FBA?

As a seller, FBA could be very beneficial for you. You don’t have to worry about storage capacity which means you can hold a large amount of stock at Amazon warehouses. Also, Amazon takes care of shipping and returns, saving you a good deal of money.

Is it free to start Amazon FBA?

No, the FBA service is not free. There are various ways Amazon charges the sellers for FBA such as one time monthly payment or a fixed percentage of every sell profit. 

Is FBA or FBM better?

It is largely dependent on your requirements and budget. FBA is a solution if you are prepared to pay Amazon a fee but do not want to have command over your customers. On the other hand, if you can afford the shipping fees and want more control over your inventory, FBM is the way to go.

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