Understanding Amazon FBA and How It Operates – SellerApp
You’ve probably heard of FBA, or Fulfillment by Amazon if you’ve ever sold anything on Amazon. With the introduction of FBA, online retailers could unwind while Amazon handled the labor-intensive tasks. Now, sellers have access to Amazon’s large global warehouses. All orders placed for your products would be packed and shipped by Amazon’s diligent employees. Even customer service is handled by Amazon staff members when it comes to FBA.
These are but a few advantages of Amazon’s FBA service. Although these benefits sound wonderful, there is a price to pay. Understanding Amazon FBA from top to bottom is crucial to determine whether it can benefit your online business.
What is Amazon FBA?
When it comes to ordering fulfillment, Amazon merchants have three choices for their products. They can opt to store, package, and ship the item to Amazon themselves using FBA, or they can opt to outsource these tasks to Amazon using Fulfillment-by-Merchant or Seller Fulfilled Prime.
How does it function?
When making a product listing or offering a product for sale on Amazon, sellers must choose their fulfillment plan. When necessary, sellers can choose between fulfillment options.
The FBA procedure is easy:
- Products are purchased by sellers, who then deliver them to an Amazon warehouse. You’ll receive the relevant contact information and address from Amazon.
- The items are then kept at Amazon’s fulfillment facility until a client places an order. There is a storage fee, which generally depends on the product’s size and volume.
- Amazon handles the transaction and updates your inventory after an order is placed.
- Amazon packages and sends the package.
- The industry leader in online shopping manages customer support and order tracking. Amazon also manages refunds and returns.
- Amazon provides you the revenue from your sales every two weeks.
Sellers should be aware that Amazon has tight requirements for packaging when sending goods to its fulfillment centers.
Since Amazon handles important logistical functions, for many sellers, this is a fantastic method to grow and scale their online businesses. The only thing left to do is replenish your inventory and total the proceeds.
The service is not free, as I previously said. However, the prices are really reasonable and frequently less expensive than storing and transporting the goods on your own. In addition, while Amazon handles the majority of the logistics, FBA sellers are still in charge of making the product selection, managing inventory, and conducting marketing.
Explanation of Amazon FBA inventory fees
The ability to handle and store inventory is among FBA’s main advantages. If they use the service, Amazon merchants won’t have to pay significant sums of money up ahead for storage space. This does come with a small price tag, as I’ve already said. All of the inventory at Amazon’s fulfillment centers is subject to a monthly fee. The charge is volume-based and is based on the product’s size and the time of year it is stored. During the holiday season, storage rates increase (October to December).
Amazon charges monthly storage fees for items in the US between the seventh and fifteenth day of the month after the month for which the fee is applicable. As a result, your storage price for March will be assessed between April 7 and April 15.
If your goods have been kept at a fulfillment center for longer than a year, they may also be subject to long-term storage fees in addition to monthly storage fees. Amazon charges sellers a price of $0.15 per product or $6.90 per cubic foot of storage usage for things kept for longer than a year (whichever is greater). This charge is taken out each month. If you’re not careful, this can quickly pile up, therefore it’s crucial to monitor your inventory at Amazon’s fulfillment hubs. Low product turnover might significantly reduce your FBA profitability.
Amazon will also complete orders from other websites or channels via multi-channel fulfillment (MCF). This implies that you can sell goods from your website or another shop using the FBA inventory you have on hand. As usual, Amazon handles packaging and shipping. You can also advertise your MCF inventory as a professional seller if you don’t want to put it up for sale on Amazon.
Amazon FBA: Benefits
You have undoubtedly already read many positive reviews of Amazon FBA. However, it’s crucial to take into account a number of different factors to determine whether the program meets your company’s demands. Understanding the many advantages and disadvantages of Amazon FBA is crucial for this reason.
Starting with the advantages of the FBA program
Support for logistics and scalability
This is by far Amazon FBA’s strongest suit. You may save a lot of money on storage and expand your business easily because Amazon handles the product’s shipment and storage. Hiring storage doesn’t require large up-front sums of money.
If your company is just getting started and you’re selling more than ever, Amazon will handle the additional shipping responsibilities. All you have to do is make sure your stock is changed.
With Amazon Prime, shipping is quick and free.
Amazon has permanently altered how we make purchases. Since the launch of Amazon Prime, users have come to anticipate always-rapid delivery. Prime is automatically available to Amazon FBA merchants. Your purchases can be delivered in a few days thanks to the tens of thousands of Amazon fulfillment facilities that are located all over the world.
Sellers who do not use FBA can choose to participate in Seller Fulfilled Prime (SFP), but they must meet certain requirements. A flawless sales history and seller feedback are necessary for this. In order to apply for SFP, you also need a professional account.
The benefit of the Buy Box
You are more likely to receive the Buy Box if you use Amazon FBA and have a professional seller account.
Why is this crucial? Amazon makes more than 80% of its sales from the unassuming yellow button on a product listing. Gaining the Buy Box frequently causes a significant increase in your sales.
I suggest viewing this video if you want to learn how to constantly win the Buy Box. You will be guided through each step necessary to obtain the Amazon Buy Box by Ankitha Nagaraj.
Reduced shipping costs
The unquestioned king of online shopping is Amazon. Their agreements with large shipping companies frequently result in lower shipping rates. Everyone who has been involved gains from this. Less money must be spent on shipping for sellers using FBA. Customers benefit from the best shipping prices thanks to Amazon’s extensive logistical network, and occasionally Prime members even get free shipping.
If you’re an FBA seller, Amazon will be your customers’ point of contact. This implies that refunds and consumer inquiries are handled by Amazon’s live customer service team. When it comes to returns, there is a processing charge, but it’s typically reasonable.
Amazon FBA: Drawbacks
After waxing lyrical about Amazon FBA, it is time to discuss some of its drawbacks.
It costs money.
It’s not a surprise that FBA is not a free ride. The problem is brought on by Amazon’s storage costs. If you have a very low turnover, you could lose a lot of money because it adds up from month to month. If you have to pay more for long-term storage of your products, this situation simply gets worse. Inventory removal from Amazon warehouses is possible, but it’s not necessarily free.
If your online store sells inexpensive items with a large turnover, FBA is ideal (high-volume sellers.) Consider shipping the parcels yourself if you want to sell a huge item with little turnover. To determine a product’s profitability, use SellerApp’s practical FBA profit calculator.
When you’re not actively engaged in the sales process, it can be challenging to keep track of your inventory and the products you have on hand. Amazon will lower your product’s visibility and product ranking if it is out of stock. Lower sales are frequently the result. Sellers must constantly review their inventory reports in order to keep track of their goods.
It’s difficult to send inventory to Amazon as well. You have three options for shipping the goods: you may do it yourself, engage a middleman, or have your supplier transport the goods directly to fulfillment centers. However, Amazon’s requirements for packing and labeling are extremely stringent. If you don’t adhere to the rules, the huge online retailer may return the goods. It is usually a good idea to get in touch with logistics firms that can support you at the start of your seller journey if you have questions regarding Amazon packing.
A little brand
You lose out on a branding opportunity because Amazon packs and sends your product from its fulfillment facilities. While you have control over the packing of your products, the shipping boxes will always bear the name and emblem of Amazon. You have a few options with FBA if you want to build a brand and customize the customer experience.
Should you use Amazon FBA for your business?
Answering this question is challenging. In general, merchants who offer small items with significant turnover should think about using FBA. This restricts storage expenses and guarantees that they won’t ever incur ongoing storage fees.
It’s crucial to keep in mind that fulfillment procedures can vary depending on the goods. The same merchant can select FBM for a large table and FBA for small children’s toys. To maximize their utilization of the Amazon Marketplace, many merchants employ both FBA and self-fulfillment methods.
How Much Could Your FBA Business Be Worth?
Commingling is another aspect you should take into account.
In the online economy, fake and mislabeled goods are a major problem. When products aren’t physically checked, many fake ones manage to get through the system and reach consumers. If they are selling the same goods and have permitted commingling, this could cost an honest seller.
So what exactly is mixing?
FBA merchants have the option of using this fulfillment method, in which Amazon gathers items from various sellers for processing and shipping. It combines items from different merchants or companies selling on Amazon that have the same manufacturer ID. Then, customer orders are filled using this shared inventory. As a result, any similar product that Amazon has in stock, from any seller, may be used to fill an order for Seller A’s unit of inventory when it is received. Your reputation will be tarnished if a dishonest vendor or a rival sends out broken or fake copies of your mixed products. For legal firms, this can be terrible and result in a lot of dissatisfied customers.
Not all mixing is detrimental. It does make it simpler for vendors to ship goods to Amazon’s fulfillment center. You must carefully label each product you ship to Amazon if you are not mixing your products.
Contrarily, the commingled inventory option enables merchants to save on labor and time costs. Instead of requiring individual labels, it groups things together using bar codes. Although not all products can be mixed together, it might be a good approach to save time and money provided fraud and fake goods are not an issue.
Fortunately, you have the authority to choose if you wish to combine your goods with others. You can modify your commingling settings as follows:
- Go to the “Settings” section of your Seller Central account.
- Then click on “Fulfillment by Amazon”
- Look for the phrase “FBA product barcode preference” as you scroll down the page.
- Edit “Amazon barcode” to eliminate blending
You can select to label the products yourself if you wish not to mix your products. Amazon will charge you for the service, but you can also let them handle it for you.
Third-party sellers now have it relatively simple to launch and expand their online enterprise thanks to Amazon FBA. It enables brand-new sellers to join easily into the vast Amazon ecosystem.
However, the majority of profitable vendors don’t use a single fulfillment method. Your selection of a fulfillment strategy should take into account the size, demand, and profitability of the product, among other crucial elements.
You may determine whether FBA is the best fulfillment method for your goods using SellerApp’s FBA calculator. You can stay up with all the latest Amazon FBA news by visiting forums like Reddit and seller central.
Do you have any further inquiries about Amazon FBA? Our professionals are always glad to assist. Just let us know how we can help you in the comments section below.