Ecommerce is a fast-paced world, so finding ways to streamline your business can be the difference between just staying afloat and scaling to new heights. Many sellers find that critical advantage with where Amazon FBA (Fulfillment by Amazon).
But how does Amazon FBA work, and why has it become such a game-changer for sellers? This guide will break down the basics of Amazon FBA, explore its benefits, and help you decide if it’s the right choice for your business.
Keep reading to get answers to questions like:
- What is Fulfillment by Amazon (FBA)?
- How does Amazon FBA work?
- How does Amazon Fulfillment work?
- If I’m an Amazon seller, how does it work when someone orders from me?
- Will how FBA works help or hinder my business?
Let’s get straight to it.
What is Fulfilment by Amazon or FBA?
Fulfillment by Amazon is a solution that allows you, as an online seller, to make the most of Amazon’s numerous huge warehouses to store and ship the products you sell through the Amazon website.
So many sellers love it because it means they can leverages Amazon’s vast infrastructure to streamline their business operations. But if you’re a seller — or you want to become one —- you’ll want to dig a little deeper than that into exactly how FBA works.
How does Amazon FBA Work?
How FBA works is a simple yet powerful process which can help your online business grow without the need for you to invest thousands in storage facilities and staff.
Consider the following scenario:
You’ve conducted your research, sourced your products and have two or three hot items, all selling well on Amazon. Your business is gathering momentum. Everything’s moving forward. It’s exciting.
Now, you’re an entrepreneurial, motivated and enthusiastic seller, of course. So, at this point, you are likely to begin thinking about buying more stock. However, there’s an issue: You simply lack the room to store it, let alone the extra time it will take you to dispatch more orders.
Does this mean your dreams of expanding your business are dashed? No! Not at all. This is where Amazon FBA can help you.
The Amazon FBA process is so streamlined that when customers purchase from you via Amazon, they are usually totally unaware that they are purchasing from a third-party seller.
They will see almost no difference between purchasing from Amazon directly and from a seller through Amazon FBA. They will see the same delivery options, the same return and refund policy and the same level of service.
So, for an Amazon seller, as you might imagine, this solution can be very profitable, and can certainly take a lot of time-consuming tasks away.
That said, this is not a magic bullet. Just like any business strategy, it will take effort to get started.
Getting started with Amazon FBA
Amazon FBA requires you to use your regular Amazon selling account as usual and then follow some simple instructions to add your products to your FBA section. With just a few clicks, you will be able to expand your business in an entirely cost-effective manner, with the direct help of Amazon.
The process is very straightforward:
How FBA works: What Amazon Does
- You send your products to one of Amazon’s warehouses – don’t worry, they will tell you which warehouse to send your products to.
- Amazon stores your products safely in their warehouse.
- Customers purchase your products and Amazon deals with the whole transaction from payment to updating your inventory.
- Amazon packs and ships your product to your customer.
- Amazon handles the majority of your customer service tasks including dealing with any returns or refunds.
- Every two weeks, Amazon deposits your sales profit directly to your bank account.
So, Amazon FBA is like having your own warehouse, pickers and packers!
Amazon’s team will dispatch all your orders, and handle all your customer emails including letting your customer know their item has been dispatched, they will deal with shipping and payments; you simply provide them with the stock and earn the cash.
As you might expect, Amazon does charge a fee for their FBA service, but the costs are competitive, and the postage savings are good too.
Remember, you’ll be utilising the power of Amazon when it comes to making sales, it’s convenient and you won’t have to contend with any Post Office queues or fights with bubble wrap and sellotape!
So, that’s Amazon’s part, but there are still things that are your responsibility.
Related: What Happens at an Amazon Fulfilment Centre?
How FBA works: What Sellers Need to Do
- Choose your products: Amazon deals with the back end so to speak, but you’ll still need to research and source what to sell.
- Ensure your inventory is always up to date:Amazon lets you know when your stock levels are low, but you must make sure you replenish stocks when necessary.
- Create your product listings and market your products effectively:Amazon is huge but you’ll still need to write effective product listings and titles and market your products so that people can actually find them.
The Benefits of Amazon FBA
So far, so impressive. But you might be wondering how does Amazon FBA work to your advantage as a business owner — solet’s cover some of the benefits of Amazon FBA first because when it comes to Fulfillment by Amazon, there are plenty of advantages.
1. Amazon’s reputation can benefit your business
People from all over the world trust Amazon. When they order a product, they know they will receive it. They also know they can return it if they need to. This plays a huge part in whether or not they purchase from you.
Related: Pros and Cons of Selling on Amazon vs Your Own Site
2. You’ll be able to provide a super-fast service
Amazon’s unique online ordering system includes faster processing and dispatch. For this reason, they can ship products to your customers faster than you may be able to.
3. You can get a higher Amazon ranking and better visibility
When you use the FBA programme, your product will appear higher in the search results. Products from sellers that don’t use FBA have items listed by total price (price of the product plus shipping costs). However, as an FBA seller, you will have your items listed by price only thus making it one of the first items in the search results.
Related: 21 Ways to Rank Your Products Higher on Amazon
4. You have a better chance of securing the Buy Box
The Amazon Buy Box is the big ‘Add to Basket’ and ‘Buy Now’ buttons displayed on all product listings on Amazon. As a seller, if both you and Amazon are selling a similar product, they will always have the Buy Box, of course, they will! But, by getting Amazon FBA onside you can still compete. FBA is one of the variables Amazon likes to see within your shipping methods, so this makes it highly likely that you will be eligible for the Buy Box and will win this desired section more often on your other product listings.
5. You can automatically offer free delivery
Your customers can get free delivery on your products with their Amazon Prime subscription. This is certainly advantageous for you over the sellers who are not taking advantage of Amazon FBA. Prime customers tend to purchase a plethora of items during the busy shopping season. After all, who doesn’t love free shipping, so with Amazon FBA, you gain a significant advantage by reaching these sellers.
6. Your overheads are significantly reduced
Thanks to FBA you don’t need to be concerned with storage, employees and administration and you’ll be able to focus on selling more products and boosting your profits!
7. You will benefit from increased productivity
One of the biggest benefits of FBA is your increased productivity. With Amazon dealing with your customer service, returns, storage, packing and dispatch of your products, your time can be spent building your business.
Related: Scale Your FBA Business With an Amazon Virtual Assistant
8. You can run your business anywhere!
As an Amazon FBA seller, you can be anywhere in the world and still be generating consistent business. Amazon will handle all your orders 24/7. So, you won’t deal with customer queries as often.
Amazon FBA will deal with all your customer service needs. For example, if a buyer has an issue with their order, they can contact the customer service department at Amazon, rather than needing you to deal with it. This saves you valuable time, stress, and frustration, and you won’t need to speak with customers directly.
9. The biggest perk of all: Ease of use
By far the biggest perk of Amazon FBA is how easy it is to use.
If you’ve been spending way too long elbow-deep in packing materials, spending hours in post queues or dealing with customer service issues, imagine never having to touch a product, dispatch an order or deal with a return ever again! This is how Amazon FBA works.
In a nutshell, Amazon FBA has the capacity to provide you with that all-important time you need, to spend focusing on other vital aspects of your business, such as sourcing new inventory, customer inquiries, monitoring your daily average volume and sales history, and brand awareness.
These benefits are clearly impressive, but there are a few Amazon FBA disadvantages we’ll cover next, so you’re armed with all the facts.
Related: A Handy List of Amazon FBA Resources for New Sellers
The Disadvantages of Amazon FBA
Amazon, without a doubt, has an excellent reputation, so it would be easy to believe that their FBA service is perfect for all Amazon sellers.
However, if you’re wondering how Amazon FBA works against sellers, look no further, as it’s only right that we run through the potential disadvantages as well as the plus points.
And, we’re kicking off with the most obvious point!
1. Amazon FBA costs money
Of course it does!
Let’s talk Amazon FBA fees. Amazon is running a business, and its sole aim is to make money, just like you. Amazon charges storage fees and there’s a fulfilment cost, both of which can mount up if your stock isn’t selling as quickly as you’d like.
You can minimize your Amazon storage fees though. To do so, make sure your stock moves quickly, and as long as your inventory doesn’t just ‘sit’ and you are making sales, extra fees won’t apply.
You’ll also need to make sure that your products are still profitable after taking into account your FBA fees. You can calculate your fees using Amazon’s FBA calculator.
2. Prepping your product for Amazon FBA can be tricky
When you register for Amazon FBA through Amazon Seller Central, you will have access to Amazon’s guidelines on how to prepare and ship your items to their warehouse.
Sounds simple enough, right? But keeping track of FBA inventory can be a whole new kettle of fish. These guidelines are strict, and you can’t afford to make a mistake. If your inventory isn’t properly labelled it will be rejected at the warehouse, causing delays and frustration, not to mention extra work. So, it’s important you follow the instructions carefully.
3. Product packaging isn’t branded with your logo
When your customer receives an order that’s been dispatched by Amazon FBA, the packaging will include Amazon’s branding.
This means it’s more difficult for you to build your reputation using brand awareness as your identity is not visible on your packaging. If brand awareness matters to you, you won’t benefit, so you’ll need to weigh up how big a disadvantage this is to you, against the other advantages Amazon FBA offers.
4. Higher returns rates
Amazon’s well known for its easier-than-average returns process — great for customers, but maybe less great for sellers!
You may receive a higher number of returns from customers once you start using Amazon FBA. This can be especially tricky to manage if you’re dealing with multi-channel fulfilment. There are ways to manage the risk of returns — always ensuring you supply quality products for starters.
But the fact of the matter is: There will always be those customers who purchase a product on impulse, then get buyer’s remorse and return an item. Amazon FBA does make it easier for this to happen.
There’s also the chance that Amazon might deem a returned product unsellable and you will then be out of pocket for that product. Most seasoned professional sellers consider this par for the course, but it’s good to be aware.
For many businesses, these few disadvantages will outweigh the benefits of how FBA works. Naturally, your success will also depend on other factors, many of which are down to you, the effort you put in and the knowledge you have in order to maximise Amazon FBA’s benefits and minimize the downsides.
Is Amazon FBA Suitable for All Businesses?
Millions of ecommerce entrepreneurs are utilizing Amazon FBA and running profitable businesses, but like anything, it’s not for everyone! But if you’re looking to grow your business or want to sell to more people, we suggest you give it a serious look.
If you’re primarily an Amazon seller, the Amazon FBA program is a fantastic option and can be a great solution for you if you are stuck between a kitchen table business and an expanding full-time brand, as it can help you step up to the next level and concentrate on sourcing new products and making sales, rather than becoming bogged down with time-consuming fulfilment tasks.
Using Amazon FBA as opposed to just the standard Amazon marketplace can be a worthwhile and lucrative venture. You must do your homework though and learn about Amazon’s rules and regulations, and most importantly, understand your customers – your target market – to decide if it’s right for you and your business.
Ultimately, how Amazon FBA works for you will depend on your products and business objectives. Certainly, for many Amazon sellers, Amazon FBA is a simple way to outsource many tasks associated with running an eCommerce business, but of course, you must ensure the benefits justify the extra cost involved.
Related: FBM vs FBA
What’s behind every great seller?
The right solution.
If you’re a serious seller on Amazon (or that’s your ambition), Amazon FBA is a popular solution that offers excellent efficiency and scalability. And now you can answer “How does Amazon FBA work?” confidently and in detail, and you know how to leverage its many benefits.
With a strong fulfillment strategy you’re well placed to create a streamlined, profitable ecommerce business — but there’s more to ecommerce than fulfillment. Pricing strategy is vital when the competition is this fierce.
Whether you’re just starting out or looking to scale, RepricerExpress can help you optimize your pricing, and fast. It’s the great solution behind countless successful professional sellers.
Ready to get started? Take advantage of our no-obligation free 14-day trial, no credit card required.
Related: How to Start an Amazon FBA Business with Little Money
