What is FBA?
FBA stands for Fulfillment by Amazon, a solution which allows you, as an online seller, to utilize Amazon’s numerous huge warehouses to store and ship the products you sell through the Amazon website.
How Amazon FBA works is a very simple, yet powerful process which can help your online business grow without the need for you to invest thousands of pounds in storage facilities and staff.
To give you an idea of how Amazon FBA can help you, consider this 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 and moving forward.
As an entrepreneurial, motivated and enthusiastic seller, at this point, you are likely to begin thinking about purchasing more stock, but the issue is that you simply lack the room to store it and worry about 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.
So streamlined is the Amazon Fulfilment service that when customers purchase from Amazon, they will usually be totally unaware that they are purchasing from a third-party seller using Amazon FBA!
They will see almost no difference between purchasing from Amazon directly and from a seller using 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. It is not a magic bullet however and just like any business strategy, it will take effort to get started.
How Amazon FBA Works
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 way Amazon FBA works is very straight-forward.
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, 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.
What You 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
Now, I’m sure you have questions, so let’s cover some of the benefits of Amazon FBA first because when it comes to Fulfillment by Amazon, there are plenty of advantages.
1. You can use Amazon’s reputation to 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.
2. You gain the ability 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 achieve a higher ranking on Amazon and better visibility
When you use the FBA programme, your product will appear higher in the search results. Products from sellers not using 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.
4. You have a better chance of securing the Buy Box
The Amazon Buy Box is the big ‘Add to Basket’ button 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 using Amazon FBA 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 win the buy box 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 using 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.
8. You can run your business anywhere!
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 you needing 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!
By far the biggest perk of Amazon FBA is the overall ease of use. If you’ve been spending way too long elbow deep in packing materials, spending hours in post office 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 and brand awareness.
These benefits appear to be fantastic, even perhaps too good to be true! So, are there any disadvantages to Amazon FBA?
The Disadvantages of Amazon FBA
Amazon, without doubt, has an excellent reputation and so it would be easy to believe that their FBA service is perfect for all Amazon sellers. However, this is not necessarily the case and having covered the benefits, of which there are plenty, it’s only right that any potential disadvantages are highlighted as well.
So, first, here’s the obvious point!
1. Amazon FBA costs money
Of course, it does! Amazon is running a business, and their sole aim is to make money, just like you, so they do charge both storage fees and fulfilment fees. Storage fees can mount up if your stock is not selling as quickly as you would like, so in order to minimize your Amazon storage fees you’ll need to 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.
To make it easy for you, a full list of fees can be seen here, along with a fee calculator.
2. Prepping your product for Amazon FBA can be tricky
When you register for Amazon FBA you will have access to Amazon’s guidelines on how to prepare and ship your items to their warehouse. These guidelines are strict, and you cannot afford to make a mistake. If your inventory is not 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 is not branded with your logo
When your customer receives their order, 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. You could see an increase in returns
There is the risk that due to Amazon’s ‘easy returns process’ you may receive a higher number of returns from customers once you start using Amazon FBA. This risk of returns can be controlled in some way by always ensuring you supply quality products and your customers do not feel the need to return their items.
However, there will always be those customers who purchase a product on impulse, have buyer remorse and return an item. Amazon FBA does make it easy 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. This should not necessarily put you off using Amazon FBA, but you should be aware.
For many businesses, these few disadvantages will outweigh the benefits of Amazon FBA and of course, 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 utilize Amazon FBA in the best possible way.
Is Amazon FBA Suitable for All Businesses?
Millions of eCommerce entrepreneurs are utilizing Amazon FBA and running profitable businesses, but like anything, it won’t be perfect for everyone.
If you are primarily an Amazon seller it’s 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 can be a worthwhile and lucrative venture. It’s important you 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
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