People have been utilizing Amazon for years as a method to make money online while maintaining a laptop lifestyle. E-commerce has flourished, with more and more people using their computers to buy almost anything and having it delivered to their door in a matter of days.
With an average monthly traffic of 3.76 million visits in 2020, Amazon was the most frequented online retail website.
It’s no wonder that small and medium-sized enterprises want a piece of that traffic and money, but it comes at a price.
In this post, I’ll explain how Amazon FBA works, whether it’s still worth considering, and what you, as the seller, are liable for when utilizing it.
What is Amazon FBA, exactly?
Fulfillment by Amazon is a service provided by Amazon that allows third-party businesses to automate their order fulfillment and delivery processes. It’s a rather straightforward concept: sellers sell, and Amazon ships.
Anyone who signs up for Amazon FBA may have Amazon manage everything from shipping to returns and refunds to product warehousing in Amazon’s warehouses, picking and packaging, and more.
Sellers give their goods to Amazon, which stores them and handles all of the orders as they come in. The rest is taken care of for you as long as you handle the sales and keep Amazon stocked with your products.
Yes, you will have to pay Amazon fees. You certainly do. So, for the money, what do you get?
- Customer care is available 24 hours a day, 7 days a week on Amazon
- Included are all fulfillment and shipping expenses (pick, pack and ship)
- Access to one of the most dynamic fulfillment networks in the world
The majority of people are aware that Amazon is a titan in the online retail and fulfillment market. COVID-19 and the resulting epidemic have only increased the use of Amazon’s platform, which now has over 300 million active consumer accounts worldwide.
Let’s take a look at the platform’s history and progress before diving into its features, benefits, and drawbacks.
The Background of FBA
Although Amazon’s Fulfillment by Amazon service began in 2006, the corporation has been laying the way for online retail for years. Despite its humble beginnings in the 1990s, the company had been dominating the field of online sales and fulfillment, and recognized a potential to assist others achieve the same. Of all, Amazon is profiting from their FBA business as well, so it’s not exactly a heroic effort on their behalf.
Amazon has decided to let small businesses benefit from its fulfillment capabilities and world-class customer service infrastructure. The brand essentially intended to share its business strategy with others and teach third-party merchants how to profit large by doing things the “Amazon Way.”
Like Amazon, the FBA program is always evolving and adapting to meet the needs of the changing consumer landscape and online retail environment. For those who are enrolled, this is both a blessing and a curse. It will be simple to keep up with current trends and market demands, but keeping up with the ongoing modifications and upgrades to the procedure, guidelines, and other components of the program will be tough.
Fortunately, we’ll go through every element about the Amazon FBA program in this tutorial, including its future potential, to assist you determine what to do next.
Amazon FBA’s Most Recent Changes and Features
Amazon fulfillment is continually evolving and adjusting to meet the needs of both its customers and the platform’s suppliers. Keeping up with the latest modifications and additions to the FBA service can help brands meet consumer demand and stay on top of their game.
One significant change in 2020 is the addition of inventory comingling, which is permitted if Amazon barcodes are used. What is commingling, exactly? It occurs when Amazon collects all units of a single product from all sellers and ships any one of them to a buyer. Also known as sticker less inventory.
This has its own set of advantages and disadvantages, but it could result in counterfeits being shipped to your customers instead of the high-quality unit you placed in Amazon’s warehouses (since products are chosen from any available stock, including stock provided by someone other than you) or other problems. If you use this feature, you’ll want to keep a close check on things. Because of negative reviews produced by damaged or phony products, some legal Amazon FBA sellers have been barred from selling on Amazon.
The Inventory Performance Index, which will be implemented in August 2020, will measure a variety of factors to assess how your inventory is performing and help you improve it by getting rid of surplus inventory, increasing your sell-through rate, and more. You’ll desire a score of at least 500, which is determined by criteria such as:
- Inventory on hand
- Inventory surplus
- Inventory that has become stranded
- Rates of conversion
Amazon imposes quantity constraints at the ASIN level to ensure that sellers have a diverse product offering, and the new inventory performance dashboard makes it simple to keep track of everything. You can keep track of your inventory activities, monitor your IPI score, and even get suggestions and tips from Amazon on how to make better use of your inventory.
The FBA program is constantly developing and being updated by Amazon. Fortunately, they have a system in place that tells vendors of new modifications and functionality as they become available. The most pressing issue here is staying current and making appropriate modifications as they emerge.
The Price of FBA
The cost is the section that everyone always wants to jump to. It will cost money, but it does not have to be a large sum. Consider how Amazon charges storage fees: products are priced based on size and weight, not pricing. Selling low-cost things through FBA could end up costing you more than it’s worth. Consider carefully what you list on the FBA platform and what you don’t.
The Amazon FBA program charges storage and fulfillment costs. The more goods you have on hand, the more money you’ll spend. Amazon also offers a neat feature where the price of items that have been kept for more than 180 days increases, incentivizing customers to get and keep products moving.
Furthermore, Amazon tracks stranded inventory, which is product that is stored at an Amazon warehouse but is not available for sale. You lose money on stranded inventory, but Amazon can help by offering a stranded inventory report.
Settlement fee reports may be found in your FBA dashboard’s reporting section, and they will show you what kind of fees you’re paying to Amazon as part of this program. Keep in mind that you’ll pay more storage rates during the holiday season than the rest of the year because of the increased demand. This is a good opportunity to double-check your FBA listings and remove anything that isn’t selling to avoid wasting money.
Yes, there are a variety of expenses associated with FBA, as well as some other pricing considerations. Amazon, on the other hand, does a good job of providing helpful information and assistance to achieve maximum openness. It’s also a good idea to hire an Amazon bookkeeping agency to provide clear financial statements every month so you have a good understanding of your numbers and how FBA costs affect your bottom line.
The Benefits and Drawbacks of FBA
You’ll need a pros and cons list to decide whether Amazon FBA is the appropriate choice for you. After all, it’s how the best decisions are made, and it’s a terrific approach for you to figure out what will work best in your situation. Following a thorough examination of the platform and its features, we’ve compiled a list of our top benefits and disadvantages for your consideration.
Benefits of FBA
While this isn’t an exhaustive list (that would require a lot more time and space), here are some of the most notable features of Amazon FBA in our opinion.
- Easy Shipping and Logistics: Amazon handles everything for you. You simply keep track of your listings, ensure they’re supplied with stuff, and let the fulfillment process run its course. For a modest cost, you can remove a significant burden from your shoulders.
- Discounted Shipping Rates: Because you’re working with Amazon, the world’s largest fulfillment company, you’ll save money on shipping through the FBA platform. As a result, even if you’re paying fees, they can be lower than you expect when you consider the transportation savings, and still less expensive than handling your own shipping and fulfillment in-house.
- Returns and refunds are handled by FBA in addition to sales because they are considered part of the fulfillment process. This relieves you of yet another burden.
- Customer Service Management: Amazon provides FBA sellers with their own customer service. You can also use their FBA platform to handle your own customer support needs, with all of your service being routed through one platform for ease management.
- Quick Delivery: FBA products receive the Prime badge automatically and are eligible for Prime free shipping (to the customer) and shipping times. Plus, because it’s included with the service, you won’t have to pay or charge premium shipping fees to do so.
- More Storage Space: How much inventory could you possibly store without FBA? Do you own or can you rent a warehouse? Are you capable of moving and handling that much inventory? This is where the Amazon Fulfillment service really shines. Because Amazon has warehouses all across the country that can hold a lot of things, you virtually have unlimited storage space — for a fee.
- FBA gives you access to innovative multi-channel fulfillment solutions as well as allowing you to sell to targeted customers through the Amazon platform. The MCF (Amazon Multi-Channel Fulfillment) service allows you to sell your products across many platforms and channels (such as BigCommerce and eBay) while having Amazon handle the fulfillment.
FBA’s disadvantages
Because no two people are alike, it’s critical to consider the reasons why FBA might not be the best fit for your requirements. Here are a few things to think about.
- Money is everything for individuals who are just getting started. FBA is a very useful service, but it is not free. Some people may not have to spend that money right now. Furthermore, due of the way fees are determined, this service isn’t suitable for low-cost things, so you’ll want to be judicious about which products you enroll. Fortunately, Amazon has a helpful FBA calculator that can help you figure out if it’s a good idea.
- More Returns: Many vendors have seen an increase in the quantity of returns or the frequency with which they occur. This is partly due to Amazon’s no-questions-asked return policy. While this may have an impact on profits, Amazon handles the processing, so it isn’t the end of the world. Returns used to be delivered back to Amazon, and you had to arrange for them to be forwarded to you, but Amazon is introducing adjustments that will allow returns to be sent directly to your facility.
- Long-Term Storage Fees: Amazon despises stock lingering around. As a result, you’ll pay more for items that sit longer. Long-term storage fees aren’t the end of the world, but you’ll need to account for them in your continuing budget to ensure that FBA remains a viable option for your business. They also don’t want to store things that aren’t actively for sale, so they’ll charge you for it and alter your metrics badly. All of this, however, can be accessed in your seller panel, and you may arrange for things to be returned to your facility.
- Product Preparation Standards: For products arriving into the warehouse to be fulfilled through FBA, Amazon has its own set of requirements. Before delivering your products to Amazon, you must ensure that they are properly packaged, labeled, and dispatched according to the FBA inventory warehousing rules. Some of the subtleties can be difficult to grasp.
- Sales Tax: Sales tax is administered by the states. If your company operates in one state but stores its inventory in another, you may be unsure which tax rate to employ. Fortunately, there are tools to assist you with automating various tax scenarios and guidelines, as well as determining what to charge, and Amazon can handle the majority of this for you.
- Payment of Amazon FBA Fees: You can’t put off what you owe Amazon. You can’t pay for the previous sale with the proceeds from the next one. Before making any payment to you, Amazon will deduct all costs payable to them. What if you don’t have enough money in your account to afford the fees? To pay off the remaining balance, you’ll need to supply a credit card.
How to Use FBA Correctly
Fulfillment by Amazon, like anything else, only works if you properly integrate and use it. We’ve previously covered some terrific methods for increasing your chances of success with FBA, but there are certain larger best practices and overall themes to keep in mind as you use the platform.
Begin small
You don’t have to, and you shouldn’t, sell everything. Remember that Amazon FBA storage and warehousing costs money, so until you know what will sell, try a few items and work your way into new products over time. Choose a well-curated selection of things and list them on FBA to make learning the best practices a little easier when you’re just getting started.
Make sensible product selections
As previously stated, product selection requires extreme caution. Simply because you believe something will sell does not ensure it will. On Amazon, the market is competitive, so you must choose the most profitable products, avoid stagnant inventory, and stand out even if they aren’t the best-selling things.
Conclusion
You can earn so much more out of your online sales by leveraging the power of Amazon FBA, but only if you execute it correctly and have products that are profitable for it.
There are numerous ways to sell on Amazon, and no two people will make the same choice for the same reasons. With the facts offered here, you should be able to make an informed decision about whether to sell on Amazon through FBA, SFP, or another method.
Finally, the Fulfillment by Amazon program provides sellers with the best of everything in a nice little bundle that is reasonably priced. However, due to the cost structure and the way fulfillment is handled, it may not be suitable for all brands or products.
