As the world’s largest online marketplace, Amazon provides vast growth opportunities for businesses of all sizes. With over 300 million active customers, the reach a brand can achieve on the platform is unparalleled. But to fully unlock the potential of selling on Amazon, understanding its Fulfillment by Amazon (FBA) service is essential.
What Is Fulfillment by Amazon (FBA)?
Juggling multiple responsibilities such as logistics, marketing, and customer support can be challenging for any business owner. FBA is a lifesaver for those who wish to focus on their products and sales.
To illustrate this, consider a small business specializing in handmade soap. They found managing all aspects of their online business daunting, particularly the logistical elements. By adopting FBA, they redirected their attention from packaging and shipping to enhancing their product and refining their marketing strategy. This shift significantly bolstered their growth and customer satisfaction rates.
How Does FBA Work?
Let’s divide this into 3 Steps:
Step 1: Products at Your Warehouse
Step 2: Products at Amazon Fulfillment Centers
Step 3: Products sent to the customers
Products at your warehouse
With a well-stocked inventory of products in your catalog, we can move to the next steps. We create a shipment plan with Amazon FBA for the products we want to sell. At this stage, you decide which products, how many units to send, the shipping date, and carriers.
The logistics partner comes to your warehouse to pick up the products based on your shipment plan. Depending on your warehouse location, these units are sent to one or multiple Amazon Fulfillment centers. The products you send will be labeled by the Seller.
Products at Amazon Fulfillment Centers
The shipped products are received at one or multiple fulfillment centers, which Amazon matches with the shipment plan and allocates storage. These product stocks will be shown on your Inventory Dashboard and will decrease based on each sale you make.
Products sent to the Customer
The most rewarding part of FBA is, of course, the actual sales of the product. When an order is placed, Amazon picks and packs the products based on the customer’s order and ships them. Amazon also handles customer support, and returns or refunds in case of any issues.
This may sound simple when written, but each step has its timeline and multiple sub-steps. Now that you have a brief idea about how FBA works, let’s look at its Pros and Cons.
Advantages of FBA
- Benefits of Amazon Prime- Short delivery times for all eligible Prime customers encourages more sales conversions on your products.
- No Hassle on Shipping- Amazon handles everything logistical from the moment the products are picked up from your warehouse.
- Precedence on Buy Box Winning- The Add to Cart/Buy Now option is enabled by default for your listings, provided they meet eligibility criteria like pricing, etc.
- Better Support for End Customers- Open return policies make it easier for customers to decide to buy products.
- Control Over List Prices- You decide the selling price of your product.
- Easy Access to Launching on Multiple Marketplaces and Remote Fulfillment Opportunities.
Disadvantages Of FBA
- Limited Branding Scope- Customers first see a package by Amazon, even if your brand package is inside.
- Inventory Management can be Challenging- Unlike the Vendor Central PO system, Amazon doesn’t raise any shipment requests, so you must monitor sales and inventory levels to ensure continuous stock for sales.
- Overall Fulfillment Costs can be High- For low-cost items, profitability may suffer due to multiple fees.
- Increased Product Return Probability- Due to Amazon’s open return policy, the number of returns may increase.
Amazon FBA fees
The FBA fee is a per-unit charge for fulfilling items to customers for purchases in the Amazon store. This fee, sometimes referred to as the “pick and pack” fee, varies depending on the item’s category, size, and weight.
The FBA Fee can be split into three major categories: Referral Fee, Fulfillment Fee, and Storage Fee.
- Referral Fee is charged per unit sold, determined by the product category.
- FBA Fulfillment Fee is charged per unit for fulfilling items to the customer, determined by the product size tier and shipping weight of the item.
- Storage Fee is charged monthly for the space your inventory occupies in fulfillment centers. Monthly storage fees are calculated on your daily average volume in cubic feet.
How to approach Selling on Amazon FBA
Firstly, check the profitability of the product. Not every product is profitable, so get an idea about the charges involved in selling your products. Use the Revenue Calculator for a basic understanding of profitability. This will help you shortlist the products to launch on Amazon.
Start small with a limited number of products. As FBA involves inventory management and other manual processes, it’s vital to understand how the overall structure and system work before launching a larger set of products.
Be smart with pricing. While you control the product pricing, consider the competitive landscape before setting prices. Understand the average price of competitor products.
Ensure you have content and creatives prepared. Leverage SEO opportunities to increase organic traffic.
Have a Marketing plan. Your newly launched product will need an additional boost to gain audience attention and improve conversions. Combining this with promotional deals can unlock serious growth potential.
At SalesDuo, the company has created an innovative and successful formula for businesses large and small to maximize their visibility and profits. Their solutions include a unique combination of artificial intelligence technology and an ex-Amazon expert team to deliver the best results cost-effectively. For more information, visit www.salesduo.com.