Amazon FBA – All You Need to Know in Under 10 Minutes!
“Have you considered selling with Amazon FBA (Fulfillment by Amazon)?” is a question every merchant on Amazon will hear sooner or later. The first thing you have to know about the Amazon FBA program is that it is not one big service but rather several different services under one name. This package-deal allows Amazon sellers to transfer many fulfillment duties back to Amazon while at the same time benefiting from sweet side-effects like increasing your chances of winning the Buy Box. But more on that later.
Like with all other package-deals, informing yourself about every factor the deal entails is an absolute must. What is Amazon FBA? How much does Amazon FBA cost? Is Amazon FBA worth it for me in particular? These are all questions you have to work out for your business, and we are here to help you as best we can.
What Is Amazon FBA?
Fulfillment by Amazon is the online giant’s in-house fulfillment service. For a fee, marketplace sellers can book this service. Amazon then takes over all logistical steps for FBA products that are necessary to process an order. This includes, among other things
- the warehousing of goods,
- the compilation of orders,
- customer service in respective languages,
- as well as refund and return management.
To this end, an FBA seller sends the product to the Amazon fulfillment centers, from where the e-commerce giant takes care of all further steps. This includes, for example, the distribution of the inventory to the other logistics centers according to the specific order demand. So what are the concrete benefits of Amazon FBA for your business? From the warehouse to the customer’s doorstep (and back to the Amazon FBA warehouse, if necessary), Amazon takes care of this for you, leaving you with more time for other things, like working on your listing with Amazon A+ Content … Or, you know, Netflix and stuff.
What Are the Amazon FBA Requirements?
Just in case we weren’t able to make it clear enough in the last paragraph: You don’t need any previous experience in logistics to master Amazon FBA successfully. Amazon – literally – handles your entire logistic scheme for you once you register for the FBA program.
This means that even if you run a small company with little e-commerce experience and only a handful of employees, you can build up a large product range and gain access to millions of customers through Amazon FBA alone. One of the reasons for this is because using the service also enables automatic participation in the Prime program, which is popular with customers primarily because it guarantees fast delivery, no matter what location you’re shipping to.
In fact, Amazon FBA and the automatic Prime program that accompanies it is a must for many Sellers precisely because countless Amazon users only buy Prime products specifically and actively hide other offers in the search results. Although selling on Amazon without FBA but with Prime status is possible, retailers must first prove that they can meet the high standards with their in-house logistics. For many smaller retailers, this is impossible.
There Is No “Get Rich Quick” Guarantee
For beginners, selling over FBA can be particularly enticing because setting up shop on Amazon is relatively easy compared to setting up a regular online store. However, registering as an FBA seller also means you have to fulfill the tough requirements of the American online behemoth. Whereas a couple of years ago, there was an atmosphere similar to that of a gold-rush among marketplace sellers, nowadays it takes a lot of work and a fair degree of expertise to be really successful with Amazon FBA.
To a large extent, this is also due to the high competitive pressure on the marketplace, especially since Amazon themselves often act as a seller. Many products are now offered by several retailers, so the competition not only takes place between different products, but also for the same product. The Buy Box in particular is fiercely contested.
Seller Performance as the Key for Winning the Buy Box
As we already mentioned above, signing up with Amazon FBA is no guide to instant riches, but it will make winning the Buy Box easier!
Here’s a quick recap: you can sell over Amazon Wholesale or Private Label. As a Private Label seller – meaning that you sell a unique product of your own brand – you will have your own listing and therefore no competition for the “Add to Cart” field, which is cool. However, the downside is that your product probably is still quite unknown and you may have to spend a lot of time and energy in marketing efforts in order to draw attention to your product.
Amazon Wholesale (whether FBA or not) – on the other hand – usually consists of well-known brands whose products are resold by many sellers apart from yourself. In this case, you might benefit from the product’s already established reputation, but – since it is not your product – you will end up on the same listing as all the other aforementioned sellers which of course means fierce competition for the Buy Box. This is where Amazon FBA comes in handy.
Have a look at our example with this funky gaming mouse from Holife we found on Amazon:
There are four sellers who can sell you this mouse on Amazon but only one of them can be in the Buy Box. In this case it is Vtech EU. The other three are rather inconspicuously placed further down and require that you open a dropdown menu just to see their names.
Now our question to you: How many customers do you think even recognize that there are other sellers on that page, let alone bother opening the dropdown menu to see their product offer? You guessed it – not so many. As a matter of fact, 90% of all purchases take place in the coveted yellow “Add to Cart” field, which is indeed very uncool for the other three sellers that are not in it, since they end up with 3,333% of the sales respectively.
Amazon Prefers FBA Sellers for the Buy Box
We can’t pinpoint all the factors why Vtech EU has won the Buy Box from looking at this page alone, but being in the Amazon FBA program is definitely one of them. The reason for this is that on-time delivery and pristine customer service are one of the factors that win you the Buy Box. Once you use Amazon FBA, the online company takes over delivery and customer service for you and therefore awards your company the best grades for these services.
To clarify: Is Amazon actually awarding itself the highest possible grade? Yes, totally. But then again, they are the best at it and keeping up with Amazon in terms of delivery speed and customer service as a company is very difficult.
Amazon FBA Fees and Returns
Naturally, Amazon FBA is not offered for free. The company also wants to earn money with it and accordingly charges Amazon FBA prices in addition to the obligatory sales fee. These depend in particular on the storage location, the product type, the dimensions and the weight of the item.
Furthermore, the use of Amazon FBA results in additional storage costs per cubic meter and month. Keep in mind that storage fees increase for items that are stored longer than 365 days (e.g. 170 euros a month per square meter in Germany).
Fees you have to take into account are (Amazon FBA) storage fees, shipping fees and taxes. In order to see if the whole endeavor is worth your while, you can use an Amazon FBA profit calculator. You can find the Amazon FBA calculator (for UK based companies) here. There are also many different alternative options, the ShopDoc calculator being one of them.
How to Find the Correct Product to Sell on Amazon FBA
Product research is one of the most important factors, whether you sell over Private Label or Wholesale. So before you start researching how safe it is to source product from Alibaba to Amazon FBA, invest some of your time into what you want to be sourcing in the first place. You can find nearly everything you want on the digital marketplace, however that doesn’t mean that the effort is worth your while especially if you are planning on bulk operations.
You could consider using an Amazon FBA sourcing tool for product research, but you can also just keep an eye on your competitors’ stock or the bestseller rank for inspiration. Products that become slow sellers or have hardly any margin at all should naturally be removed from your stock as soon as possible (keep in mind the increased storage fees for “benchwarmer” products we mentioned above).
Packing Properly for Amazon
FBA packaging requirements are relevant for many marketplace sellers. The question is how to correctly pack your Amazon FBA product before sending the goods to any of the Amazon fulfillment centers. This is so important because Amazon reserves the right to reject products that are not packaged correctly, which will lose you time, energy and money.
That’s why Amazon FBA sellers should take a look at the packaging guidelines before sending their product on their way. For example, the individual parts of an SKU must be contained in a single package, each unit must be labeled with a scannable barcode, and clear product identification is required on the packaging. For special products such as fragile goods, Amazon also requires a specific FBA packaging.
Amazon vs. the Rest
Quite similar to opening a brick-and-mortar store, you will also have to put some thought into your “location” when opening your online business. Only that instead of a physical location, you will have to choose between different platforms or shipping methods. Here is some food for thought if you are planning to start selling over Amazon FBA.
Amazon FBA vs. Shopify
The two platforms are both hugely successful and can therefore make the decision very difficult for e-commerce enthusiasts. While Amazon FBA offers you a readymade platform with an unparalleled reach regarding customers, Shopify lets you build up your online shop from scratch and gives you an amount of flexibility that Amazon isn’t able to. The answer to your question ‘what is best for my shop?’ is therefore always dependent on the seller and the shop-type. Here’s a thought though: If you are unsure where to sell, why not sell on both and see where it works best?
Amazon FBA vs. FBM
If you decide to sell your product on a platform like Amazon, not only will you have to see whether there are any external options to take into consideration, you will also have to see if there are different business models on the platform itself worth checking out. Amazon FBM (fulfillment by merchant) is one of these options and should be taken into consideration when you already have a highly functioning logistics scheme, impeccable customer support and you want more communication with your customers. Especially if the first two are not in place, you should really consider picking Amazon FBA, since the other option means that you will have to live up to Amazon’s extremely high standards in that regard if you ever want to end up in the Buy Box and make any sales.
Amazon FBA vs. Dropshipping
Another popular question revolving around e-commerce forums is whether you should sell over Amazon FBA or Amazon dropshipping. As with many other topics, the answer remains the same: it depends. If you are aiming to start a business with a low budget, a lot of freedom in regard to customer contact and shop customization, then dropshipping might just be right for you. However, you will have to take into account the high shipping risk and small customer base you start out with and the amount of time and energy it will require to expand it.
At the end of the day, we are not trying to convince you to pick Amazon FBA. Naturally, the business model also has several disadvantages. A seller has to transfer the entire fulfillment process, including customer service, to the e-commerce company and loses the opportunity to get in direct contact with the customer. What’s more, sellers are basically coerced to use Fulfillment by Amazon when it comes to winning the Buy Box.
On the other hand, Amazon FBA offers many advantages. First off, it makes the seller’s job very easy – especially for small business owners. And also: many larger companies appreciate the fact that shipping is fast and smooth, you don’t have to rent your own warehouse, and customer service works around the clock. This is what makes it possible for many retailers to sell successfully on Amazon in the first place.
All things considered, running a business over Amazon FBA is definitely still worth it nowadays, if you keep a few relevant things in mind, for example which storage costs and which shipping fees are incurred and what product you want to sell. At the end of the day, proper planning and solid execution will lead you to the profit you have earned, regardless of which platform you choose.
Image credits in order of appearance: © erikdegraaf – stock.adobe.com/ © alphaspirit – stock.adobe.com / © chiew – stock.adobe.com