What is Fulfillment by Amazon? Pros and Cons of using Amazon FBA
what is fulfillment by amazon? what are the pros and cons? How can it help your E-commerce business? Learn all you need to know about fulfillment by amazon in this artilcle.
Amazon has nearly 3 million active sellers on its platform worldwide. With the advent of Amazon FBA in 2006, sellers can get their products in front of millions of customers while Amazon handles the task of storing and managing inventory, shipping, customer care and returns. According to Jungle Scout, about 92% of sellers use Amazon FBA.
However, while there are tremendous benefits attached to selling with Amazon FBA, it also comes at a cost. Read on as we explore what you need to know about Fulfillment by Amazon (FBA), as well as the pros and cons of using FBA for your business.
What is Fulfillment by Amazon (FBA)?
Fulfillment by Amazon or FBA is a service that allows you to send your products to Amazon fulfillment centers. Once there, Amazon handles the storing, packing, shipping, and customer service while you focus on selling your products. It is an easy and efficient method that helps you expand and grow revenue with Amazon, without spending thousands of dollars on storage facilities and personnel.
How does Fulfilment by Amazon(FBA) work?
If you want to sell with Fulfilment by Amazon, the process is quite simple:
You procure your products and ship them to an Amazon warehouse. Amazon will give you the address and contact details.
Your products are then taken to an Amazon fulfillment center for storage
When a customer places an order, Amazon takes care of the transaction process. From billing to updating inventory.
Once an order is placed, Amazon packs and ships it to the customer
Amazon handles customer service and follow-up. They also handle the refunds and returns.
You then receive your profits from Amazon every two weeks.
The FBA service comes with various fees. But before we look at the costs involved, It is important to note that you will need to ensure that your inventory is up to date. Amazon will usually notify you when your stocks are low.
Amazon FBA fees
So how much does Fulfillment by Amazon cost? Amazon charges various fees for sellers using the FBA service. Here are a few of them:
Standard selling fees: If you are running a business using Amazon FBA, you will need to pay selling fees depending on your selling plan. If you run an Individual Selling Plan, you will need to pay a fee of $0.99 for each item sold. On the other hand, if you run a Professional Selling Plan, you will only pay $39.99 every month with no per-item fees.
Inventory storage fees: Sellers are charged monthly inventory storage fees for storing products in Amazon fulfillment centers. These fees may vary depending on the product size, daily average volume, and calendar month. Also, sellers are charged long-term storage fees for inventory that have been stored longer than 365 days in addition to the monthly storage fees.
Fulfillment fees: These fees include the entire order fulfillment process, from packing of inventory to shipping, customer service, and returns.
Referral fees: Sellers have to pay a referral fee on each item sold. This varies depending on the product category. For example, sellers in the clothing and accessories category pay a referral fee of 17%.
Unplanned services fees: Amazon requires that all products be packaged and labeled to specification. If your product arrives at an Amazon fulfillment center without proper packaging, you will be charged a fee to fix the issue.
Returns processing fees: If a customer gets free return shipping from Amazon, you will be charged.
Pros and Cons of using Amazon FBA
There are several things to consider when evaluating if the FBA service is beneficial to your business. In this section, we will look at the pros and cons of using Amazon FBA.
Pros of using Amazon FBA
Amazon Prime members: If you use the FBA service, you are automatically eligible to sell to the millions of Amazon Prime members who pay more for faster shipping.
Earn customer’s trust: When buyers see that your product is fulfilled by Amazon, they are assured that your product is backed by Amazon. They are also confident that they will have an easy and convenient shopping experience. Also, Prime members who want faster shipping will end up paying more to sellers who offer one-day shipping.
Ease of shipping: With Amazon FBA, you can relax while Amazon takes care of your shipping and handling. This includes picking and packing your products and shipping them directly to your customers.
Customer support: The FBA service provides 24/7 customer service. This means you don’t have to handle the frustrating task of dealing with customer complaints, fulfillment, or shipping issues. You can spend your time focusing on other areas of your business.
Product storage: Amazon stores your product in huge fulfillment centers meaning you don’t have to pay for storage facilities or worry about where to store your inventory when scaling up.
Buy box: Winning a buy box increases visibility, keeping you ahead of your competitors. Not only does it increase visibility, but it allows you to increase sales on Amazon. With Amazon FBA, you have a greater chance of winning the Buy Box.
Multiple channels: FBA is not limited to selling on Amazon. The FBA service also extends to other ecommerce platforms like Shopify and BigCommerce.
Protection of products: The process of order fulfilment may sometimes involve products getting lost or damaged. Instead of carrying the costs for damages, Amazon takes care of that.
Cons of using Amazon FBA
Costs: The FBA service comes with many benefits but not without costs. Amazon FBA comes with various fees as we have listed above. From storage fees to fulfillment fees and so on. Because of the various fees involved, this service might not be suitable for low-cost goods as these costs could eat into your profit. You will need to select the products you enroll in for FBA. You can easily use Amazon’s FBA calculator to figure out if FBA is a profitable move for your business.
Long-term storage fees: Amazon doesn’t like to store inventory for extended periods, so you will have to pay long-term storage fees to keep your goods for longer. They will also charge you for storing goods that are not actively for sale. This will also negatively affect your metrics. However, you can easily monitor your metrics and arrange for products to be shipped back to your facility.
Control: Amazon controls all the logistics of your business. From shipping to customer service and so on. While this is an advantage, it also means you have no control and won’t be able to personalize your brand.
Product preparation: Amazon has guidelines for products to be shipped to their fulfillment center. This includes how your product is packaged, labeled, and shipped. You will have to go through every guideline before your product is accepted. This process can be quite tedious.
Is Amazon FBA right for your business?
We have looked at the pros and cons of using the fulfillment by Amazon service. While there are numerous benefits, they also come at a hefty price.
The biggest benefit of using the FBA service is that you get to save time. Amazon handles everything from packing to customer service. This delivers you from the frustration of handling your logistics. It also helps you concentrate on other aspects of your business. However, in determining if FBA is right for you, it is important to consider the volume of products you are selling. If your business is growing at a fast rate, FBA might just be the best option for you.
For low-cost goods, FBA might not be a profitable option as the costs could negatively affect your profits. You might also consider using both FBA and FBM. According to Jungle Scout, about 34% of Amazon sellers use both FBA and FBM.
Other fulfillment methods
Fulfillment by Merchant (FBM)
Fulfillment by Merchant (FBM) is a method that involves the seller listing products on Amazon, but handling the fulfillment process. This includes everything from storing to packaging, shipping, and customer service. With this method, the seller is in control of the entire process. The seller uses their resources for the fulfillment of their products. This method is beneficial if you have small-volume products that are easy to handle. You can also effectively build your brand.
Seller Fulfilled Prime (SFP)
The Seller Fulfilled Prime (SFP) is a method that allows you to get the benefits of Prime Eligibility while giving you control of your products. This means you must be able to fulfill your orders as quickly as possible. (You must be able to ship on the same day and also guarantee a two-day delivery). You must also meet other requirements and must be enrolled in Premium shipping. The Seller Fulfilled Prime is a great method to keep the Amazon fees low while retaining control and enjoying Prime benefits.
Amazon FBA is an incredibly helpful option as it streamlines operations and frees up time for other areas of your business. If you want to grow your business and simplify the process of selling on Amazon, FBA might be the best option for you. However, this might not be the case for all sellers. It is important to weigh the pros and cons as we have listed above and determine if using the FBA service is indeed profitable for your business.