While Amazon primarily sells its products, over 50% of sales on this online platform are made by third-party merchants. Most of these products are kept in the warehouses by Amazon and transported by Amazon workers.
This system is known as Amazon FBA or Fulfillment by Amazon. It streamlines the shipping process for third-party sellers and offers similar services to buyers as though they had bought straight from Amazon. In return, Amazon gets a considerable percentage of the profit made by third-party sellers.
In this article, we’re going to tell you everything you need to know about Amazon to help you know whether to try it or not.
What is Amazon FBA?
Amazon FBA can be explained as when a third party lists goods on the Amazon platform, and when the customers make orders on the goods, Amazon ships them to the buyers on behalf of the third party.
This is an excellent business model since Amazon takes care of the entire logistics process and its costs. However, Amazon will also be entitled to a percentage of the profits from each sale made by the third party.
How Using Amazon FBA Can Give You an Advantage
Using Amazon FBA allows you to access millions of buyers who have their credit cards ready to purchase, and sometimes, they have credit cards on file to make the purchasing process easy and faster.
Amazon receives over 214 million visitors each month in the USA alone, only beaten by Google and Facebook.
- An Amazon Prime member spends nearly twice as much as a non-Prime member
- By mid-2022, Amazon Prime subscribers are predicted to hit 76 million
- As of January 2020, about 80% of customers preferred to purchase on Amazon due to their speedy shipping
How Does Amazon FBA Work?
The procedure we’re about to share is one of the most significant aspects of being an Amazon seller, as it allows you to sell your product on any marketplace in the world.
So, how does Amazon FBA work:
1. Start a Seller Central Account
First, you must register on the Amazon platform as a seller and choose where you wish to sell. It’s advisable to start with the US and add Amazon FBA to your account once you’ve established one.
2. Create Your Product Listings
After registering as a seller, you’ll then add the items you’re selling to Amazon’s catalog. You’ll include a title, bullet points, prices, and product description.
3. Transport Your Products to Amazon
Once your products are ready, it’s time to figure out how to ship them to the Amazon warehouse. Amazon will inform you which of their 110 facilities to send them to.
4. Amazon Stores Your Inventory
After Amazon gets your merchandise, they will place it on a shelf. Your stock figures will grow as your inventory moves through the fulfillment facility.
If a good is damaged within their warehouse, Amazon will offset the loss and reimburse you for the item’s selling price.
5. A Customer Purchases Your Product
If a customer likes your product and buys it, Amazon handles the payment process and keeps your inventory supply up to date.
6. Amazon Ships Your Goods
After Amazon collects the customer’s information throughout the purchase process, they pack the goods a customer buys before shipping them.
7. Amazon Handles Customer Service and Returns Process
To keep customers updated, Amazon will contact them(via email) at every phase of the shipment process. If the customers experience any problems with the product (after receiving the goods), they can always contact Amazon directly for a return.
8. Get Paid!
Amazon will deposit your earnings into your designated bank account every two weeks. But this is after deducting all of their chargeable fees and the agreed profit percentage from each sale.
This approach may appear simple, but it is not as there are tons of moving components involved.
Tips of Becoming a Successful FBA Seller
Now, since Amazon is doing the most challenging part for you, you can fully concentrate on the selling factors of your product and marketing your brand.
Here are some tips on how to be a successful Amazon FBA seller:
1. Create a Game-Changing Product
This is pretty self-evident. You must approach your potential clients with a unique product if you want to sell fast. The best part is that more than 350 million items to pick from.
Before entering a market, it is critical to research your potential competitors.
The following are two of the most incredible pieces of software that we suggest for conducting this study and giving you a competitive advantage:
2. Keeping Your Stock Levels Up
To stay competitive, you must maintain your inventory levels. This might not be easy since you’ll need to invest more cash to make or purchase the next batch of merchandise from your supplier before the present batch sells out.
While running out of stock may not be a big concern, getting back on your feet can take some effort and time.
This can be particularly challenging during the festive and holiday seasons. Therefore it is critical to design your inventory management well in advance.
3. Marketing and Advertising
With more than 350 million products available, you’ll need to invest in some sponsored promotion to get noticed easily.
This is the best strategy to appear on Amazon’s top page. Essentially, there are just two things that customers look for: the cost and the reviews on your product.
To stay in the game from the start, you must sell your goods at a competitive price to convince buyers to buy from you even without reviews. And when the reviews start streaming in, you may gradually raise the price.
4. Product Photos and Listings
As we previously discussed, you’ll need to produce an outstanding listing with enough benefits and fantastic photographs that showcase your goods in a new light.
Differentiation is vital in this case. You must have professionally taken pictures, as well as a handful of lifestyle shots showing the product in real-life use—if applicable.
Fill all of the available photo spaces, but consider Amazon’s stringent photo rules. For instance, hero shots (the first picture displayed to clients) must be on an entirely white background.
Benefits of Using Amazon FBA
Creating and setting up an FBA seller account comes with tons of advantages. For example, you instantly become a partner with Amazon (one of the largest companies in the world, based on their revenue).
Let’s have a look at some of the advantages you’d receive:
1. Get Automatic Access to Prime Customers
This is most likely the most significant advantage of becoming an FBA seller. Customers are drawn in by the offer of FREE and FAST shipment. Amazon is renowned for this.
Thanks to the strategic partnership, your goods can be delivered to your clients faster and cheaper by Amazon than you can, which means that you’ll have more money in your pocket after every sale.
Furthermore, you’ll receive the ‘Prime’ logo on your listing, which shows customers that you provide Amazon’s delivery assurance.
2. Benefit From Amazon’s Reputation
Buyers have a tremendous amount of faith in Amazon. For example, a buyer would order a ski glove a few days before his vacation, trusting that they would receive them within 48 hours.
They can simply contact Amazon’s customer support hotline and get quick help if they don’t.
With the ‘Prime’ badge, you instantly get the buyer’s trust and have the edge over non-FBA vendors.
3. Customer Service and Return Management
Let’s face it: Anyone would panic if they receive a phone call or email from their customers complaining about the faultiness of their products. At least I would!
Amazon has adopted the phrase “the customer is always right.” This gives customers an edge to buy products nearly risk-free.
Amazon handles the entire returns process and customer support calls and emails on your behalf 24/7.
It’s a fantastic selling point:
- You don’t have to answer emails about where to return the goods
- No answering late-night calls about how to pack your product
- No more products being sent over to your home
4. Manage Your Business From Anywhere
This is a significant benefit for a foreign business owner. You don’t even need to see the finished product.
You can have your product manufactured in Asia and sent to the USA (Amazon), where it would be purchased by genuine people you’ve never seen or met.
This is a tremendous opportunity that enables sellers to access the world’s largest marketplace from anywhere around the globe. Simply amazing.
Besides, you can also use Amazon FBA outside of the Amazon marketplace. This lets a buyer make a purchase directly from your website, and then you generate an order with Amazon, which will ship the product to them.
Downsides of Using Amazon FBA
Nevertheless, Amazon FBA isn’t necessarily a bed of roses. There are certain drawbacks to adopting FBA, but you must decide whether the downsides exceed the benefits for your online business.
1. FBA Charges High Fees
Like yours, Amazon is a company whose purpose is to generate income. Therefore, entrusting your stuff to them will always come with a slew of expenses.
The following are fees you must know about when you want to operate your eCommerce business through Amazon:
Keeping your merchandise in the company’s storage as you wait for purchases to stream in is the expense. A monthly storage fee will be levied if you have any goods remaining at the end of the month.
Amazon always cleans up any stock languishing in a fulfillment facility for more than six months on the 15th of each month.
So, you have to ensure your products are small to occupy less space and can be transported or restocked rapidly to save expenses.
Individual Item Fees/Monthly Subscription Fees
Online sellers are divided into two categories; Individual and professional. The primary difference is that you incur a $0.99 charge for each product you sell with an individual plan. However, if you opt for a professional seller account, you pay a monthly charge of $39.99 regardless of the number of sales you generate.
When you can regularly sell more than Forty goods each month, you should upgrade to a professional plan.
For every client refund Amazon makes for your product, they’ll charge you a fee since they process absolutely everything on your behalf. Typically, they take up to 20% of the refunded fee.
Amazon FBA Fees
You now understand that Amazon will select, package, and deliver your goods to buyers on your behalf. Instead of charging you three separate fees each time, they’ve devised the FBA fee.
The weight and size of your merchandise influence the fulfillment fees. You’ll be charged lesser fees if your goods are smaller and lighter and vice versa.
In addition to the costs above, you will be charged a referral fee on each transaction. This will be at a flat rate of 15% or less for most sellers.
Referral fees are only paid after the transaction is made because it’s essentially a “commission” to Amazon for the chance to utilize their customer base to obtain a sale.
For further details, see the entire list of fees as well as the Amazon FBA calculator.
2. Amazon’s Return Policy
Amazon has a highly lenient “no questions asked” return policy, which can sometimes be a drawback. Unfortunately, some buyers can intentionally misuse this service and request a refund, yet the goods are perfect. You have to be ready to account for this situation anytime.
3. Accounting and Taxes
If your merchandise is solely in one state and you only trade inside that state, sales tax can be easy to evaluate.
However, Amazon does not function in this manner. It might be challenging to track which state sales tax applies when you have fulfillment centers across the country, and you can purchase your goods from any part of the world.
Besides, Amazon may relocate your goods to any fulfillment center at any moment without warning, and you may not have any clue unless you have constantly been monitoring it.
Fortunately, TaxJar was established specifically for Amazon sellers to help them keep on track of their tax obligations.
4. You Lose Some Control
You do not have access to your product after being delivered to Amazon and stored in the warehouse. This implies that you won’t adjust to your package, brand, or even contact your customers since Amazon owns the consumers.
Alternatives to FBA
Selling on Amazon FBA isn’t the only option to provide consistent service and satisfaction to potential consumers.
Instead of delivering your product to an Amazon fulfillment center, you deliver it to a third-party warehouse, which is regarded as a 3PL (Third Party Logistics) company.
When a buyer purchases an item, the 3PL will pick, pack, and ship it on your behalf.
On the other hand, when you don’t want to store all of your stock in an Amazon warehouse, you may employ the ‘drip-feed strategy,’ which involves sending a little quantity to Amazon and keeping the remainder in a 3PL warehouse until you are ready to ship the next batch.
If you decide to work with a third-party logistics provider, here are a few that I’d suggest:
- RedStag Fulfillment
How Much do Amazon Sellers Make?
Many newbie Amazon sellers worry about how much money they will make?” Let’s look at some statistics on how much existing Amazon FBA merchants rake in from their sales. Almost 85% of Amazon FBA sellers have recorded a profit.
Now let us look at some monthly sales figures:
- 50% of Amazon vendors make more than $5,000 each month in sales.
- 25% of Amazon vendors make more than $25,000 each month in sales.
- Over $50,000 in overall sales has been attained by 50% of Amazon vendors.
- Over $1 million in total sales has been achieved by 19% of Amazon vendors.
While many vendors have just recently started selling on Amazon, Amazon’s supply network’s strength and enormous consumer base have led to rapid achievements for new vendors.
Undoubtedly, revenue figures are impressive, but what about profit?
Revenue is just one metric that can be used to value a company. You could be making $1 million in sales, and you’re not realizing any profits because your cost of operation is higher than your revenue.
However, Amazon sellers have better profit margins than other traditional business models such as brick-and-mortar if the figures below are anything to go by:
- 68% of Amazon FBA sellers get a profit margin of more than 10%
- 36% of Amazon FBA sellers achieve a profit margin of at least 20%
- 20% of Amazon FBA sellers have realized cumulative profits of over $100,000
This is awesome, considering that most new Amazon FBA sellers start this business as a side hustle.
While these figures are positive, it’s important to remember that 8% aren’t yet profitable, and another 8% aren’t sure if they’re profitable in the first place. If you’re unsure about your earnings and losses, you can receive a complete financial transcript of your company by tracking your business performance using a program like Sales Analytics.
Is Fulfillment By Amazon Still Worth Doing In 2022?
Sellers jumped at the possibility of streamlining the shipping procedure when Amazon initially launched its FBA program. Amazon has grown in popularity ever since, increasing competition and costs. As a result, most individuals are still left wondering if Amazon FBA is worthwhile.
To determine whether Amazon FBA is best for you, consider the following factors:
1. Amazon FBA Fees
Amazon’s pricing is updated periodically. Unfortunately, costs nearly always rise. From January to September, storage rates are $0.75 per cubic foot, and from October to December, they are $2.40 per cubic foot.
You must also pay at least $2.50 towards fulfillment (instead of shipping charges) for each item sold. This pricing is for the smallest size, with a shipping weight of not more than ten ounces and a packing weight of not more than four ounces. Large goods cost $5.42 for the first three pounds and $0.38 for each extra pound.
You’ll pay considerably higher fees if you have more significant products (small, medium, large, or “special oversize,” as Amazon refers to them). For example, a large or oversize product costs $75.78 for the first 90 pounds and $0.79 for each pound after that.
In addition, some things, such as clothing, have additional costs. A fulfillment cost of $2.92, instead of $2.50, is charged for a small piece of clothing. The good news is that Amazon has dropped its $0.40 clothing fee, making clothes sales marginally cheaper this year than last.
Harmful products are also subject to increased costs since they need specialized storage and handling.
To determine the amount you’ll spend on your products, look at the fulfillment costs, which specify what measurements constitute a product oversize.
It’s also worth noting that you may be charged additional fees, such as FBA disposal order fees, FBA removal order fees, and FBA Label Service fees. Moreover, if your product has been in store for more than one year, you’ll be charged long-term storage for the six previous months.
2. Your Product Range
Some goods are more suited to Amazon FBA. Oversized, low-cost items may have too many costs which are not economically viable. That said, It’s ideal to have a few products that will sell quickly to avoid paying costly storage fees.
3. Your Workload
Selling over the internet requires a significant amount of time and effort. Giving Amazon fulfillment may save you considerable time; furthermore, shipping shall be your only worry.
On the other hand, when you use Amazon FBA, you’ll introduce a few extra responsibilities to your to-do list. You’ll have to figure out the number of products to deliver first. Next, you’ll have to arrange products per Amazon’s specifications. This necessitates using the proper packaging, or you might receive a fine. Besides, it’s critical to strike the right balance between running out of inventory and paying excessive storage expenses.
4. Lower Shipping Rates for Your Customers
Amazon can quickly negotiate lower shipping costs with delivery providers than most companies because it is one of the biggest companies on earth. In addition, Amazon Prime members are offered free shipping for two days on any Fulfillment by Amazon (FBA) orders. This makes your customers more interested in your stuff. However, if you don’t provide free delivery, Prime customers could purchase your competitor.
5. Customer Service
Customers enjoy a variety of benefits, including quick shipment. Another advantage is their customer-centric return policy. Regrettably, the policy is fantastic for buyers but not so much for sellers: every time a client returns a product, you’ll have to incur a refund processing charge. Still, it means you won’t have to deal with logistics activities or customer communications to determine if they’re eligible for a refund.
6. Storage Space
If you don’t have enough room to keep all your merchandise, an Amazon warehouse might be your best option. What’s more, when your items sell quickly, Amazon might also provide you with limitless storage, which would not be a possibility when renting a warehouse.
7. Quality Control
When you offer the same products as another company, you cannot tell if Amazon will transport the commodities you supplied to the fulfillment center to your consumers. That’s because Amazon examines product codes that do not vary depending on the vendor. There is a high possibility that a consumer could get a lower-quality product you never supplied.
While you can withdraw from this procedure (known as product commingling), it will most certainly cause your delivery times to increase. If a consumer is on the opposite side of the nation, Amazon will not deliver from the nearest warehouse.
While Amazon’s customer service is typically excellent, the high number of sales raises the chances of errors. Unfortunately, your reputation might be compromised if Amazon commits a shipment mistake on your behalf; you may receive a negative review, or worse, lose customers. It would help if you also kept in mind that you entrust a large part of your business to another organization.
8. Accounting and Taxes
When you become an Amazon FBA seller, accounting becomes more challenging. You cannot link Amazon FBA to a QuickBooks account if you don’t employ any tool that can handle it on your behalf. That means you’ll use manual entry of financial records into your spreadsheet as a second alternative. This might take a while, based on your level of sales.
Additionally, sales tax compliance is another factor to consider. Despite sellers’ fears about liability difficulties, there have never been any incidents yet. At any time, Amazon may choose to ship your products to fulfillment stations in another state, and you’ll not be aware of this.
Is it worthwhile to sell on Amazon FBA? That depends on what you’re selling. The advantages of Amazon FBA are that your clients will receive world-class service; that might inspire them to purchase from you even more. Additionally, you’ll have more time to focus on other elements of your business by eliminating some responsibilities from your routine.
The most significant disadvantage of Amazon FBA is its price. It also won’t provide ideal customer service or reduce repetitive activities. After all, you’ll still need to maintain inventory records, make sure Amazon has adequate items at all times, and give basic customer service.
Amazon FBA is a worthy venture, but you must first determine how much you’re willing to spend before deciding if it will be a lucrative option for your company. If you have popular and fast-moving products, you’ll probably become an Amazon FBA success story sooner rather than later. The good news is you can test Amazon FBA with a few different items to see whether it’s a viable sales model for your company.