If you're an Amazon seller, you've likely heard of Amazon FBA - the fulfillment service the e-commerce giant offers that takes care of storage, packing, and shipping for your products. But how does Amazon FBA actually work? And is it right for your business? In this article, we'll go through the ins and outs of Amazon FBA and help you decide whether to use this service.
As of 2023, there are 167 million U.S.
Amazon Prime members in the US. It's more than 200 million worldwide. 1.6
million sales are made per day on Amazon. Amazon's worldwide retail e-commerce
sales are expected to reach 750 billion by 2023.
What is Amazon FBA?
Amazon FBA, or Fulfillment by Amazon, is a service that allows sellers to store their products in Amazon's fulfillment centers. Amazon then handles the packing and shipping of these products directly to customers. This means that sellers no longer have to worry about the storage and shipping of their products, as Amazon takes care of these tasks for them.
What is Amazon FBM?
Amazon FBM stands for "Fulfilled by Merchant." It is a fulfillment option for merchants who sell their products on Amazon. With FBM, the seller is responsible for storing, packing, and shipping the products they sell to customers. The seller sets their own shipping rates, handles customer service inquiries, and manages returns and refunds.
Amazon FBA Selling Types
1. Amazon Dropshipping:
Dropshipping is also
defined as no-stock e-commerce. Sellers offer the products to the buyer through
the stores they open on Amazon without putting them in stock. The process
works like this:
- The customer places an order at your store on Amazon.
- You forward the incoming order to your supplier, who offers drop shipping service.
- Your supplier delivers the product to the FBA system.
- Amazon delivers the product to your customer.
- You profit after deducting the cost of products and services, shipping, and Amazon commission.
Private Label:
You can sell your product on Amazon by performing operations such as marketing, logo design, and market research with Amazon's private label. This way, you can easily track your product and introduce your product to the world with Amazon references.
For example, a third-party manufacturer you have agreed with in China produces sports shoe models according to your specified standards. The products are attached to the brand you registered in the USA. The label, logo, and packaging of your brand are made. Products are delivered to Amazon warehouses. When the products listed in your Amazon store are sold, Amazon delivers.
Wholesale:
You can sell the products you buy at affordable prices from wholesalers in the USA or around the world on Amazon. This is the most classic trading model.
How Does Amazon FBA Work?
Here's a step-by-step guide to how Amazon
FBA works:
Step 1
Shipping your products to Amazon: To start
using Amazon FBA, you must first send your products to Amazon's
fulfillment centers. You'll need to label your products with unique barcodes
and prepare them for shipment according to Amazon's guidelines.
step 2
Amazon stores your products: Once your
products have arrived at Amazon's fulfillment centers, they will be stored in
the company's warehouse.
Step 3
Customer orders your product: When a
customer orders your product, Amazon will pick, pack, and ship it directly to
the customer.
Step 4
Amazon handles customer service: If a
customer has any issues with their order, such as a missing or damaged product,
Amazon will handle the customer service for you.
Step 5
Amazon handles returns: If a customer wants to return a product, Amazon will handle the process for you, including the return shipping.
Amazon Third-Party Sellers
As a digital commerce pioneer, Amazon was the first to launch a model of working with third-party vendors. More than half of the products sold on Amazon are from third-party vendors. 73% of third-party vendors use FBA.
FBA Costs
Sellers selling on Amazon and using FBA
will be subject to some of the following fees based on product lines and sales
types:
- Referral Fees
- Fuel & Inflation Surcharge
- New Selection Program Fees
- Small and Light Program Fees
- FBA Outbound Fee Rates:
- Removal Fees and Storage Fees
- Liquidation Fees
- Returns Processing Fee Rates (Apparel)
Advantages of Amazon FBA
There are several benefits to using Amazon FBA, including:
Increased visibility: By using Amazon FBA, your products will have higher visibility on Amazon, as they will be eligible for Amazon Prime and other Amazon services.
Improved customer trust: Amazon is known for its high-quality customer service, and by using Amazon FBA, your products will benefit from this reputation.
Increased sales: By using Amazon FBA, you can increase your sales, as customers are more likely to buy products that Amazon fulfills.
Reduced shipping costs: As Amazon handles the packing and shipping of your products, you can save money on shipping costs compared to handling these tasks yourself.
Disadvantages of Amazon FBA
While Amazon FBA has several benefits, there are also some disadvantages to consider, including:
Fulfillment fees: Amazon charges fees for its fulfillment services, which can add up quickly for high-volume sellers.
Limited control: By using Amazon FBA, you give up some control over the fulfillment process, which can be frustrating for some sellers.
Inventory management: Keeping track of your inventory can be more complex when using Amazon FBA, as you'll need to manage your own and the inventory stored in Amazon's fulfillment centers.
Conclusion
Amazon FBA is a powerful tool for
sellers, offering increased visibility, improved customer trust, increased
sales, and reduced shipping costs. However, weighing the benefits against the
costs is important, considering whether Amazon FBA is the right choice for your
business. Now you know how Amazon FBA works. You can carefully consider the
advantages and disadvantages of this system and decide whether to use this
service.
Written by: A. Alan - 02.2023
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