FBA refers to fulfillment by Amazon, a service program intended to provide warehousing, packing, and shipping services to Amazon sellers. Under FBA, the seller needs to prepare their product according to Amazon standards, and send their inventory into a designated Amazon FBA warehouse. Amazon offers inventory storage and management services until customers place orders. With FBA services, Amazon will pick, pack, and ship products from their warehouses to customer's addresses.
Does FBA sound like a good way to simplify business operations? After all, you outsource the job of inventory storage and order fulfillment to Amazon when you choose FBA. If you want to learn more about how FBA works, how FBA charges, the pros and cons of FBA, and how to better leverage FBA, just read on. We will not only cover the basics of FBA, but also give you some tips if you want to make use of FBA better.
1. What is Fulfillment by Amazon (FBA)?
2. How Does Fulfillment by Amazon Work in 2023?
3. How Does Fulfillment by Amazon Charge in 2023?
4. How to Get Started With FBA If You are an Amazon Seller?
5. Pros of Using Amazon FBA
6. Cons of Using Amazon FBA
7. Is It Worthy to Choose FBA for Growing Your Business?
8. Some Tips for Utilizing FBA Services More Efficiently
1. What is Fulfillment by Amazon (FBA)?
Fulfillment by Amazon is a service program rolled out by Amazon. With FBA, sellers can sell products on the Amazon marketplace by shipping their products to Amazon warehouses and letting Amazon take care of the rest. Amazon will pick and pack the product when a customer places an order, and then deliver it to the customer-designated address. Amazon also provides customer services, including handling returns and refunds when there is a need.
By sending their inventory into the Amazon FBA warehouses, Amazon sellers can join the vast fulfillment network established by Amazon. So the next-day or even the same-day delivery is made possible.
2. How Does Fulfillment by Amazon Work in 2023?
Below let us take a look at how the Amazon FBA works step by step. So you can understand what falls upon Amazon to do and what your job is on the side of Amazon sellers:
- Sellers create product listings on Amazon.com
- Sellers enroll products in the FBA program
- Sellers pick, pack, and label their product according to Amazon requirements
- Sellers ship products to Amazon fulfillment centers
- Amazon will be in charge of storing and managing inventory
- Customers place orders online
- Amazon receives orders and starts to process
- Amazon warehouse employee picks, sorts, packs, and fulfills the order on behalf of the seller
- Sellers get notifications of the product being sold
- Customers receive their package
- Amazon handles customer services, including refunds and returns
- Sellers replenish in time to make sure products stay stocked and keep their business running
3. How Does Fulfillment by Amazon Charge in 2023?
Participating in FBA program means that there are certain fees you need to pay. Check out different types of fees involved in FBA so that you are able to reach a better decision.
FBA costs are charged based on inventory storage and order fulfillment, which can include:
3.1 Monthly Storage Fees
They are charged based on the cubic meters or weight of the storage unit. It is noted that different periods of the year (January-through-September and October-through-December) have different storage fee rates. And the fee rates between dangerous goods and non-dangerous goods also differ.
3.2 Fulfillment Fees
They are based on product category, product size, and shipping weight/dimensional weight. Each unit that is picked, packed, and shipped by Amazon will be charged fulfillment fees.
Under Amazon's standards of measuring, your products will be categorized into the following groups: Small Standard, Large Standard, Small Oversize, Medium Oversize, Large Oversize, and Special Oversize. The size and dimension of your product will determine how much you need to pay
3.3 Aged Inventory Fees/Long-term Storage Fees
They can be applied to products stored in Amazon fulfillment centers when the storage duration lasts for over 271 days.
3.4 Unplanned Service Fees
They are charged for items that are not properly packaged and labeled.
3.5 Referral Fees
Whenever a product is sold, Amazon will charge about 15%-18% of the product price as a referral fee. The specific referral fee percentages vary depending on the product category. Amazon sellers do not have to pay referral fees upfront. Only when the sale is made successfully on Amazon.com would the referral fee be taken out of the seller's Amazon account.
3.6 Storage Utilization Surcharges
From this April (April 1, 2023), storage utilization surcharges will be charged based on the storage utilization ratio. The storage utilization ratio represents the ratio of the average stored volume in cubic feet divided by the average shipped volume in cubic feet on a daily basis.
However, Amazon provides incentives for New-to-Amazon sellers. For example, new sellers are guaranteed to get free storage services for the first month.
4. How to Get Started With FBA If You are an Amazon Seller?
You need to sign up for an Amazon selling account first, and then set up FBA in your account.
And then you can enroll your product in Amazon FBA from your Seller Central account. If you are adding new inventory, you can select the option of "Amazon will ship and provide customer service (FBA)" in the "Offer" tab. Or, if you want to convert your already-added products to FBA fulfillment mode, you can choose "Manage Inventory" from the main menu in the Seller Central and then click "Change to Fulfilled by Amazon"
In a bid to get your product entered into Amazon fulfillment centers smoothly, you need to make sure that you abide by the FBA packaging, prep, and labeling guideline. To list a few: exterior scannable barcodes and correct barcode types, packaging individual products or case-packaged products that strictly meets Amazon requirements, and bagging or fully bubble-wrapping specific products that depends on product dimensions.
After you prepare your inventory according to Amazon requirements, you can send products into Amazon fulfillment centers. Follow the "Send to Amazon" workflow so you can save both time and efforts. The number of steps you need to complete depends on whether you are shipping boxes or pallets:
Scenario 1: You plan to ship individual boxes using small parcel delivery
Step 1: Choose inventory to send, and set your shipping address
Step 2: Confirm shipping on Amazon.com by offering an estimated shipping date
Step 3: Print box labels and choose the correct box size and label size
Scenario 2: You plan to ship pallets using less than truckload, or LTL
Step 1: Choose inventory to send, and set your shipping address
Step 2: Confirm shipping on Amazon.com by offering an estimated shipping date
Step 3: Confirm carrier and pallet information
Step 4: Print Pallet labels
After you complete the above steps, the carrier will pick up your shipments. You can get updated tracking information on Amazon.com so you will know the exact time when your shipment arrives at Amazon FBA warehouses. Generally, it takes about two-to-six weeks for your product to check in at the warehouse before it can be ready for purchase.
Just remember that poorly-packaged products will get rejected by Amazon. Those properly prepped and labeled shipments can better decrease unwanted delays.
What's more, you can use FBA restock tool to manage your inventory. You will get notifications automatically when Amazon warehouse associates fulfill orders on your behalf. FBA restock tool keeps a record of the sales history and gives you tailored recommendations for replenishment. So you are able to keep your most popular or most profitable product in stock.
5. Pros of Using Amazon FBA
5.1 Logistics Challenges No Longer Be a Concern for You
Amazon handles the entire fulfillment process and deals with logistics challenges so the seller does not have to. Sellers can concentrate their efforts on other aspects of running a business, like selecting products, making profits, and expanding.
5.2 No Need for Renting or Owning a Warehouse
Storing inventory means there is a need for a warehouse. Without FBA, sellers have to either rent or buy one. As a result, the upfront cost will be expensive for those small business owners or entrepreneurs in their infancy. The storage fees charged on a monthly basis will be relatively affordable in comparison.
5.3 Fewer Obstacles in Selling Products in the Global Market
Selling goods internationally is made possible under FBA. If you intend to expand your business presence worldwide, you may have to figure out how to locate your warehouses, how to tackle the problem of shipping internationally, and how to care for customers with cultural differences. While using Amazon FBA services can be an opportunity to march into the international market with less to worry about and less to lose.
5.4 Make Use of the Potential of Amazon Prime
When Amazon sellers list their product with Amazon FBA, the listing can automatically display a Prime badge so customers get to know the product is eligible for Amazon Prime shipping. The free one-to-two day shipping guaranteed by Amazon can help your product gain a competitive edge in the Amazon marketplace. A visible Amazon Prime badge means that you can attract customers who specifically filter for Prime-eligible products. Product visibility will be boosted by then. Taking advantage of that and trying some marketing tactics, you have a chance to reach and capitalize on the valuable Prime customer base: about 300 million Amazon Prime members will become your potential customers.
5.5 Not Your Job to Care for Customer Needs
Customer inquiries and complaints make you frustrated? Not any more. What you can benefit from FBA is that Amazon will act as the point of contact. Using FBA means there are 24/7 customer support services provided by Amazon. And it comes with no extra fees. Handling customer needs will no longer consume your time and energy.
5.6 Maybe Pay Less than Self-fulfilling Orders
Amazon's cooperation with carriers will let FBA sellers have discounted freight costs compared to fulfilling orders through their own method. Shipping costs may be reduced in this regard.
5.7 More Storage Space, Less Labor Costs
Sellers have to find a place to store their inventory and keep products in fine condition at the same time. The costs of warehousing could dramatically eat into your profit margins. Problems won't stop here. A high volume of inventory means you need to hire staff for oversight and management. The labor costs you pay will further decrease what you earn. However, the access to Amazon fulfillment centers and Amazon warehouse employees can be seen as a fix. FBA sellers are entitled to almost unlimited storage space; professional Amazon warehouse associates will know how to take care of your inventory.
6. Cons of Using Amazon FBA
6.1 FBA Prep Shipping Still Calling for Efforts
Following Amazon requirements can be exhausting sometimes, especially when there is a large volume of inventory to handle. In the meantime, a reliable freight forwarder can relieve you from the hard work. At Seabay Logistics, we provide professional
FBA Prep shipping services. We know how to prepare, pack, and label your inventory according to Amazon requirements. And we specialize in on-time delivery with your products being in optimal condition. If you want to see how easy the FBA prep shipping process can be,
contact us and get a quote right away.
6.2 Less Branding Opportunities
The exterior product packaging will be branded with Amazon logo, making it more difficult to build brand awareness.
6.3 Increases in Return Rates
Possibilities remain that there are more returns if using FBA because of Amazon's open return policy. When customers find out how easy it would be to return with lower costs, the return rates may be even higher.
6.4 FBA Costs That You Cannot Run Away From
Fulfillment fees and storage fees can pile up over the short term if you are selling oversized products or slow-moving products. Unsellable inventory can lead to aged storage fees, so make sure you select and sell products that sell fast.
6.5 Commingling Can Hurt Your Business
Products with the same manufacturing ID will be deemed identical by Amazon. And Amazon will put together those "identical" products in the same storage area, regardless of who the original seller is. This is known as commingling. When a customer places an order, Amazon will get the first available "identical" product they can find, and then process and ship it to the customer.
Commingling is a strategy proposed by Amazon to increase the efficiency of order fulfillment. However, to be honest, commingling will pose some risks to Amazon FBA sellers. Carrying the same manufacturing ID does not equal the products having the same quality. In fact, there are sellers who sell counterfeit, damaged, or mislabeled products on purpose. If your product gets mixed with a sub-standard one and shipped to customers under your name, you will confront with returns, refunds, or negative reviews from customers.
7. Is It Worthy to Choose FBA for Growing Your Business?
Whether using Amazon FBA services will be worth your investment has no fixed answer. It comes down to various factors: your initial budget, the scale of your business, your business specifics, your business objectives, the product category that you pick, the actual number of orders you can get, and more.
The story of using FBA can develop towards different directions. If you have your own ways of getting access to storage facilities and staff in a preferential way, using FBA may not be that cost-effective. Or, if you choose to sell oversized products, the inventory storage fees that Amazon charges will be an expensive sunk cost before you even make a profit.
However, when you feel like outsourcing the tasks of order fulfillment and inventory management, FBA would be an excellent solution to help you avoid hassles. Startups may be faced with countless problems along the way. While Amazon FBA provides a platform for them to grow and thrive.
By leveraging the power of Amazon wisely, you can effortlessly reach out to customers worldwide. And it is still worth mentioning that Amazon FBA will make shipping products to your international customers way easier.
8. Some Tips for Utilizing FBA Services More Efficiently
8.1 Pay Close Attention to the Inventory Change and Replenish it in Time
Learning to manage your inventory promptly and correctly has various benefits. For one thing, you can make sure you never run out of inventory, no matter whether the demand is high or low. For another, you can avoid issues of overstock so you will not see the mounting up FBA storage fees when you check your bills next time.
8.2 Find a Way to Build a Brand or Marketing Your Products
You need to make sure that you know how to advertise products if you take the option of Amazon FBA. As we mentioned above, FBA helps your product gain exposure and visibility to some extent. However, it is limited. Advertising is necessary if you want to build brand awareness.
8.3 Do Not Forget to Optimize Your Product Listings
Product listing details, including titles, bullet points, images, videos, product descriptions, etc. Creating attractive product listings does not guarantee great sales performance, but it will indeed increase your product ranking on Amazon.
8.4 Utilize Amazon FBA Warehouse Location Lookup Tool
Locating the most suitable fulfillment center is an indispensable step in shipping your well-packaged products to Amazon warehouses. You are absolutely welcome to use our
Amazon warehouse location finder to simplify your FBA Prep shipping process and rein in the shipping costs.
8.5 Get a Full Financial Picture of Your Amazon FBA Business
Make sure you have a clear idea of your sales performance, including your profits and losses. If the profit margins you make cannot cover all the FBA-associated fees, you need to reconsider whether you will continue to invest in Amazon FBA.
