Are you in e-commerce? The Fulfillment by Amazon (FBA) program allows you to focus on the entrepreneurial part of your business. It eliminates the day-to-day operations that weigh you down.
What does “fulfilled by Amazon” mean?
FBA means that your inventory has been completely fulfilled by Amazon. Once someone purchases a product, Amazon selects the item from their inventory, packs it, and ships it to the customer.
How Does FBA Work?
FBA is an outsourced shipping and handling solution that’s offered to Amazon sellers. There are currently over two million people around the world who are taking advantage of this program. They let Amazon do the heavy lifting for them.
Here’s how it works—Amazon sellers register with Amazon’s FBA program. Then, they create their product listings on Amazon. After that, they prepare their products and ship them to an Amazon warehouse.
From that point, Amazon handles all the routine tasks associated with fulfilling the orders. That includes customer service and returns.
If you’re thinking about using Amazon fulfillment services to handle your orders, here are a few things to keep in mind before getting started!
1. FBA Can Be Expensive
There’s no getting around it—you’re going to spend money when you use FBA.
Amazon charges FBA sellers for both storage and fulfillment. Storage fees are charged to sellers monthly and are calculated based on the amount of space your inventory occupies in fulfillment centers.
You will not pay for shipping outright. Shipping is considered part of the Amazon fulfillment cost and rolled into FBA fees.
There are some real benefits to using FBA. As an Amazon FBA seller, your products are eligible for the free two-day shipping offer to Amazon Prime customers. Amazon’s most loyal customers can order their products online and receive them in two days without any additional cost to you or to the customer.
Now, let’s go back to school and do a quick cost-benefit analysis of the Amazon FBA program:
- Outsourced shipping
- Quality customer service
- Free two-day shipping – If you are shipping by yourself, then you can factor in the reduced opportunity cost as you save time with FBA
- The Prime Shipping badge added to all FBA product pages
- Amazon can ship and handle inventory that is being sold through multiple channels, and not only through the Amazon marketplace.
- Storage and fulfillment products, which are on a sliding scale.
- Fees will vary based on the size of your products, how many you want to store in an Amazon warehouse, and how often you fulfill your orders.
- Fulfillment and storage fees can add up quickly, especially when it comes to slow-moving or oversized products.
- Fees range from shipping and handling to customer service and product returns.
Fortunately, Amazon makes it easy for you to analyze your income and expenses with FBA. Check out the company’s fee calculator.
The bottom line, though, is that it’s all about the bottom line. Even with the fees, Amazon reports that 64% of sellers earn profits in their first year, 20% of them earning a profit within the first 3 months.
Like any business, fees and costs will occur. Consider Fulfillment by Amazon fees as an investment in inventory management, operations, and marketing.
2. There is No Sales Quota
Amazon does not require you to move a certain amount of merchandise every month if you want to be part of the FBA program.
Amazon understands that not all products are created equal. The demand for some items is different than for others.
The company offers FBA services to all business owners, even those who don’t move inventory quickly.
Most FBA sellers make between $1,000 to $25,000 per month in sales. It all depends on what you’re selling and how much.
3. You Still Have to Pay for Shipping to Amazon Fulfillment Centers
Although your shipping cost to customers is included in FBA costs. you’ll still need to fork over some cash to get your products to the fulfillment center.
So, you are still dealing with a limited amount of shipping costs.
Amazon has Partnered Carrier options that allow sellers to ship products to Amazon fulfillment centers at a reduced cost.
When you use an Amazon-partnered carrier, the company provides you with a shipping label for boxes you’re sending to the warehouse. The cost is billed to your FBA account as an “inbound transportation charge.”
Amazon also offers partial truckload and full truckload options with partnered carriers. This is useful if you have a huge amount of merchandise that you need to send to a fulfillment center. You’ll typically need a dock or forklift if you want to use that service, though.
4. Amazon Uses the FIFO Method to Determine Storage Fees
As we’ve seen, Amazon charges for storing your products in its warehouse. These fees can change seasonally or depend on volume.
As a savvy business owner, you’re likely curious about how Amazon charges for storage space. It uses the First In, First Out (FIFO) method.
Your first batch of products that arrived at the warehouse will also be the first to go out the door when customers order them. Once they’re gone, they won’t be subject to a storage fee.
New items that arrive to replace the old ones will be subject to a storage fee until they’re sold. You are also potentially subject to varying FBA fees if you send in some inventory during a lower-rate season and send an additional shipment during a high-rate season.
5. Amazon Charges a Long-Term Storage Fee
If your inventory moves very slowly, you might be slapped with a long-term storage fee, in addition to the other FBA fulfillment fees.
You can use the chart below to get an idea of how Amazon may charge you:
Items left in the warehouse for longer than six months are subject to the long-term fee. If you have products that are in very low demand, you’ll have to factor that fee into your cost-benefit analysis.
You can use Amazon’s Inventory Age and Inventory Health reports to identify which items in your inventory may be subject to long-term fees.
6. You Can’t Avoid the “Pick and Pack” Fee
You might think that you can save the folks at Amazon some time–and yourself some money–by packing up your merchandise just as you’d like it to be sent to the customer.
Unfortunately, shipping standards at Amazon make the “pick and pack” fee completely unavoidable. So save yourself some time and ship the products to Amazon in the easiest way possible.
7. It’s Best to Start Slow
As with so many other things in business, it’s best to start out slow with Amazon FBA.
That’s because you don’t know what you don’t know. Even after reading this overview, there will always be unforeseen expenses and unexpected challenges. It’s best if you face those problems on a small scale.
Start by offering only a limited number of products available for sale via Amazon FBA. Give that a shot for a few months.
After a few months are up, evaluate your costs and income. Determine if you can make a lot more money by using the service for a larger portion of your product.
If everything goes well, you can eventually centralize your shipping operations with FBA.
8. Amazon FBA Fees are in Addition to Commissions
Your Amazon fulfillment and storage costs are in addition to your commission expenses and other selling fees.
If you decided to handle shipping on your own, you’d still owe Amazon a percentage of your sale as a commission regardless of the sale plan you operate on. That sale plan doesn’t go away just because you’re using FBA.
Be sure to factor in commission in addition to all the other expenses associated with selling items on Amazon and using Amazon fulfillment services.
9. You Can Save Money by Creating Your Own FBA Shipping Plan
When you ship your products to Amazon for the fulfillment, the company will decide which warehouse is best suited for your products.
After a while, Amazon might think it’s a good idea to move your products to another warehouse.
Unfortunately, when that happens the seller is responsible for the shipping costs. Amazon doesn’t cover freight to the new warehouse.
You can avoid these unexpected fees and warehouse changes by requesting your own shipping plan.
Of course, if you want to develop an effective shipping plan, you’ll need to understand your target demographics and where most of your orders are being shipped.
10. Your FBA Account Can be Suspended
When you sell on Amazon, you have to play by the company’s rules. If you don’t, then you could lose your account.
Here are some infractions that will cause you to lose your selling privileges on Amazon:
- Having more than one seller account – If you want a second account, you’ll have to ask permission from Amazon.
- Manipulating or falsifying reviews – Amazon has been cracking down lately on fake reviews.
- Poor quality products – If enough people complain about the quality of your products, Amazon will pull the plug on your account.
- Violating intellectual property laws – If you’re passing off someone else’s creative work as your own and Amazon finds out, you can expect to have your account suspended.
Frequently Asked Questions
1. How does Fulfillment by Amazon work?
In short—you sell a product and Amazon ships it. You’d send your products to Amazon so that they can be stored in an Amazon warehouse. Once a customer orders one of your products, Amazon warehouse employees will locate your product in the warehouse, pack it, ship it and set up the order tracking for you. They also take care of returns and refunds.
2. How much does Amazon FBA cost?
As an FBA seller, the fees are broken down in several ways, all of which may or may not apply to you depending on your preferences. There are inventory storage fees, fulfillment fees, removal order fees, long-term storage fees, unplanned service fees, and returns processing fees. These fees are based on product type and weight. In order to get the most accurate estimate on FBA fees, you need to use the Fulfillment by Amazon Revenue Calculator which is found in your Seller Central portal.
3. How do I get products ready for Amazon FBA?
Amazon offers a clear set of guidelines for preparing products for Amazon FBA. For one, each product needs to be individually packaged for e-commerce, individually labeled, and ready to sell.
Additionally, products sold as a single unit should be packaged together. Packages can be clear plastic, opaque, or cardboard. Units that aren’t securely packaged must be bagged with non-adhesive bands or tape.
Each product must also have a scannable barcode with a UPC, ISBN, EAN, or FNSKU, which all depends on the stickering settings you have set up in your account.
4. How do I become an Amazon FBA seller?
Step 1: Create an Amazon Seller account and log in to Seller Central.
Step 2: Create your product listings and add your products to the Amazon catalog. Specify the products that will be fulfilled by Amazon in the drop-down list.
Step 3: Prepare your products. Follow the amazon packing guidelines and shipping and routing requirements.
Step 4: Ship your products to an Amazon warehouse. Print your shipping ID labels, and send your shipments to an Amazon fulfillment center.
5. Do Amazon FBA fees include shipping?
Yes. The fees you pay are based on the entire sale cost including the entire picking, packing and shipping process for each order shipped through FBA. The good news is that Amazon now offers Global Export, which permits sellers to send their inventory anywhere in the world.
6. Why should I sell on Amazon?
If you’re building an ecommerce business, it can be hard to ignore the giant that is Amazon. No matter what you’re selling, it’s likely that someone is searching for it on the site. You can take advantage of the built-in audience and brand awareness behind the large Amazon name.
However, there are times when selling your products elsewhere may be a better idea. Someone who sells handmade items, for example, may prefer to sell their products on a site that is less commercial, like Etsy.
7. There seems to be a lot of fees associated with FBA. Is it worth it?
The answer to this question really depends on your ecommerce business. If you are a shop that is receiving the majority of your sales through Amazon, it is an excellent option. The fees are well worth it to outsource the customer service and returns management that Amazon provides.
8. Do I need to have branded packaging for my items?
You can, but you don’t need to! Especially if you’re testing a new product in your store, a simple package is fine. As your business grows and you want to build your brand, you may want to consider customized packaging.
9. Is there a minimum number of items that I need to list or any sales quotas to keep my business active?
No. Your business is just that … your’s. You can choose how many items you want to offer and what your sales goals will be. Of course, the goal here is to make money and build a successful business but these goals are determined by you — not dictated by Amazon.
There you have it! By now, you should be able to answer the question—“what does fulfilled by Amazon mean?”
Fulfillment by Amazon is a great way to delegate a lot of the hassles associated with e-commerce to a company with an outstanding reputation online.
However, you’ll pay a price when you enlist Amazon’s aid. Make sure that you calculate the cost and factor it in to your potential profit margin before you enroll in Amazon FBA.
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