If you’re in e-commerce and you’d like to focus more on the entrepreneurial aspect of your business rather than dealing with day-to-day operations, then you might be attracted to the Fulfillment by Amazon (FBA) program.
What does “fulfilled by Amazon” mean?
As the name suggests, 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.
Here are 14 facts you need to know about Amazon FBA before you get started.
How does FBA work?
FBA is an outsourced shipping and handling solution that’s offered to Amazon sellers. People who take advantage of the program literally 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. It Will Cost You
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. You’ll essentially be paying “rent” for the space that your products occupy in the warehouse as well as the cost to ship to Amazon FBA.
You will not, however, pay for shipping outright. That’s because shipping is considered part of the Amazon fulfillment cost and rolled into FBA fees.
There’s some good news, though. As an Amazon FBA seller, you’re also eligible for the company’s free two-day shipping offer to Amazon Prime customers, meaning Amazon’s most loyal customers can order their products online and receive it in just two days without any additional cost to you or to the customer.
Keep in mind—if you sell clothing .40$ will be added to the fees below.
Now, let’s go back to school and do a quick cost-benefits analysis of the Amazon FBA program:
- Benefits: FBA offers outsourced shipping, quality customer service, and appeals to Amazon Prime members with free two-day shipping. If you are currently shipping yourself, then you can factor in the reduced opportunity cost as you save time with FBA. Not to mention, having the Amazon name associated with their products can aid in gaining the trust of consumers. Amazon can even ship and handle inventory that is being sold through multiple channels, and not only through the Amazon marketplace.
- Costs: FBA has hard costs including the 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.
- Drawbacks: Fulfillment and storage fees add up quickly, especially when it comes to slow-moving or oversized products. These fees range from shipping and handling to customer service and product returns. Inventory can also get lost or damaged during the fulfillment process—an error that falls on Amazon’s end in most cases.
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. Consider fulfillment by Amazon fees as an investment in inventory management, operations, and marketing. You have to decide if that investment in FBA costs is worth the return generated by sales on Amazon.
2. There is No Sales Quota
You might think that a company as large as Amazon will require you to move a certain amount of merchandise every month if you want to be part of the FBA program. But, that’s not entirely true.
Amazon understands that not all products are created equal and that demand for some items is softer than for others. The company is more than happy to offer FBA services to small business owners who don’t move inventory quickly.
With FBA, you can sell only a few products a month or you can sell thousands of products every month.
3. FBA Isn’t Mandatory
The good news for small businesses is that anyone can sell products on Amazon without using FBA.
Some sellers find that they can handle the whole pick, pack, and ship process themselves for less money than it would cost to use Amazon’s service.
Of course, they would also have to find a place to store their products and handle the hassles associated with customer complaints and returns.
Again, think of Amazon FBA as an investment. Selling your merchandise with FBA might generate a positive return on investment. On the other hand, you could stand to make a lot more money by handling fulfillment yourself.
4. You Can Fulfill Orders Through Other Channels Using FBA
You might be under the impression that FBA will only fulfill orders from the Amazon website. But, that isn’t the case. You aren’t confined to using FBA only for your listings on Amazon.
One of the biggest attractions to FBA is that Amazon will fulfill orders from various other marketing channels.
As you build your e-commerce business, you might find that you attract customers from all over the world by listing your products on a variety of websites. If that’s the situation, you should know that Amazon FBA will fulfill orders from those other sites as well.
FBA can be a centralized shipping and customer service operations center that will handle orders placed on any number of marketing channels from all over the world, regardless of where the order was placed.
5. You Still Have to Pay for Shipping to Amazon Fulfillment Centers
Although your shipping cost to customers is baked into FBA cost, you’ll still need to fork over some cash to get your products to the fulfillment center.
So, technically speaking, you are still dealing with a limited amount of shipping costs.
However, Amazon has Partnered Carrier options that enable sellers to ship products to Amazon fulfillment centers at a dramatically 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.”
If you have a huge amount of merchandise that you need to send to a fulfillment center, Amazon also offers partial truckload and full truckload options with partnered carriers. You’ll typically need a dock or forklift if you want to use that service, though.
6. There Are No Limits on Inbound Transportation to a Fulfillment Center
Amazon doesn’t place any minimum or maximum restrictions on how much inventory you ship to a fulfillment center in one shipment.
This is good news, especially considering the higher transportation cost when working with smaller, more frequent shipments to restock than with one large shipment.
Fortunately, as an Amazon FBA seller, you can feel free to ship as much of your product line in a single shipment as you can fit.
7. Amazon Uses the FIFO Method to Determine Storage Fees
As we’ve seen, Amazon charges for storing your products in its warehouse, and these fees can change seasonally or depending 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.
In other words—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.
8. 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.
9. 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.
10. 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 the 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.
11. Money From Sales is Held in Escrow
Once you’ve shipped your products to the Amazon warehouse and they go live on the site, customers can start ordering them.
But you won’t get paid immediately after every order.
The process looks like this—Amazon charges the customer the price of the item plus any related sales taxes. Then, Amazon takes out its cut from the sale and puts the money in escrow for a couple of weeks.
The money is kept in escrow in case the customer chooses to return the ordered product. Patience becomes critical when working with Amazon FBA.
So, as with so many other things in life, you have to wait to get what’s coming to you with Amazon FBA.
12. Amazon FBA Fees are in Addition to Commissions
Remember—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.
13. You Can Save Money by Creating Your Own FBA Shipping Plan
When you ship your products to Amazon for 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.
14. 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.
Specifically, 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. If you want to maintain your account in good standing, don’t become part of the problem by purchasing bogus 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
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.
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.
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.
How do you 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.
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 to anywhere in the world.
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.