If you’ve been searching for new ways to make money online, then you may have come across the term “Amazon FBA”. Many YouTube videos and blogs tout Amazon FBA business as a reliable source of passive income, and for good reason. But what is Amazon FBA and how does it work?
In this post, you will learn everything you need to know about FBA. We will cover what it means, how it works, how much it costs, and how to get started.
Table of Contents
What is FBA?
FBA stands for Fulfillment by Amazon, a service that assists third-party sellers with order fulfillment. Through this program, third-party sellers store their inventory in an Amazon fulfillment center. Then, AMZN handles the picking, packaging, and shipping of orders to their customers. The eCommerce giant also handles post-sales services like returns, refunds, and customer service.
Fulfillment by Amazon was launched in 2006, six years after third-party sellers were allowed to sell on the platform. It was a game-changer then, and it still is today. FBA has made it much easier for anyone to start an eCommerce business. This service eliminates the need for a warehouse space or support staff, drastically reducing startup costs for entrepreneurs. You only need to spend capital on procuring your inventory, and Amazon takes it from there.
Let’s take a closer look at how FBA works.
How does Amazon FBA Work?
If you choose Fulfillment by Amazon as the fulfillment channel for your products, here’s how it works:
- You send your products to a fulfillment center. Your products must be prepared and packaged in line with Amazon’s guidelines before they are shipped. Alternatively, you can use the FBA Prep Service for a fee.
- Once your inventory arrives at the fulfillment center, warehouse employees scan, sort, and store your items.
- When a buyer orders your product, warehouse employees pick the item from the inventory and pack it.
- Amazon ships the package to the buyer. After the sale, Amazon handles customer service operations, including returns, refunds, and exchanges.
AMZN provides these services for a fee, which we’ll look at shortly.
What Tasks Does an FBA Seller Handle?
When you use FBA, you are only outsourcing the fulfillment process, not the whole business. While Amazon is responsible for storage, shipping, and customer service, some core tasks are your sole responsibility.
Here are the tasks you have to take care of:
Selecting and sourcing the products you will sell
Amazon is fondly called “The Everything Store”, which means you can sell virtually any product on the marketplace. The choice is yours. But if you want to succeed, you should make an informed choice backed by data. If you rely on emotions or guesswork instead of thorough research, you could end up with a slow-moving product. And this could result in low sales and zero return on investment.
When deciding what to sell on Amazon FBA, you should look out for products with good demand, low competition, and a healthy profit margin. Those kinds of products guarantee consistent sales and high profit. You can begin your research by browsing through the Bestseller’s List. But to make your research easier and faster, we recommend using Amazon product research tools.
Maintaining a well-stocked inventory
Amazon stores your inventory in its warehouse, however, it does not manage your inventory on your behalf. It is your responsibility to keep an eye on inventory levels to avoid running out of stock. Stockouts are bad for your business because you will lose sales to your competitors.
The good news is that there are tools on Seller Central to help you manage your inventory efficiently. Using Seller Central restock tools, you can find out when your stock levels are low so that you can replenish your inventory on time. These tools also provide recommendations on how much inventory to send and when to send it.
Marketing your products
Selling with FBA gives you access to a vast customer base, however, you still have to market your products. The right marketing tactics will increase your reach and make potential customers discover your products. And it all begins with creating fully optimized product listings that boost your visibility.
You can also take advantage of AMZN’s pay-per-click (PPC) advertising solutions, such as Sponsored Product ads to promote your products. Social media channels and email marketing are also powerful marketing strategies you should consider.
Amazon FBA Benefits
You may be wondering why you should use Fulfillment by Amazon instead of just handling it yourself under the Fulfilled-by-Merchant (FBM) option. The following are a few ways FBA can benefit your business:
1. More time to focus on your business
Order fulfillment is not a walk in the park. You have to pick products in the warehouse, pack them, ship them, and provide after-sales support. The fulfillment process is time-consuming and labor-intensive and may be too much for you to handle alone. With FBA, AMZN takes the weight off your shoulders by handling picking, packing, and shipping for you. AMZN also provides customer support on your behalf.
Outsourcing these processes allows you to devote more time and energy to running the core aspects of your business. This includes tasks like product research and development, keyword research, SEO optimization for listings, PPC campaigns, and so on.
2. Leverage Amazon’s customer service network
In addition to storage and shipping, Amazon provides customer support to your buyers. Customers can contact them to make inquiries at any time, day or night. With its customer service capabilities, your customers are guaranteed a satisfactory shopping experience.
Amazon also manages returns and refunds, which is, no doubt a tedious task. With FBA, you don’t have to deal with processing returns, refunds, or exchanges. AMZN handles that for you, for a small fee.
3. Gain customers’ trust
FBA is a great way to leverage Amazon’s reputation as a customer-focused company.
When your products are fulfilled by AMZN, customers are more likely to buy from you because they trust Amazon. They are confident they will receive fast delivery and excellent customer service.
4. Offer free and fast shipping
Fulfilling your orders with FBA gives you access to Amazon’s most loyal customer base: Prime subscribers. As of 2021, there are over 143 million Prime members in the US. When your products are sold through FBA, they are automatically eligible for Prime Free Shipping. You can also offer free shipping to other non-Prime customers on eligible orders. And there’s no better way to attract buyers than offering free shipping.
5. Lower shipping costs
Shipping costs are quite expensive if you choose to fulfill orders yourselves. But with FBA, Amazon handles shipping for you. And because Amazon has partnered with the world’s top shipping and logistics companies, they get subsidized rates. While you do pay fulfillment fees that cover the cost of shipping, the fees are lower than the costs you’ll incur from shipping yourself. According to AMZN’s 2021 Small Business Empowerment Report, shipping with FBA is 30% lower in costs than shipping with other logistics companies.
Besides, you get to offer free shipping to Prime members at no extra cost to you.
6. Eliminates warehousing costs
To run an eCommerce business, you need to own or rent a warehouse where you can store inventory. You’ll also need to employ support staff that will handle picking and packing items. All of this will cost a small fortune. And if you’re just starting, you may not be able to afford such expenses. Even if you can, managing the warehouse will lead to high overhead costs in the long run.
With FBA, you can store your products in huge fulfillment centers for a small fee. Their fulfillment centers are built to accommodate a large amount of inventory and there’s no restriction on the quantities you can send. In addition, AMZN’s employees will do all the heavy lifting for you.
7. Fulfill orders on other sales channels
Do you have your own eCommerce website or stores like Shopify or BigCommerce? Then you’ll be pleased to know that using FBA allows you to take advantage of Multi-Channel Fulfillment (MCF). Amazon fulfills your customers’ orders on your other sales channels from your inventory in their fulfillment center. With AMZN’s fast and reliable fulfillment, you can be certain your customers will be satisfied, And satisfied customers become repeat customers.
8. Expand your business beyond your borders
Imagine how much money and resources you would need to expand your business globally. For small and medium-sized businesses, that level of business growth can seem like a pipe dream. But not when you use FBA. With the FBA Export service, you can sell your items to international customers without incurring additional fees. Since Amazon has a vast fulfillment infrastructure and a long-standing relationship with global logistics companies, it can fulfill orders anywhere.
Amazon FBA Downsides
You’ve seen the host of benefits that FBA offers sellers. And you may be tempted to think it’s a perfect initiative. However, FBA is not without its cons. Here are some disadvantages of Amazon FBA:
1. The service comes at a cost
They say the best things in life are free. Well, FBA may be the best thing to happen to third-party sellers. But it’s certainly not free. You’ll have to pay fees to cover the cost of fulfillment and inventory storage. And these fees can be hefty if your product is oversized and slow-moving.
Before deciding to sell a product on Amazon, you should calculate the fees you will incur. This way, you don’t end up with a product with high fees that could lower your profit margin. The good news is Amazon offers a free FBA Calculator that helps sellers estimate FBA Amazon fees.
2. Possible increase in returns
One of Amazon’s selling points is its customer-friendly return policy, especially for Prime members. Most items sold by Amazon can be returned within 30 days of delivery, no questions asked. And that same policy applies to FBA items. Because of how easy it is for customers to return items, you will likely get more returns.
You can minimize the possibility of returns by having detailed product descriptions and clear images in your listing. Also, ensure that you deliver high-quality products. With that being said, customers may return items simply because of buyer’s remorse. And there’s not much you can do about that.
3. Strict packaging and prep requirements
Before you ship your products to the fulfillment center, you have to prepare, label, and package them in line with Amazon’s requirements. These requirements are complex and following them can take some time. Unfortunately, they must be followed to the letter. Otherwise, you run the risk of your items being rejected or returned, which can be costly and frustrating. In some cases, Amazon will prepare and label your items for you for a fee.
4. You’re at Amazon’s mercy
Using FBA hands over the reins of your logistics process to AMZN. Its complete control of your storage and shipping means it can make policies that negatively impact your business.
Let’s take a short walk down memory lane to see how this plays out. Remember when people scrambled for household goods like tissue paper in the heat of the COVID-19 pandemic? The online demand was so high that Amazon prioritized essential items and restricted the shipment of non-essential items to its warehouses. As a result, sellers had to find alternative ways to fulfill orders to avoid losing sales.
As a precaution, you should consider using FBA along with another third-party logistics provider if you can afford it.
Is Amazon FBA right for my business?
The pros of FBA certainly outweigh the cons. However, every business has its unique needs and goals. So, you should examine the nature of your business to be sure it’s the right fit.
Here are some factors you should consider:
- Volume of sales order: If you are just starting, sales will be low. So, you may be able to handle fulfillment yourself. However, the more experience you have selling on Amazon, the more orders you will receive. Once you start selling more than 40-50 units monthly, you should opt for FBA.
- Your budget: If you have a lot of capital to spend on storage space and employees, you can fulfill customers’ orders yourself. However, if your budget is fairly low, FBA might be a better option.
- Type of products you sell: FBA is better suited for small-sized items that are fast-moving. The fees are reasonable, and your products will be shipped quickly to your customers. If you deal in products that are large and heavy, your storage and fulfillment fees will be high. In that case, FBM may be worthwhile.
How to Get Started With FBA
Choose a profitable product
The first step for starting an FBA business is selecting the type of products you want to sell. You need to carry out research to discover high-demand products that you will be selling on Amazon that will help you make a profit.
You need to also research the amount of competition there are are for these high-demand products on Amazon, the prices these products go for and if you have the budget to stock up inventory, the number of searches for these products on Amazon, and how you intend to obtain this product from suppliers.
Set up your online store
After you’ve completed your product research and narrowed down a suitable product to sell on Amazon the next step to starting an FBA business is setting up your online store. This is easy all you need to do is go to Amazon, open an account, and follow the instructions.
You will need to provide the following when setting up your account:
- A credit card
- An ID
- Tax information
While setting up an account on Amazon is free, you should opt for a professional account that offers more features that will help you achieve success on the platform. You will however be required to pay a monthly fee of $39.99.
Get a product wholesaler or supplier
The next step after setting up your store is to stock up your inventory and this will require you to get a supplier or wholesaler. We’ll tell you how to find authentic product suppliers shortly, so keep reading to learn about that.
Get Familiar with the Algorithm
Having good products that customers do not know about will not help you make sales or generate profit. As much as you want to ensure that you have high-demand products available for sale, you also want to ensure that you are reaching the right customers and this is where SEO comes in.
A key part of SEO is keyword research. This is beneficial because it enables you to discover a high-ranking keyword that your customers are using in their search. Thankfully there are lots of Amazon keyword tools available for you to choose from.
Continue building a strong brand
Once you’ve set to FBA business is up and running, it’s important to continually review and improve operation strategy to ensure that customers are always satisfied and you always make sales. This would involve enduring that your inventory is undated.
- Reviewing marketing strategies
- Carrying out routine product and competitor research
Amazon FBA Fees
FBA sellers on Amazon do not have to worry about packaging and shipping their products to their customers. This process is covered by Amazon. As an FBA seller, you do however have to pay certain Amazon FBA fees for these services. The Amazon FBA fees consist of:
Selling Plan Fees
You will need to choose one out of the two selling plans that Amazon offers; the individual or professional selling plan. The individual plan costs $0.99 per sale while the professional plan costs a fixed monthly fee of $39.99. You should opt for the individual plan if you do not intend to sell more than 40 items monthly. If you plan to sell more than 40 items monthly, you should go for the professional plan instead.
The fulfillment fees you’ll be required to pay to include the cost of packaging, sorting, and shipping of products to customers. The Fulfillment fees usually vary from different product categories and are determined by
- Weight of the product
- Size of the product
- Product category
As an Amazon FBA seller, you will be required to pay Amazon a monthly fee for the storage of your inventory. The storage fees usually vary during various seasons, it may be more during the festive season. This also depends on the size and weight of the product.
You can also make use of the FBA calculator to determine how much storage fees you need to pay as part of your Amazon FBA fees.
Referral fees refer to the fees that third-party sellers on Amazon are required to pay to Amazon after every sale. Your referral fees typically depend on the product price, size, delivery cost, and the category of product you are selling. An FBA calculator can provide you with the required information about your referral fees.
These are the fixed monthly fees that you will have to pay, however, there are a number of other Amazon FBA fees that you will have to pay.
Start your FBA Business with Zonbase
There’s your answer to “what is FBA?”. With the insights shared in this post, you can now join thousands of sellers to take advantage of this fulfillment service.
Remember those tasks we said you have to handle on your own as an FBA seller? Zonbase can help you carry them out effectively and efficiently.
Zonbase is an all-in-one Amazon seller software comprising tools that assist with product research, keyword research, listing optimization, and inventory tracking. With Zonbase, you can find the right products to sell on Amazon FBA, optimize your listing, manage your inventory, and more.
Ready to make data-driven decisions as you start your Amazon FBA business? Read the full review on Zonbase and what we offer.. and consider trying it out with the 7 day Free Trial.