Fulfillment by Amazon is a service offered by Amazon, as a means for third-party sellers to automate their order fulfillment and shipping services. It’s a pretty simple concept: Sellers sell, Amazon ships.
Anyone enrolled in Amazon FBA can let Amazon handle all shipping, including returns and refunds, as well as product warehousing in Amazon’s warehouses, picking and packing, and more.
Sellers send their products to Amazon, who warehouses everything and then processes all of the orders as they come in. As long as you handle the sales and make sure Amazon stays stocked with your products, the rest is done for you.
You have to pay Amazon for these services.
24/7 Amazon customer service
All fulfillment and shipping costs included (pick, pack and ship)
Access to one of the world’s most dynamic fulfillment networks
FBA might not be ideal for low-value items, large dimension products or other circumstances. While it offers a lot, it’s not a guaranteed solution for every seller.
Fulfillment by Amazon is constantly changing and adapting to meet the needs of both its customers and the sellers that are using the platform. Keeping up-to-date with the latest changes and additions can help brands meet consumer demand and stay at the top of their own game with the FBA service.
The Costs of FBA
You can find settlement fee reports in your reporting section of the FBA dashboard, which will allow you to see what kind of fees you’re actually paying to Amazon as a part of this program. Remember, too, that because of peak holiday demand, you’ll pay higher storage fees to warehouse your inventory during the holiday season than the rest of the year. This is the time to double-check your FBA listings and remove anything that won’t sell, so it’s not just sitting and costing you money.
Yes, there are a few different costs involved with FBA, and there are some other factors related to pricing to consider. However, Amazon generally does well to provide useful information and assistance to ensure transparency as much as possible.
Advantages and Disadvantages of FBA
1. Advantages of FBA.
Effortless Shipping and Logistics: Amazon does all the work for you. You just keep track of your listings, make sure they’re stocked on product, and let the fulfillment be taken care of from start to finish. For a small fee, you get a big weight off your shoulders.
Discounted Shipping Rates: Because you’re working with Amazon, a global fulfillment giant, you’re also going to spend less on your shipping costs through the FBA platform. Therefore, even though you’re paying fees, they may be lower than you think when you factor in the shipping savings, and still cheaper than managing your own shipping and fulfillment in-house.
Return Management: In addition to sales, FBA also handles returns and refunds because they are considered part of the fulfillment process. This takes one more thing off your plate.
Customer Service Management: Amazon offers their own customer service for FBA sellers. You can also use their FBA platform to take care of your own customer service needs, routing all of your service through one platform for easy management.
Quick Delivery: Products in FBA automatically get the Prime badge and are eligible from Prime free shipping (to the customer) and shipping times. Plus, you aren’t going to have to pay or charge premium shipping rates to do that, because it’s included with the service.
More Storage Space: Without FBA, how much inventory could you realistically store? Do you have a warehouse or means to rent one? Are you capable of moving and managing inventory on that scale? This is where the Fulfillment by Amazon program really wins. You essentially have access to unlimited storage space – for a cost – because Amazon has warehouses all over the country that can hold a lot of goods.
Omnichannel Fulfillment: Not only does FBA allow you to sell to targeted customers through the Amazon platform, but you will also have access to new multi-channel fulfillment solutions. The MCF service (or Amazon Multi-Channel Fulfillment) allows you to sell your products on various platforms and channels (such as BigCommerce and eBay) while still having Amazon fulfill them.
2. Disadvantages of FBA.
Cost: For those who are trying to get started, money is everything. FBA is indeed a really handy service, but it costs money. That’s money that some people might not have to spend just yet. Plus, this service isn’t good for low-cost items because of the way fees are calculated, so you’ll want to be selective about products you enroll. Fortunately, Amazon has a handy FBA calculator that can help you see whether it’s a profitable move.
More Returns: In many cases, there have been sellers who see an increase in the number of returns or their frequency. This is due, in part, to Amazon’s open return policy. While this could affect the bottom line, Amazon handles the processing, so it’s not the end of the world. While Amazon used to have returns shipped back to them and you would have to arrange to have them then forwarded to you, Amazon is making changes that will allow returns to go directly back to your facility.
Long-Term Storage Fees: Amazon doesn’t like sitting on inventory. Therefore, you’re going to pay more for stuff that sits longer. Long-term storage fees aren’t the end of the world, but you’ll have to factor them into your ongoing budget to ensure that FBA still makes financial sense for your business goals. They also don’t like to store products that aren’t actively for sale and will charge for this and also negatively adjust your metrics. However, all of this can be viewed in your seller console and you can arrange for products to be shipped back to your own facility.
Product Prep Requirements: Amazon has its own list of requirements for products that are coming into the warehouse to be fulfilled through FBA. You will have to ensure that all of your products are prepared accordingly before sending them off to Amazon, including how they are packaged, ensuring proper labeling, and shipped following the FBA inventory warehousing guidelines. Some of the details can be tricky.
Sales Tax: Sales tax is managed at the state level. If your business operates in one state and has its items warehoused in a different state, you might not be sure which tax rate to use. Fortunately, there are tools to help automate various tax situations and rules, to help you figure out what to charge and Amazon can manage most of this for you.
Amazon FBA Fee Payment: There’s no putting off what you owe Amazon. You can’t use the next sale to pay for the prior one. Amazon will deduct all fees owed to them before making any payment to you. And if you don’t have enough of a balance to cover fees? You’ll need to provide a credit card to pay off the remaining balance.