Amazon FBA: Guide, Selling, & Is Business Profitable?


Amazon FBA (Fulfillment By Amazon) and is Amazon’s most popular warehousing and logistics service for sellers on the platform.

Through FBA, you as a salesperson get the opportunity to use Amazon’s advanced logistics system and at the same time reach millions of customers.

In 2019, 2.5 million sellers worldwide used the Fulfillment By Amazon program. From small entrepreneurs to international multimillion-dollar companies.

In this article, I will go through what Amazon FBA is, what can be good to think about, and the pros and cons of the program.

So, how do you become successful with Amazon FBA?

If you want to succeed with Amazon FBA then you must reach Amazon’s 300 million customers, you must be obsessed with customer satisfaction and understand that good-looking deliveries are more than half the thing for the customer to be satisfied when she shops online.

This is true even when the platform is called Alibaba or is your very own domain online.

What is Amazon FBA?

Amazon FBA stands for Fulfillment By Amazon.

The program, which was introduced in 2006, has been one of the most important initiatives for Amazon’s success.

The setup for Amazon FBA is very simple; you sell, Amazon takes care of the logistics:

  • You submit your products to Amazon.
  • Amazon stores the products in its warehouses
  • When a customer orders your product via Amazon, all logistics are handled automatically by Amazon. They take care of packaging and delivery to the customer.
  • Amazon also handles all returns and refunds. They also take care of all customer service regarding deliveries.

In the US, 66% of Amazon sellers use only FBA, 29% use FBA and Fulfilled (Merchant), and only 6% use only FBM. Source: Jungle Scout Seller Report 2020

How does Amazon FBA work?

When you use FBA, minimal logistics and order management work will be required on your part.

This means that you can instead focus on other parts of your business, such as marketing and product development.

1. Submit your products to Amazon

The first step is to send the products to Amazon’s warehouse. If you sell in the US, Amazon has more than 100 different stocks around the country.

In Europe, Amazon stores are located in the United Kingdom, Germany, Italy, Spain, France, Poland and the Czech Republic.

To submit your products, go to your Amazon Seller Central account and create a new delivery in the system. Amazon will then specify which of its stocks to send them to.

2. Amazon receives and stores your products

When your products arrive at Amazon, they will be sorted and stored in Amazon’s warehouse. Through Amazon’s system, you can always keep track of how many items are in stock.

You will also receive reminders when it’s time to submit new products.

Should products be damaged in Amazon’s warehouse, you will receive compensation for this.

3. A customer buys your product

When a customer buys your product, Amazon will automatically take care of payment and order management.

4. Amazon sends out your product

One of Amazon’s warehouse workers then takes your product from the warehouse shelf, packages it and sends it directly to the customer.

5. Amazon takes care of customer service

All types of customer service matters relating to deliveries or returns are handled by Amazon.

Matters concerning your product page on Amazon or specific questions about the product itself are handled by you as a seller.

6. You get paid

Payments from Amazon are made every two weeks.

The amount you receive in your account will be your sales minus fees for Amazon’s services. The money is sent directly to your bank account.

What are you responsible for when you sell through Amazon FBA?

As a seller through Amazon’s platform, you are responsible for:

The products you sell

Of course, you as the seller are responsible for your products, as well as any certificates you need to have to sell them.

Keeping your products in stock

Amazon handles customer deliveries, but you need to make sure there are enough products in stock. If you sell out of your products, you will lose organic ranking and lose revenue.

If, on the other hand, you have too many products in stock, you can go for extra fees from Amazon.

Your product pages

It is your job to upload accurate information and pictures for the products you sell. This includes titles, product attributes and prices.

Having a good product page is extremely important on Amazon. An optimized product page will appear better in the search results, as well as convert better.

Marketing on Amazon FBA

As a seller, you are responsible for advertising on the Amazon platform. It is your job to set the budget for ads, where your ads should appear, maximum bids per click, and more.

I would say that it takes paid advertising to succeed on Amazon. For new products, it is absolutely a must to speed up sales.

But even when you have managed to rank your product well in the organic search results, paid advertising is needed to maintain your positions.

Amazon FBA Fees

There are several different types of fees when selling through FBA. It is important to keep track of these so that you can calculate margins for the products you sell.

Subscription fee

The Professional selling plan costs $39.99 per month plus a per-item referral fee that varies by category. The Individual selling plan costs $0.99 per unit sold plus a per-item referral fee that varies by category.

Returns

When a customer makes a return, the seller pays either 20% of the sales price or $ 5 (whichever is lower) in administration fee to Amazon.

Referral fee

In English “Referral fee”. A fee that you pay for the customer to shop from you via Amazon’s platform. This fee varies between different product categories.

The most common fee is 15% of the sales price.

For some products such as camera / photo, mobile phones and electronics, the fee is 8%.

Packaging and shipping

Amazon’s “Pick and pack” fee to pick up your product from the warehouse shelf and package it.

The bigger and heavier your product is, the higher the fee.

Warehousing fee

You pay a fee for Amazon to stock your products. The price for warehousing goes up during November – December before the Christmas trade.

If your products have been in Amazon’s warehouse for longer than 365 days, you will have to pay an extra fee, a so-called “Long term storage fee”.

The price for this in the US is 0.15 USD / product.

Benefits of using Amazon’s FBA program

There are many benefits to selling through Amazon’s FBA program, most of which in my opinion are;

Extremely passive when you avoid order and stock handling

Once you have your products up and running, Amazon is extremely passive.

Even if you sell hundreds of products per day, Amazon will take care of all order handling, stock, returns, customer service, etc.

Expand rapidly to the whole world

With the FBA program, it is super easy to quickly expand your business worldwide. Amazon has about 200 million customers worldwide.

In the US it has around 50% market share, in the UK 30% and in Germany 35%.

All you need to do to start selling in a new country is to register for each marketplace and submit your products to Amazon’s warehouse.

For example, if you start selling in the US, your FBA products will be shipped directly from a US warehouse and the customer will receive the product within a few days.

Significantly easier than having to send products internationally all over the world.

Amazon Prime

When you sell with FBA, your products will automatically be available for Amazon Prime.

Amazon currently has over 150 million Prime members.

Customers with a Prime membership receive benefits such as special offers from Amazon and faster deliveries.

Products that are available for Amazon Prime get a “Prime logo”, which definitely gives an advantage over the competition.

Disadvantages of using Amazon’s FBA program

Although FBA is enormously powerful, not everything is gold and green forests with the program. Below I have listed the main disadvantages in my opinion.

Tighter margins

Amazon takes care of a lot of workers for you as an e-retailer, but of course it costs money.

If you have tight margins for your products, it can be difficult to become profitable through Amazon.

No personal access to your products in stock

Unlike when you have your own warehouse, you have no opportunity to go down and check your products yourself when you run Amazon FBA.

The products are in Amazon’s warehouse, which can be a disadvantage in some situations.

Careful logistics planning is required

Inventory planning is very important when working with Amazon for several reasons. First, every cubic meter you use costs, which means you do not want too many products in stock.

Secondly, you may have to pay extra fees if your products have been in Amazon’s warehouse for too long.

Alternative to Amazon FBA

Amazon offers an alternative to FBA – Amazon FBM (Fulfilled By Merchant). This means that you as the seller handle all orders handling and deliveries yourself.

With Amazon FBM, you only pay the referral fee to Amazon, which means you will have higher margins.

There are both pros and cons to selling used FBA or FBM.

However, if you have the margins, FBA is preferable, as you can expand into new markets easily and also generally have a higher conversion rate (which is directly related to your organic ranking on Amazon).

Tips when selling through Amazon FBA

  • Keeping track of margins is super important. You need to keep track of what fees each product has. Otherwise, it is easy for you to actually lose money on your sales.
  • Warehousing. It is important that you have enough products in stock, while not selling out. If you sell out, you give your competitors space to take market share and positions from you in Amazon’s search results.
  • Amazon has a so-called “IPI score – inventory Performance Index. If you do not manage your inventory well enough, and your IPI score becomes too low, you will have restrictions on how many products you can submit.
  • Compare whether FBA or FBM is best suited. Not all products can be sold via FBA, especially larger products as the fee for these is usually too high.

Conclusion

If you are an e-retailer and do not sell on Amazon at the moment, I definitely think it’s time to get acquainted with how the service works.

With Amazon FBA, there are huge opportunities to reach hundreds of millions of customers worldwide in a short time.

Since Amazon has now also been launched practically everywhere it is now easier than ever to start making money on Amazon FBA.

Kevin

Hi, my name is Kevin and I am a weightlifter, now part time blogger. Keep in mind that I dont have any fancy degrees or operate some high-end business company. I am just a dude from Sweden who loves to learn new things, especially new things on how I can inqrease my wealth. And now I have the opportunity to share that knowledge back to you.

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