Fulfillment by Amazon, or FBA, is the best friend of many private label Amazon sellers. Maybe you’ve heard of it, maybe you haven’t. Either way, if you aren’t already using FBA, switching can have a huge effect on your exposure, sales, workload, and revenue.
However, like all business decisions, you should take some time to consider whether FBA is the right choice for you and your Amazon business. We think it's great, but FBA isn't right for everyone.
What is Fulfillment By Amazon?
Fulfillment by Amazon, abbreviated as FBA, is a service provided to sellers which lets Amazon take over the fulfillment process for your products. If you’re not using FBA, the other fulfillment option is Fulfillment by Merchant (FBM), in which you are entirely responsible for storing, shipping, and processing returns of your own products. FBA takes this entire process out of your hands. Amazon's capable fulfillment network will process your orders from start to finish—all you have to do is ship them your inventory.
Here’s Amazon’s infographic on how FBA works.
Now, let's take a look at some of the benefits FBA has to offer.
Benefits of FBA
1) Shipping is Hard!
It’s hard to overstate the significance of reducing your workload. Forget about efficiency or optimization for a second—fulfilling everything yourself is just a lot of work. Constantly packaging products, managing order intake, addressing problems if anything goes wrong—it’s stressful, not to mention a serious time sink.
Thankfully, Amazon is pretty good at shipping. They’ve been doing it for a while.
Using FBA means that warehouse management, handling, packaging, and shipping will all be taken care of while you sit back. Amazon has a huge number of warehouses, meaning your products will always be close to your customers and shipping times will be quicker. Their enormous and extensive infrastructure will basically guarantee that orders will be fulfilled more quickly, more reliably, and in better condition than most merchants could guarantee.
Some extra bonuses:
- They offer a delivery tracking service, which is a huge plus for customers.
- If anything does go wrong in the fulfillment process, they will take the blame for it and deal with the problem (more on this later).
2) Amazon Prime Benefits
One of the many reasons that Amazon continues to dominate the e-commerce world is because of their Amazon Prime service. The number of Prime users is constantly increasing, and Prime users are also more active and buy more than non-Prime users.
Case in point—Prime users spend an average of $1,200 annually, compared to $700 from non-Prime users, according to estimates from Consumer Intelligence Research Partners.
Although it offers a lot of features, many Prime users only stay subscribed for its signature feature—free two-day shipping.
Using FBA is the only way that a third-party Amazon seller can be eligible for Prime two-day shipping. That alone provides a huge boost to your service—customers want their two-day free shipping, and will actively seek out products that provide it. They may even be willing to pay a premium over a competitor because of the money and time they'll save on shipping.
Overall, you’ll see more conversions from Prime customers who want to take advantage of their subscription. You’ll also be able to offset the FBA fees (more on this later) by increasing your price over non-FBA competitors.
3) Customer Service
Ever seller knows that the job doesn't end when the item is delivered. Amazon knows this too, and they’re on top of it. The FBA service includes all handling of returns and refunds, as well as any other customer queries or issues. Amazon has a 24/7 customer support team that will answer any questions or attempt to resolve problems that customers have relating to the shipping process.
Amazon taking responsibility for customers’ shipping experience extends into the realm of seller feedback. As explained in our post about removing inappropriate seller feedback, Amazon will strike and take responsibility for any review relating entirely to fulfillment of an FBA product.
Of course, just because Amazon is handling customer support for shipping, doesn’t mean you get a free pass for all customer support. Product support and product reviews are still completely up to you—in fact, we strongly recommend that you stay on top of product support to grow your business and create repeat customers.
As something of a combination between all of the above factors—with Fulfillment by Amazon, you’ll be making more sales. A 2013 study conducted by Amazon found that almost three quarters of FBA sellers (73%) saw over 20% increases in sales.
An Extra Bonus: If you want to expand your Amazon business internationally, FBA is a great way to make international shipping much easier. If you ship your inventory to just one EU fulfillment center, that center will fulfill orders in all other EU markets!
Although we think that FBA is great (could you tell?), you shouldn’t rush into it without considering the costs. After all, Amazon wants to make money too.
Costs and Considerations
There’s no such thing as a free lunch—with FBA comes inevitable fees.
As a basic fee, Amazon takes a percentage of all your FBA items’ profits. However, Amazon also charges for things like:
- Order handling
- Pick and pack
- Weight handling
- Storage (in cubic feet)
These fees mean that you’ll have to take a careful look at your margins and see if using FBA would still make you more profitable. To do this, you can use Amazon's very helpful FBA revenue calculator. Give it a go and see if FBA is right for you.
Because Amazon will be taking a cut of your margins, each item sold will bring in less revenue than it normally would. However, you’ll be saving money and generating more income in a number of different ways:
You won’t have to spend money, time, or frustration fulfilling and shipping all of your own products.
Using FBA confers a ton of benefits in terms of visibility, conversion rate, ranking, and sales (both to Prime users and in general).
Although you won’t be making as much money on a product-per-product basis, the increase in overall sales and visibility will more than make up for it and likely put you at a net positive.
Still, FBA is not right for every business. For example, a business dealing in large, heavy objects such as furniture might not have FBA as an option due to excessive weight and handling fees. Carefully consider your product, categories, markets, and margins; make an informed decision about whether FBA is right for you.
Have any questions, comments, or suggestions? Leave them below!