How Amazon FBA works

Succeeding on Amazon takes a lot more than making sales online. The biggest priority for any e-commerce seller is fulfilling the order up to the customer’s expectations. A lot of your business relies heavily on the reviews and ratings you get. Customers who have a bad experience with you will not hesitate to share that with others on the platform.

You can solve a lot of this through the Amazon FBA (Fulfillment by Amazon) program. In this lesson, we’ll get into the many varying plans of Amazon FBA, the benefits of using Amazon FBA for your e-commerce business, and the most important tips to know when you’re just starting out in Amazon FBA.

What is FBA?

Fulfillment by Amazon is a program that allows eCommerce sellers to have access to Amazon warehouses, as well as fulfillment services such as shipping and delivery of products. 

Basically, Amazon will take care of storage, packaging, shipping, delivery, customer support, and more for your product, for a certain fee called Amazon FBA fees. All you would have to do is create a listing on the platform and forward your inventory to the designated Amazon warehouse.

In a nutshell, you can send all your inventory to the Amazon Fulfillment Centre and let the company handle the physical transportation and delivery side of things. Meanwhile, you can focus on your Amazon seller account and replenishing the inventory when it runs out. You wouldn’t even have to deal with customer grievances or worry about how you’re going to deliver products to distant customers.

How does Amazon FBA work?

Using Amazon FBA is a pretty simple and straightforward process. Once you’re verified as an FBA seller, Amazon will designate a warehouse where you can forward your inventory to. It will be quite close to where you’re located. The company then handles the safe storage of your products. As more and more customers purchase your wares, Amazon updates the transactions and keeps you informed on whether the inventory needs to be replenished.

When a customer places an order on Amazon for your product, the company takes care of packing and shipping the product to the customer’s location. They will also notify the customer when the package is dispatched and allow them to track it on the way. Local Amazon employees manage the delivery of the product right to the customer’s preferred pick-up spot.

Amazon also manages customer queries, support calls, and any issues related to the return of the product or refunds. At the end of every two weeks, you get your sales profit debited to your bank account.

In short, you won’t have to deal with all the packaging hassles such as buying bubble wrap and sturdy boxes. You also won’t have to deal with various shipping companies trying to find the best deals. Instead, you can focus on paying attention to feedback, making your product as good as possible, and managing transactions from your seller account

How to get started with Amazon FBA:

Let’s walk you through the simple steps of setting up Amazon FBA services:

  • Once your Amazon Seller account becomes active, opt for the FBA option and add it to your account.
  • Focus on marketing your product on Amazon and attracting buyers. This process involves creating a listing on the site for your inventory and updating it with catchy product titles, descriptions, product images, pricing details, and more.
  • Once your listing goes live, you can send products in bulk to the designated Amazon fulfillment center. Make sure your products are ready for shipping. Check for defects and ensure the packaging can’t be easily damaged.
  • As soon as you forward your inventory, Amazon handles the rest. You have to remit storage fees for your products as long as they’re housed at the center. Storage fees are based on how much space your inventory takes up and the duration of storage. This is why we encourage ecommerce sellers to start small when they do business on Amazon.

All customer payment transactions will be processed through the website so you don’t have to be worried about staying updated or monitoring sales all the time.

When a customer places an order, Amazon employees pick it up, package it and ship it over from the Amazon fulfillment center, according to given specs. They also follow up on the delivery to make sure the process is as smooth and seamless as possible.

Sending your inventory to Amazon (the simplified version)

Let’s break down all the above-mentioned steps involved to make it more simple:

  1. Label your listed products and forward them to an Amazon Fulfillment Centre. 
  1. The company takes full measure of your package and the required storage capacity. 
  1. You can keep track of your inventory online as you make sales. This way you’ll be right on top of things when you need to replenish your stock.
  1. Every time a customer places an order, Amazon handles picking it up from the stored inventory, packaging it, and delivering it within the scheduled time. Furthermore, they’ll also address customer grievances such as returns and refunds, if any. You wouldn’t have to worry about any of that.

Why choose Amazon FBA?

What Amazon FBA essentially does is save you the need to invest thousands of dollars in separate storage facilities, maintenance,  staff, and customer support. It is a full-package deal that can keep your pockets steady and your profits heavy depending on where you’re selling.

A lot of entrepreneurs face a common problem at some point in their business journey –  insufficient storage space for new stock. As customers grow, you need to replenish inventory to keep up with the demand. 

Dropshipping the product for someone else would simply cut you out of a bigger deal. And procuring the items late might lose you some customers who aren’t willing to wait. Simply put,  Amazon FBA is a one-step solution for expanding businesses.

The good thing is that you don’t have to be a super savvy entrepreneur to run a decent business using Amazon FBA. You just need to have good profit margins compared to what you might make storing and delivering the product on your own. 

It doesn’t matter whether you deal in special, homemade items that exhibit a certain level of craftsmanship, or just generic, industry-produced goods. As long as your profit margins are higher with the program as opposed to other alternatives, Amazon FBA is an ideal and elegant solution for you.

Moreover, a lot of entrepreneurs and budding eCommerce start-ups could really use the extra time to invest in more productive avenues such as research, development, upgrades, meetings with investors, and more.

3 key tips if you’ve just started using Amazon FBA:

Here are 3 tips and suggestions for when you start out as an FBA eCommerce seller.

  • Decide which products to sell and focus on quality. Amazon takes care of the back-end and provides the infrastructure and delivery system. However, the quality of the product is still your responsibility. Make sure you choose to sell something that not only retains high returns but is also up to standard. Otherwise, your business could suffer.
  • Make sure you monitor your inventory levels. You’ll get the updates from your account. Be prompt to replenish your stock when it’s about to run out. It’s important to deliver on time.
  • Engage in compelling marketing. We’ve discussed a couple of things you could do to create a persuasive listing that attracts customers on Amazon. This includes writing good copy, effective titles, and using standard product images.

The Benefits of Amazon FBA

So far we talked about how Amazon FBA works and covered a few tips that help you get started. Now, let’s take a look at the various benefits that come with choosing Amazon FBA for eCommerce selling on the site.

Ratings make your business soar

Good customer ratings are vital to making your business successful on Amazon. It is the first thing shoppers tend to check when they consider buying your product. You can eliminate a lot of customer dissatisfaction over delivery and customer support when you entrust it to Amazon FBA. The only thing that comes under your domain is product quality.

Amazon’s massive reputation

Amazon’s reputation for being a reliable platform for shopping becomes entwined with your reputation. For instance, if you’re a relatively obscure brand with mediocre delivery services, it can negatively affect your sales. 

However, when customers know that Amazon will be handling the delivery, they can expect it to be up to standard. Which means they’re more likely to buy from you.

Expedient delivery record

Amazon is known for a super fast delivery system that excels at processing and dispatching products on time. When you’re able to deliver faster, you’re able to make sales faster. And the faster your sales are, the more sales you can make. 

Increased visibility on Amazon

The website pushes brands that use the FBA program up to the top. This is because the delivery system is certified to be legitimate and standardized. It is also because when you’re in charge of the product and shipping, prices may vary. So the combined price will be listed for your product under FBM (Fulfillment by Merchant).

Under FBA, there is a standardized pricing system because Amazon has warehouses in the location. This is why FBA-affiliated eCommerce products appear higher up on the search results. Instinctive shoppers generally tend to pick what they want to buy from the first few options that appear.

The Buy Box Button

The Amazon Buy Box is a game-changer for many businesses. It’s a simple button that exclusively appears for Amazon products and for certain popular products where Amazon doesn’t have a competing item in the category.

The Buy box hugely influences a shopper’s decision. After all, the product where an add-to-basket option appears will seem more reliable than others. It offers a significant psychological advantage to sellers.

Amazon FBA sellers have a higher chance of their products getting the Buy box option over other eCommerce sellers.

Attract prime members

Amazon offers free delivery to prime subscribers. If you’re an eCommerce seller who has opted for Amazon FBA, Prime members are likely to buy from you since the same free delivery policy will apply to your products as well.

Why are prime members important?

Because they usually tend to make huge purchases, owing to the free delivery policy. This means you can make more sales and cater to a very exclusive customer base that other sellers don’t have access to. This could in turn further boost your ratings on the platform and help you grow the eCommerce business.

Single solution for a multi-faceted problem

Storage fees, delivery staff, and inventory management are all expenses that can drain your business and keep you from making a decent profit. With Amazon FBA, you’d be paying for storage and all other services but at a fixed rate that’s dependent on how much space you use and how long your inventory remains in the warehouse.

You won’t have to worry about finding reliable employees to hire for delivery, paying wages, finding safe storage spaces, etc. Amazon takes care of all that and more.

Boost in business productivity

A lot of eCommerce sellers can feel tied up by various expenses and tasks that consume so much time. It can take up hours upon hours of your day just to figure out the logistics of how you’re going to ship a product to a certain remote location.

With Amazon handling most of the heavy-lifting, you can focus on the one thing that really matters when it comes to growing your brand – product improvement. Not only can you manufacture or buy more from the supplier you can also focus on making a superior product. The better the quality of what you sell, the more sales you can make.

Locational boundaries disappear

One of the major hurdles you face when you’re a small-scale business is being limited to the country and region you’re located in. Amazon FBA radically solves this problem by allowing you access to a shipping service that reaches far and wide. You no longer have to worry about where the order is coming from.

With customer support and service systems in place at locations across the globe, the language barrier disappears too. Your customers will get access to streamlined and professional support, no matter where they are.

Is Amazon FBA Suitable for your Business? 

For a business that’s caught up in the transitory stage and struggling to scale up, Amazon FBA can be a gamechanger. It allows you to focus entirely on the most important aspect of your business – the product itself. You get to utilize your time more effectively in procuring better inventory at favorable rates, streamlining your brand, and expanding the business.

However, Amazon FBA also comes with plenty of rules and regulations. Depending on where you plan on selling, the pricing system might not agree with you. Or perhaps your market comprises consumers who don’t really use Amazon all that much. In such cases, it might be better to consider alternatives.

In short, Amazon FBA is best-suited for any eCommerce business looking for ways to expand, with a majority of their target consumer base comprising Amazon shoppers. It also depends on whether the benefits outweigh the costs. You’ll have to do your own research to find out.

Is Fulfillment by Amazon Really Worth It?

You need to consider how much you’re shipping on average every month, how much profit you’re making, and how specific your market is. According to FBA requirements, you should be shipping at least 40 items every month to qualify for the program. So you can only benefit from it if you’re exceeding that threshold by a great margin. Let’s say you sell at least 100 items on average each month. We could then say that FBA is a profitable option for you.

On the other hand, if you’re just barely skating by with negligible profit margins, then FBA might actually do more harm than good. So the smart thing to do if you’re a really small, local business owner who has just started out, is to spend more time and expenses in perfecting your niche, establishing your brand, and making more sales.

Some products cater to a super niche audience. For example, consider homemade rustic clocks that appeal to woodworking enthusiasts. Do your own research on Amazon to see whether a particular product is in demand and sought out by your target consumer base. You can decide once you have a fair idea of how many customers are interested.

On the other hand, let’s say you’re selling a product that’s really basic and in high demand frequently, like cooking utensils or coffee mugs. Since they never run out of demand, you can make your offerings unique by including special discounts and special sales to capture the market and stand out amidst competitors.

Final thoughts

Amazon FBA is a lucrative way of outsourcing a majority of your eCommerce business’s heavy lifting to a major online shopping corporation. The process is quite simple, steady, and straightforward. But it does take some time to get used to.

The program works remarkably well for eCommerce sellers with an established line of products, looking for an outsourcing party to handle packaging, storage, and fulfillment of orders on their behalf. At the same time, it might not be suitable for everybody, especially local businesses who don’t plan on scaling up any time soon.

At the end of the day, it all comes down to what kind of business you’re running and what your plans are for the future. Make sure you do a lot of research, both online and offline. Consult other eCommerce sellers who make it work. Get to know their strategies. If you’re not interested, you can still try the alternatives.

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