Save 50% on your first month of Helium 10

What Is Amazon FBA? How Does It Work?

What is Amazon FBA

It is no secret that Amazon has helped thousands of small businesses to find their space in the market. The company even offers a few services that make things easier for Amazon sellers. Fulfillment by Amazon, better known as FBA, tops the list of such services.

While it is a simple concept at its core, anyone who gets started with Amazon needs a comprehensive idea about FBA. To be frank, there is a lot of ground to cover when we start talking about Fulfillment by Amazon.

In this article, we have tried our best to create an ultimate guide on Amazon FBA. No matter your experience as an Amazon seller, you can rely on the guide to know the up-to-date information on FBA and how it works. We will also discuss the pros, cons, and legal requirements regarding Amazon FBA.

Therefore, before you sign up for the Amazon service, you will have a clearer idea of how things work. We will begin this article by answering the most fundamental question you need answering.

What Is FBA on Amazon?

FBA, which stands for Fulfillment by Amazon, is an e-commerce fulfillment system. In this system, Amazon takes care of product packaging, shipping, returns, and customer services. It means the seller does not have to worry less about logistics while cutting down shipping costs.

Amazon presents FBA as a solution to focus on the business and grow it. Before we go into the details of Fulfillment by Amazon, we must understand what exactly fulfillment means in the world of e-commerce.

What is Amazon FBA And How does it Work

E-commerce order fulfillment, simply known as fulfillment, is a necessary process that makes it possible for customers to order products and get them delivered to their doorsteps. Fulfillment includes many steps such as storage, inventory controlling, packaging, shipping, returns, exchanges, etc. In the case of regular orders, the fulfillment process starts with inventory management and ends with delivery. However, in many cases, the fulfillment provider will have to deal with returns, exchanges, refunds, and customer care.

As a seller, everyone has the freedom to choose between mainly three types of fulfillment.

  1. In-house fulfillment: This fulfillment method is great when you sell a relatively lower volume of items and already have a reliable logistics network. It means the seller has to take care of all aspects, such as packaging, shipping, exchanges, and customer service.
  2. Third-party fulfillment: In this fulfillment method, you can rely on third parties to handle the shipping and packaging aspects of your order. Of course, you will have to pay these providers a fixed amount per order or monthly.
  3. Fulfillment by Amazon: Fulfillment by Amazon is where everything is managed by the company. You simply have to send your products to Amazon fulfillment center and wait for someone to place the order. Whenever an order is placed, Amazon makes sure that the product is delivered on time.

As you can guess, the first two fulfillment methods can be quite complex or costly. But, more importantly, it means you have to dedicate many resources to fulfill the order instead of the product quality. Therefore, if you want to ensure maximum quality for your products, fulfilling the orders by yourself would not be the wisest decision.

However, Amazon FBA claims to take all these headaches away from you so that you can focus on essential tasks like product quality assessment, service improvement, and support options.

We will now briefly look at the history of Fulfillment by Amazon.

History of FBA and Amazon Fulfillment Center

As you know, Amazon has been an integral part of global e-commerce development since the early 2000s. It had also attempted to build one of the best logistics networks for order fulfillment since then. Part of it was reducing the reliance on platforms like UPS and USPS.

The efforts to enhance the system are still ongoing, but we had the official launch of Amazon FBA in 2006. As is the case now, Amazon introduced FBA as an easier way for small businesses to sell products via Amazon and not worry about packaging, shipping, support, etc.

Nevertheless, building the Amazon network and the FBA system has not been anything close to simple. The company has worked hard to establish a seamless design for order fulfillment. Currently, it is so smooth that sellers can send their inventory to Amazon warehouses and forget about the ordeal.

Amazon’s network will ensure that the product reaches the right customer whenever an order is placed. Amazon has done a great job of integrating FBA into many programs it has launched after that.

For instance, FBA is closely connected to the Amazon Prime program. Amazon allows sellers to be a part of the Prime network by signing up for FBA. It means the sellers’ products would be delivered to the customers at the earliest. To pull off such an important task, Amazon also had to implement many technologies into the scene. For instance, the company now uses multiple identification systems like ASIN to manage the stock inventory efficiently.

We can also see some recent updates made to the Amazon FBA system.

Recent Updates to Amazon FBA Service

As we said, Amazon puts in a lot of effort to keep the logistics system up and to run. While these attempts result in many updates, we can focus on a few that are important. If you are new to Amazon FBA, you must know about these recent updates so that you can get the proper jump-start.

In 2020, when the world was battling with the COVID-19 pandemic, Amazon was working harder. Amazon introduced two new programs to the scene during the period: Order Commingling and the Inventory Performance Index. As it happens, both offer their share of impact on the FBA system.

  •  Order Commingling

Order commingling is also known as sticker-less inventory. In this system, Amazon will obtain inventory from multiple sellers and arrange them according to the product. For instance, there could be hundreds of sellers that offer a soap named A. Amazon will collect as much inventory as it can and store it.

While this system has its merit, the problems can be pretty big too. For instance, because Amazon mixes the inventory, some duplicate/faulty items may get into the collection. If these defective products are shipped to the customer, it may harm the product’s Amazon rating.

  •  Inventory Performance Index

Inventory Performance Index is a metric that Amazon has designed. It will analyze the performance of your inventory and suggest you the best options. For instance, if your inventory does not sell as quickly you want them to, Amazon might recommend removing the excess inventory.

Likewise, depending on the niche you deal with and the score you have, the Inventory Performance Index will recommend the best ways to boost the sell rate, among other things. The company also considers factors like in-stock inventory, sell-through rates, excess inventory, and stranded inventory to determine the score.

           In addition to these, Amazon recommends a few methods to improve product sales. You can get to know all this information through the official sources. It comes in handy that Amazon does not want to keep the sellers in the dark. Instead, you are likely to know the upcoming changes to the Fulfillment by Amazon system. Therefore, if the forthcoming changes require more effort from your side, you can stay confident.

Does eBay Have Its Own FBA?

As you know, eBay is a popular online marketplace where you can buy and sell products. Even though it is not as optimized as Amazon or other e-commerce giants, eBay still has a unique customer base. So, you may want to sell some products through eBay. But here is the question: how do you take care of order fulfillment when selling a product via eBay? Does eBay have an order fulfillment system?

No, eBay does not have its fulfillment system. Simply put, eBay does not have its own FBA, even though the statement is incorrect. However, we hope you understand the idea. On the bright side, you can use Amazon FBA to manage your sales from eBay. Well, it may sound illogical at first, but it is not.

Amazon allows you to use its Fulfillment network for processing orders from third-party websites, including eBay. You have to visit the Multi-Channel Fulfillment system on the Amazon FBA settings page in this particular case. As a result, you can use Amazon’s logistics network to deliver the product to the customer. But, at the same time, you have to take care of aspects like eCommerce customer service and returns.

There could be some inconvenience, though. In general, a shipment sent through Amazon FBA will have the standard Amazon packaging. So, your buyer, who got the product from eBay, may be surprised to find an Amazon package on their footprint.

You can fix this problem in two ways. One, you can add a note to the buyer. Two, you can ask Amazon to pack the product in a non-branded package. The second option will be a costly affair, though.

Regardless of these issues, you can use Amazon FBA for eBay orders via multi-channel fulfillment. You will still have access to the major advantages and disadvantages of the Amazon FBA system if you are wondering.

Fulfillment by Amazon Features on the Glance

As an Amazon seller, you make a single subscription to be a part of the Amazon FBA program. However, a single subscription will give you access to an impressive number of features. Because it is impossible to list all the features one by one, we have split this section into a few subsections.

We will glance over the Amazon FBA features on shipping, packaging, inventory, Prime eligibility, return policy, support, etc. These subsection-based guides should provide a clear idea about how to prepare your business for maximum exposure from Amazon FBA.

Shipping

Shipping is an aspect you should not worry about once you have signed up for Amazon FBA. The company will ensure that your products are shipped on time and delivered to the customer by the assured date. As you know, Amazon Prime shipping has become a household name in the world of e-commerce. It means a customer can get your product in a day or two, sending the satisfaction levels to the roof.

Therefore, once you have sent the inventory to the recommended Amazon fulfillment center, you can stop worrying about the shipping part. Thanks to the thousands of people and robots in these fulfillment centers, your product will be carefully packed and shipped.

However, to keep this action on track, FBA sellers will have to comply with all the rules regarding labeling and barcoding. For instance, if you put the wrong barcode on the product, it may result in your account getting suspended and the product set aside the core inventory.

It is also significant that you do not have to worry about the quality of the shipment. Amazon has optimized the fulfillment centers the network, packaging techniques, and product-handling etiquette to ensure that your product reaches buyers in the form you want. Compared to other delivery solutions like USPS or UPS, Amazon FBA is the safest way to deliver your product damage-free.

In short, you do not have to worry about the reliability and quality of the shipping process if you are part of the Fulfillment by Amazon program.

Packaging

As we said, Amazon takes proper care to ensure that products reach customers in the best way possible. The use of well-designed packaging is one of the reasons here. As FBA sellers, however, you do not have to worry at all. Of course, you should follow a few rules while preparing the inventory before sending it to an Amazon warehouse. For instance,

  • If you sell products that require some kind of poly-bagging, you should use a polyethylene bag that is no less than 1.5mil thick. In addition, you have to position the barcode in a scannable position.
  • On the other hand, if the product is fragile and requires bubble wrap, it should be wrapped as tightly as possible. Once again, you cannot miss the scannable barcode on the outside. The package must be ready to survive a 3-foot drop test as well.
  • In some cases, you will have to over-box the product before sending it to Amazon warehouses. It is a necessity when you are dealing with products that may cause problems to the packaging materials in the first place. To prevent this damage, you should put multiple layers of protection.
  • In addition to these, you have to follow some protocols regarding the use of hangers, tape, etc. The best part is that you can know the amount of prep your product needs by going through the Amazon platform.

Once your products are adequately packed, you can send them to the required Amazon fulfillment centers. There are a few ways to go about it. You can ship the product directly or request a pickup from one of the compatible shipping providers. After the packages have reached Amazon, the company will take care of the rest.

As you know, one of the reasons why Amazon stays in business is its efficiency. So, your packages will be further protected by Amazon’s packaging systems before they are sent out to the customers. Using Machine Learning and AI, Amazon’s systems will recommend the best packaging for the product. Skilled employees fulfill these that Amazon has at every fulfillment center.

We can say without a doubt that the packaging aspect of Amazon FBA is flawless. Thanks to the multi-level scanning and checking, the systems ensure that your products are delivered correctly. The company does it so well that it can save hundreds of dollars in logistics as well. But, of course, when Amazon gets to pick the pack for a product, it is better than randomly throwing several products in the delivery vehicle.

For FBA sellerS, however, it means less worrying. In the end, you can follow the minimal packaging etiquette demanded by Amazon and let Amazon do the rest. It sounds fantastic, right?

Inventory

Inventory management is also easy when using Amazon FBA. The first part of inventory management can be done through the Amazon Seller Central platform. You will have to make sure that you had provided all the product information before you made the listing. By default, the Seller Central would show the option for Fulfilled by Merchant. However, you have to change this to Fulfilled by Amazon to make use of the FBA benefits.

After you have done this, you can use the Manage Inventory page to see the status of your product inventory on Amazon’s side. Depending on the FBA plan you have chosen, you may add a single product or bulk. You can also change the FBA status of individual products if you want.

Seller Central would also work as the best way to track the status of your inventory in real-time. These numbers are updated whenever items are taken out of an Amazon’s fulfillment centers, no matter where it is located.

Therefore, you would know when it is time to add more stock to the inventory. It is best to be precautious and add more supply than demand. Therefore, even if there is a sudden rush for your product, you would not have to worry.

Amazon also runs a variety of analytics on the available inventory. For instance, if a stock has not been sold out for an extended period, Amazon will let you know. If it remains in the position, you will have to pay storage fees and other fees to the company. You can access all these reports from the seller account.

Amazon also makes sure that your inventory is moved between different Amazon’s fulfillment centers according to the demand. For instance, if a particular state shows high demand for your product during a specific season, Amazon will move your inventory to the nearest fulfillment center.

Of course, the seller does not have to be worried about it. On the other hand, it would have been complicated if the seller were managing shipping and inventory management independently.

Prime Eligibility

Eligibility for Amazon Prime is another big reason why you should sign up for Amazon FBA. Fortunately, all Amazon FBA products are eligible for Amazon Prime delivery and associated benefits. So, FBA sellers simply have to make sure that your inventory reaches Amazon’s fulfillment centers in the recommended mode. Considering the tremendous amount of information Amazon provides, it would not be a challenging task.

Prime eligibility of your products can increase the sales like anything. As you know, Amazon has thousands of Prime subscribers in the country. They receive one-day or two-day delivery free of cost, which is a solid reason to buy. So, when a buyer sees the Prime badge next to your product description, it will be a nudge to make the purchase.

As a part of Prime eligibility, your product may also get a spot in the Amazon Buy Box. It is one reason to get more sales than other sellers dealing with the same product as you are. Long story short, Prime and FBA are best buddies that give you increased profits every day.

Return Policy

Returns are expected in the e-commerce world, and Amazon is ready for them. There are multiple ways that a return process could go through. For instance, some items are known for their return-less refund system. Therefore, if a customer claims that a product is unusable, they may not be asked to return it. Still, the customer would receive the refund from Amazon.

In most cases, Amazon will send out a new unit of the product when there is a defective product. If the item returned by the customer is usable, it is added back to the stock. However, if the product is faulty, it could be sent to the seller or disposed of. It should be noted that in case of refunds, Amazon will debit the product’s value from the FBA account. There are also a few types of fees you should know about.

In short, even though Amazon takes care of returns and refunds, you will have to pay the returns processing fee fee. You can get to know more about these fees here. You can manage these things via the seller account.

Customer Support

Customer support from Amazon is also bundled with FBA. It means the experienced customer service team at Amazon will assist customers regarding refunds, returns, and other issues. However, you should keep in mind that Amazon does not provide technical support for the product. So you will have to take care of this. On the other hand, if something is wrong with the delivery, Amazon’s teams would be on it.

So, these are some of the most important features you get as a part of Amazon FBA. Now, we will look at these from an objective viewpoint.

What Are the FBA Fees?

As you can guess, you have to pay Amazon for the FBA service. The exact amount you have to pay will vary based on the product category and other details. However, you can find some resources on the official site. You will have to pay four types of core FBA fees while getting started:

·     FBA Fulfillment fees

·     Monthly inventory storage fees

·     Long-term storage fees

·     FBA disposal order fees

As far as the FBA fulfillment fees are concerned, Amazon has split items into two tires: small standard and large standard. Then, based on the weight of the product, fulfillment fees are determined.

For instance, if the product is in the small standard tier and weighs 6oz or less, the cost per unit would be $2.70. On the other hand, if the product weighs between 2lbs to 3lbs and is in the Large standard tire, you will have to pay $5.68 per unit.

Amazon has a detailed fee structure for apparel and dangerous goods. You can find the complete pricing list here.

You also have to pay storage fees to Amazon. These fees are calculated based on the time of year and the amount of space your inventory takes up. For instance, you will have to pay $0.99 per cubic foot for standard-sized products in the months between January to September. During the other time of the year, the prices are increased to $3.63 per cubic foot.

Thankfully, you can find many ways to calculate the amount you will have to pay Amazon. You have to keep in mind that long-term storage fees can be quite high for the FBA service.

Pros of the FBA for Small Business Owners

Here are some reasons why your small business will benefit from Amazon FBA

  1. Amazon FBA makes sure that your products are delivered fast and free for customers. It will increase sales from customers as most of them do not want to pay for shipping. As we did say earlier, Amazon FBA products are eligible for Amazon Prime as well.
  2. As a small business owner, you do not have to worry about packaging and shipping. It can help you save hours every single week. You can dedicate this time to improving the product quality and other aspects of the sale.
  3. In addition to Prime eligibility, Amazon FBA business provides you the Buy Box advantage. Considering that more than 80% of orders are made through the Buy Box, it makes sense to get your listing featured on the Buy Box. Again, it translates to assured sales boost.
  4. Amazon can often give you discounted shipping rates, especially while dealing with low-cost and lightweight products. It is made possible due to the logistics network that Amazon has built over these years. As a result, it is almost always better than packing and sending the product via UPS or USPS.
  5. You do not have to worry about customer care as an Amazon seller since Amazon can provide customer service for orders. Product buyers will get in touch with Amazon for refund and return needs. Of course, you will have to manage the inventory as per the demand, but that is it.
  6. Last but not least, you can streamline the quality of shipping when you have subscribed for FBA business plans. It is because Amazon follows proper standards for packaging and shipping. You may not be able to follow the same level of scrutiny with Fulfillment by Merchant.

Cons of the FBA for Small Business Owners

  1. As you know, Amazon FBA costs money. It does not offer a free version, either. Therefore, if you are not sure about the product you are selling, you might accumulate many fees. It means the FBA system is not perfect for everyone. In addition, you may have to pay the storage fees.
  2. Once you have sent the inventory to the Amazon fulfillment centers, you barely have any control over it. At least some of you may have a problem with this. For instance, even if you find out that a batch had an issue, you cannot do anything.
  3. Customization is not the strongest forte of Fulfillment by Amazon, if you understand. To keep things efficient, Amazon follows several techniques. So, you cannot customize the product packaging according to your branding needs.
  4. We mentioned the Sticker-less inventory system that Amazon is testing right now. It means the stock from your side may get mixed with the stock from another seller. It could lead to quality concerns and lower ratings for the listing.

Amazon FBA vs FBM — More than Fulfillment Fees

We will go through the significant differences between Fulfillment by Amazon and Fulfillment by Merchant or FBA Vs FBM:

  1. In FBA, Amazon takes care of packaging, shipping, customer service, refunds, etc. On the other hand, if you choose FBM, you will have to independently take care of these aspects.
  2. FBA Amazon will need you to pay a monthly subscription fee in addition to storage fees. It does not happen while using FBM. You just have to pay for the inventory costs instead.
  3. FBA is more suitable for lightweight, small and low-priced products for which standard shipping may not be the easiest option. On the other hand, if you are selling heavy products that need more care, FBM is more suitable.
  4. As an Amazon FBA seller, you do not have much control over the inventory once you have sent it to Amazon fulfillment centers. In FBM, because you handle everything on your own, you have better control.
  5. Being a part of Amazon FBA will give you instant access to Amazon Prime, increasing sales. As an FBM seller, Prime eligibility does not come by default. However, you can use Seller-Fulfilled Prime as an alternative.
  6. Amazon FBA fulfillment does not give you freedom when it comes to customizing the product. For instance, you cannot add branding to the packages. But, on the other hand, FBM will give you this option without any hassle. You do not have to worry about storage fees, either

Final Thoughts

We hope you understood the important aspects of Amazon FBA. As you have seen, Amazon FBA presents an incredible number of advantages and features. You can get all these features by paying a subscription fee every month. However, the restrictions inherent to FBA make it less appealing to some categories. In these cases, you may have to rethink and choose between FBA, SFP, and FBM.

Resources:

How to sell on Amazon – A Beginners Guide


 

Share on facebook
Share on twitter
Share on linkedin
Flow Harrington

Flow Harrington

Head of content marketing @ Infinite FBA, full-time Amazon seller. Or in plain English, I’m the guy in charge of making epic blog posts whilst running my FBA business.