A Complete Guide to FBA (Fulfillment by Amazon)
A few years ago, Amazon announced the eventual implementation of new shipping drones, and I was so excited. “It’s the future!” I thought as I imagined drones filling the air. How cool it would be to see a quadrocopter at my door just to drop off a pair of socks that I had ordered a half hour before. It would be so fast!
But then I got to thinking: Where would those socks ship from? How was it possible that they could arrive at my house in less than a day? I knew there must be Amazon warehouses nearby, but I also knew that I bought products on Amazon that were really being sold by third-party merchants.
So, how was it possible for those products to be so close to my house?
My answer came years later when I first heard of Fulfillment by Amazon (commonly referred to as FBA). FBA allows third-party products to be housed in and shipped from Amazon warehouses. That means customers’ orders are fulfilled faster and more affordably. It also means that two-hour shipping with Amazon drones may someday be possible. Curiosity satiated.
FBA isn’t just great for customers, it’s also good for merchants. FBA handles all aspects of shipping, giving merchants time to further their businesses. FBA also provides third-party sellers with the same climate-controlled warehouses and speedy shipping Amazon uses for its own products, and merchants benefit from Amazon’s returns policy and excellent customer service. Happy customers make prosperous merchants.
Is FBA the shipping solution that’s right for your company? Keep reading for a complete discussion of FBA, including how it works, who it benefits, and the pros and cons of the service.
Table of Contents
How do I start using FBA?
Before you start, it’s a good idea to make sure that the product you want to sell can actually make money. Amazon charges fees for handling and storing your products; you want to make sure that those fees don’t cut too much into your profit margins. Fees vary depending upon the size, weight and type of your products. You can take a look at FBA’s fees here.
Once you’ve decided that FBA is the right approach, you can create an Amazon professional seller account and start listing your products on Amazon.
From there, you’ll send your products to Amazon’s warehouses. In order to ensure that Amazon processes your products quickly and accurately, you’ll have to make sure your products are packaged correctly.
If you want to list your products separately from identical products sold by other merchants, you MUST label each product. You can print those labels off from Amazon and attach them to each individual product. Be aware that there’s a right and a wrong way to do this. Check out this video from Amazon to find out how to label and package your products.
If all that labeling sounds like too much work, you can pay for Amazon to do it for you, at $0.20 per item.
OR, if your product is new, already listed on Amazon’s site, and not media or another approval-required-type item, you can choose to forgo labeling entirely. Instead, you can list your product as a part of Amazon’s Stickerless, Commingled Inventory. More on this below.
Once you’ve labeled your products (or not), you have two more options.
- Distribute your products to individual FBA centers.
- Send your products to Amazon and use Amazon’s Fulfillment Placement Service to further distribute your products.
Your choice depends upon the amount of inventory you’re dealing with. The first option may be right for smaller amounts of inventory, and the second might better fit the needs of a larger enterprise.
That’s it. Amazon will take care of the rest of the processing, packaging, and shipping involved with fulfilling your customers’ orders.
Here’s Amazon’s video about how FBA works.
So, what is Stickerless, Commingled Inventory?
As stated, the Stickerless, Commingled Inventory option is only available for new, non-restricted, non-media items that are already listed on Amazon. Your products will join a pool of identical items, and when your product is purchased, you’ll receive payment. Although there are a couple benefits to commingled inventory, there’s some risk involved.
Pros: Commingled inventory allows your products to be placed closer to customers, resulting in faster shipment times. Also, because commingled inventory is stickerless (other than the pre-existing UPC code, of course) you save time and money on labeling your products.
Cons: Your products will the bunched with products from other third-party sellers. There’s really no telling which product from which seller will be sent to the customer. So, if another seller sends faulty or knock-off products, you’ll take the customer backlash too. You may end up receiving negative reviews on products that you did not supply.
At the risk of including too many videos, here’s Amazon’s summary of Stickerless, Commingled Inventory.
Who can benefit from FBA?
Amazon Sellers. If you’re already selling on Amazon, FBA is a good next step. Though it isn’t guaranteed, products that use FBA are more likely to win the coveted Buy Box. That means that your products will be purchased more often (without having to lower your prices). Read more on winning the Buy Box here.
Those who Sell Small. Because the price of using FBA considers the size and weight of a product, smaller, lighter items are more likely to turn a profit.
Multi-Channel Sellers. Merchants who sell across multiple channels (including their own websites) can also benefit from FBA. FBA allows merchants to free up time and to offer customers one-day, two-day, and standard shipping.
In order use FBA for their other channels, merchants just have to transfer their customers’ shipping and order information to Amazon. While you can always do that manually, it’s best to have that function automated.
Many of the most common shopping carts offer integrations with FBA, and can do the information transfer for you. These shopping carts include:
- Shopify: Shopify is the shopping cart that we recommend most frequently here at Merchant Maverick. It offers a whole host of beautiful ready-made themes and a wide array of applications. Shopify offers built-in functionality for FBA within the US. Use an app to ship internationally with FBA. For more information on Shopify, click here.
- Magento: Magento is a locally-installed shopping cart that focuses on functionality. Magento has an extensive features list and can handle complicated functions. Magento connects with FBA via an app that’s available for $199. Read our full review of Magento here.
- 3dCart: 3dCart is a web-hosted shopping cart, available at seven different price points. It offers loads of features, an easy-to-use dashboard, and relatively attractive pre-made themes. The FBA App for 3dCart is available for $99. Read more on 3dCart here.
- BigCommerce: Similar to Shopify, BigCommerce offers ease of use, beautiful themes, and intuitive theme editor. It’s web-based software that integrates well with hundred of applications. Use the PackageBee app ($49/month) to connect BigCommerce with FBA. For our review of BigCommerce, click here.
Keep in mind that FBA’s fees for Multi-channel selling are different from their regular fees. While these fees vary depending upon the type of product you’re listing, order handling fees are typically higher than with other FBA options. Take a look for yourself; the left column lists regular FBA fees, the right lists fees for Multi-channel selling.
What are the pros of FBA?
Less Work for You. When you outsource your storage and shipping to Amazon, you free up not only more space in your house, but also more space in your life. You no longer have to spend hours packing boxes and driving to the post office. That’s all taken care of. You no longer have to store your products in your bonus room or worry about managing a warehouse; Amazon does all that for you. What freedom!
Access to Prime Customers. Products you send to FBA warehouses are eligible for Free 2-Day Shipping for Prime members. Prime customers are more likely to purchase a product with free shipping, and Prime customers reportedly spend significantly more on Amazon that non-Prime customers.
Free Shipping for Non-Prime Customers. Your products are also also eligible for Free Standard Shipping for non-Prime customers on orders that apply. Because the cost of shipping is included in the fees you pay to FBA, you don’t have to pay any extra for these free shipping options.
Win the Buy Box. I’ve already discussed this a bit above. Products that are fulfilled by Amazon are much more likely to be featured in the Buy Box on the product’s listing page. That means more purchases for you.
Leverage Amazon’s Customer Service. When you use FBA, you have access to Amazon’s excellent customer service department. Multi-lingual support provides assistance to international and other non-English-speaking customers. Returns are handled by FBA.
The Potential to Save Money. Despite all the fees associated with FBA, many merchants actually save money by using FBA. Merchants often find that Amazon can ship their product for cheaper than they can. It all depends upon the size and weight of your product.
What are the cons?
Lots of Fees. FBA comes with loads of different fees: seller fees, order handling fees, weight-based fees, inventory fees, and pick and pack fees. Here’s a link to their full list. Be aware that come October 2016, Amazon will be changing its fees to encourage merchants to move their products faster (meaning some higher inventory fees during Q4). Take a look at those new fees here.
Limited Control. Because shipping is all out of your hands, you are limited in your ability to promote your brand. You can’t include any hand-outs or coupons that you may typically ship with your products. The only step you can take to ensure your customers have a consistent brand experience is to ship in unmarked boxes. Those boxes are, of course, available for a fee. If brand promotion is important to you and you’re selling primarily from a channel other than Amazon (e.g. your online store), a service like Shipwire or Fulfillrite might be a better shipping solution.
Competition from Amazon Itself. Amazon plays an interesting role in that it’s both a service provider and a competitor. Be careful when choosing your products to avoid anything that may put you into conflict with Amazon. No one battles the giant and wins.
Confusing Sales Tax. When you ship your products to Amazon’s fulfillment centers, you establish nexus in the state where that warehouse in located. That means that your products will be charged sales tax from that state. Setting up different tax information for warehouses in several different states can be frustrating and confusing.
Some Planning Required. It takes time (up to a few weeks) for your products to arrive at their designated Amazon warehouses and be processed and shelved (especially if they aren’t packed and labeled correctly). If you’re short on inventory, this will be a problem. You may be out of stock for some time. If you choose to use FBA, plan ahead and order new products before your items go out of stock.
In my opinion, FBA is a must-have service for products listed on Amazon. Being able to guarantee fast shipping (that’s often free for the customer) is key to conversion on Amazon. Using Amazon’s warehouses for your Amazon sales makes a lot of sense.
For those sellers who are considering FBA as a shipping service for their own online store, it’s a solid option as well. However, multi-channel sellers don’t benefit quite as significantly as Amazon sellers. Before you decide on FBA, you might take a look at Shipwire and Fulfillrite to compare pricing.
Regardless, I haven’t seen any reviews that say FBA is a bad choice. Most merchants find success with the service, reporting increased sales, especially for those products that are listed on Amazon.
FBA could be your chance to break free from the cardboard and packing peanuts. If FBA sounds right for your business, click the link below to get started. Stop packing, and start selling.