What is Amazon FBA?

A 101 guide on how to fulfill your products using the Amazon FBA model.

What does Amazon FBA mean? 

If you're new to this term, FBA stands for “Fulfillment By Amazon.”

What's the model which the Amazon FBA operates on? You could ask, perhaps. Amazon FBA is a fulfillment model designed for ecommerce retailers who want a wide-reaching distribution channel for their target customer base. 

Said otherwise, the FBA technique allows online sellers to automate the order fulfillment process. 

How Amazon FBA works

The process is overly simplified, so you don't need to put in the grueling efforts at all. Here's the upfront breakdown on how the Amazon FBA process works:

  1. To get started, you need to send your products to any of Amazon's warehouses. Amazon owns a network of fulfillment and warehousing centers across the US, Canada, Europe, and Asia. In the U.S. territory alone, there are about 100 warehouses within close-range proximities. 
  2. Amazon's team begins the inventory sorting process, which includes damage assessment to put clear the condition of each product. If there's any damage incident at Amazon's warehouse, rest assured that the retail giant will repay you for any loss. 
  3. As soon as the shopper places an order, that's where the FBA process begins. This model automates the process, in the sense that Amazon's team packs, sorts, and ships the order to your online customer's doorstep. 
  4. When an order is in transit, Amazon tracks the shipment on your behalf so you don't need to do any follow-ups, which might throw your schedule off balance. 
  5. If perhaps there are any refund or return claims, Amazon handles that too. 

Is the Amazon FBA model worth it?

We catch this question a gazillion times in our comments section. Selling on Amazon FBA is probably the best choice for any newbie seller with a strapped budget. 

Order fulfillment grabs a lofty share of attention while running an online business. Leaving this part to the experts gives you a sizeable scope of time to take care of stuff like product promotion and customer engagement. 

Some of the onset benefits to bank from the FBA business model include:

  1. Optimized logistics funnel. Amazon bolts up the shipping process- which gives your ecommerce business a competitive edge. For Amazon Prime subscribers, the two-day delivery time-frame bumps up the fulfillment success rate a notch above the typical threshold. 
  2. The ecommerce seller can leverage on discounted shipping rates. Such an offbeat incentive helps boost the sales projections, by far. 
  3. Massive capacity to help scale your ecommerce business. Amazon has over 175 fulfillment centers across the globe. And if you sum up the unlimited warehouse space, you'll realize that there's no inventory limit on the part of the seller. Also, there's no minimum number. You can as well send a single product.
  4. Amazon offers multi-channel fulfillment to merchants who sell on other platforms. If, say, you sell on Shopify or BigCommerce, you can automate the order processing right from your store's dashboard. Once all integrations are in order, Amazon syncs the inventory and auto-updates the tracking status straight to your ecommerce store. 
  5. Its shipping speed fits as it should, pretty competently. Not only that. You don't need to process returns together with their shipping labels. The FBA reverse logistics team sort it out. 

How to set up an Amazon FBA Business.

Step 1: Sign up for an FBA seller account.

If you want to launch your FBA business from scratch, you first have to create an Amazon Seller Account. 

Selling on Amazon is relatively easy. You, first, need to visit Amazon's official page. Right at the bottom widget, you should see the second section, which is marked “Make Money with Us.”

While on the same column, there's a link labeled “Sell on Amazon.” As soon as you click on it, follow through all instructions, and you'll be ready to sail. 

Step 2: Choose your preferable FBA Selling Plan.

Amazon has two differential options-Individual and the Professional Plan.

Individual vs. Professional Account Plans.

Individual sellers: For merchants who want to fulfill orders using the “individual account,” the wild card is you don't pay for any monthly subscription plan. But nothing free comes cheap. You'll need to put up with some significant caveats.

The limitation set on the individual plan is best for ecommerce sellers handling less than 40 orders a month. 

Amazon also imposes a $.99 commission on every sale if you opt for this option. 

Professional sellers: This plan bags advanced perks for ecommerce sellers who want to scale their businesses via the FBA model. 

There's a $39.99 monthly subscription fee on this plan. But looking on the rosy side, this account is such an asset, especially if you want to build active brand engagement with your customers. 

You can include promotional content and gifts in your customer's package. With the individual plan, however, there's a limitation to that.

A professional seller also gets access to Amazon's built-in sales tax calculator. 

If you want to be part of Amazon FBA's success stories, don't look very far. Just jump straight to the Professional plan.

But if you're not looking to sell many products and want a temporary selling channel, the individual plan can help you cut through the basics.

Step 3: Pick a winning niche. 

You can't take an untamed guess on this part. Whether you're selling on Amazon, operating an online store using a third-party channel, or both, you need to dive deep into product research. 

That way, you'll outsell your competition and avoid slow-moving inventory levels at Amazon's warehouses. 

It all boils down to conducting keyword research and logical competition analysis. This part can get a little technical for starters, however. 

To reverse this perspective, you can make the best use of Amazon keyword research tools to discover high-selling products. 

Using a tool such as JungleScout will help narrow down to what exactly shoppers are looking for on Amazon's search database. You can as well do niche hunting using the Amazon Keyword Tool

It helps Amazon sellers discover a large pool of relevant keywords to use in their product listings and descriptions. So if you plan to not only fulfill but also list your products on Amazon, optimization is the key strategy to help shoppers find your products quite easily. 

Solving a consumer problem is the most crucial factor you need to consider if you want to keep off from nosediving at an overly saturated niche. It's essential to discover what the customers' pain points are and look for a product to settle the market gap. 

Step 4: Estimate the Amazon FBA fees

As an FBA seller, you need an accurate account of what it entirely costs to list and fulfill your products using this model. 

Aside from the price plan and commissions which we analyzed a while ago, there are other corresponding costs to note. 

Referral fees 

Amazon FBA deducts a referral fee per sale transaction. The referral fee structure calculates the actual cost per product category. 

The average percentage for most niche products is usually anywhere around 15% of the purchase price. For further hints, please check out its official referral fees guide.

FBA fulfillment fees

It's worth noting that the fulfillment fees per unit include picking and packing services, shipment handling, customer services, and returns processing. 

The FBA model clusters the fees according to size and type of product(apparel vs. non-apparel). For a standard-size, non-apparel order that weighs about 10 ounces or less(small), Amazon charges a $2.50 fulfillment fee. 

For more insights on the FBA fulfillment fee structure, you can refer to this guide

Monthly Inventory storage fees

Amazon FBA estimates the overall inventory fees according to size and the nature of a product. Dangerous goods, for example, attract a higher inventory fee. 

The fees also vary depending on the time of the year. If you fulfill a standard-size order between January-September, using Amazon FBA, you'll pay $0.99 per cubic foot. The price for the same size is usually about $2.40 per cubic foot, between October-December. 

Step 5: Prioritize marketing your FBA products.

We now live in a digitally acclaimed world. And you can't reach your target audience by only addressing the pain points. You need to promote your products on social channels in a handy and optimized way. 

If you're looking to not only online fulfill by Amazon, but also list your products on the marketplace, then Amazon Marketing Services is the right solution for you. There's so much advertising action to leverage from this platform. 

Aside from organic ranking on the search engine, almost every ecommerce business leverages the power of sponsored advertising. On Amazon, paid ads allow your products to get discovered easily by appearing on the first page of search results. 

There's also a cost-per-click option, which lets the sellers control the budget on the total ad spend. In other words, you only pay when a customer clicks your ad. You can dig a little further on Amazon advertising right from this page

Multi-channel Fulfillment by Amazon explained

Multi-channel fulfillment(MFM) is a solution for merchants who sell outside the marketplace. It's typically the same as the FBA model, only that it has higher fulfillment fees. 

Whether you sell using the FBA technique or not, you can sync your inventory to make it accessible for both Amazon shoppers and the customer base on your third-party selling channel. 

The merchant can easily connect their stores to Amazon's multi-channel fulfillment database using built-in APIs. Through the integration gateway, you can start selling orders on Amazon with platforms such as Shopify, 3dcart, WooCommerce, and Magneto.

The fulfillment process is also part of the deal, so you don't need to struggle with shipping orders to customers globally. Besides the U.S., MCF is also available in these countries:

  1. Canada
  2. Mexico
  3. UK
  4. Germany
  5. France
  6. Italy
  7. Spain 
  8. Japan

Amazon's multi-channel fulfillment builds up a quicker delivery option for shoppers. Online sellers can choose to offer 2-day or 1-day shipping on their products. 

This, in effect, levels up the conversion rate since customers are always looking out for the most convenient shopping experience. And that's the most visible incentive which the multi-channel fulfillment model offers its Prime members.   

In fact, 13% of customers never come back to your store if the delivery speed wasn't fast enough. The MCF, along with its in-built tracking software, gives ecommerce setups an edge to scale and promote their businesses to optimal levels. 

Despite the multifold perks, MCF has a constraint as well. Your branding options are somewhat limited. If your products are packages with Amazon's logo on it, your customers can't ascertain whether the product came from your online store. 

Best practices to help grow your FBA business

Build a market-driven brand

It's no secret that branding is the ultimate means to define the value of your products to customers in a differential way. 

Your brand needs to be unique. That way, your FBA business carves a target base in the niche you want to test. Buyers also get to know your brand's position and authority in the market. 

You can start by using promotional content in your packages and build a loyal following on social media marketing channels. 

While you're at it, you also want to make your Amazon FBA business appears more professional and authentic before your target customer audience.

Research on the products you want to sell

Not all products yield massive sales on the instant. You don't want to struggle with a saturated niche. 

The primary step for a beginner is to do a market evaluation and test all models that are proven to work for other successful Amazon FBA sellers. Once you do product research, you need to dig further into the technical aspect of it.

You can test any niche using a product research tool to see which one works best for your FBA business.

A lot of online merchants using the FBA program sell private labels. Selling private labels is the process where the online retailer rebrands a product that's already produced by the manufacturer. Amazon itself owns a bunch of white label products. 

While this method bears a high-end budget in terms of upfront costs, you should know that about 55% of the white label gross over $5,000 in monthly sales. 

Most sellers use the Fulfillment-by-Amazon program to have their white label products, reach their customers. Finding white label products to sell, however, needs a deeply evaluated yardstick. 

You need to find a niche with high demand but with an impressively low competition score. The next step is to contact reliable suppliers and negotiate on the pricing. If you're not sure where to find one, check using the Amazon Best-Seller Rank tool. 

Run an insightful optimization gameplan

You need logical hacks to improve the overall conversion rate for your FBA business. And this isn't all about the shady blackhat SEO strategies. Your CRO blueprint has to look natural. From the user-generated reviews to the product descriptions– everything needs to be spot-on.

Contrarily, it's fair to say that Amazon is a massive marketplace with thousands of towering sellers. Hence, making your products visible is such a tough job, especially for a newbie FBA seller. 

So to cut all corners the snappy away, you need to optimize your product titles and be as descriptive as possible while describing the necessary features for all your listed items. Your optimization format should also focus on other significant components such as color, size, and the number of units in stock. 

New customers always want to cross-check how your products compare to those of your competitors. To win their trust over, you'll need to work with up to scratch ranking factors– which result in positive reviews and more sales. 

You must also work on your product photos and titles from a conversion optimization standpoint. Customers tend to be more visual. So you can't overlook the prime significance of using high-resolution images on your listings. 

Another critical element is to answer the frequently asked questions in a bullet format and use relevant keywords in your content. This, of course, gives your products a better ranking on the results page, and customers get more acclimated on what your brand is all about. 

Take note of all associated costs

If you don't account for everything it costs to use the FBA model, it'll be challenging to set your profit margins on each sale transaction. 

First things first, it's essential to know exactly how much you need to pay to get your products to the most proximate warehouse. Secondly, make an in-depth comparison between the individual and the professional plan to determine which one suits your ecommerce business better. 

My little advice, if you're thinking long-term and have tons of orders to handle, is to go with the professional plan. It has many perks that outweigh the individual plan, which seems to operate like its lite version. 

Other essential expenses to scrutinize include the monthly storage fees and the fulfillment costs for each shipment. These two variables are always contingent on the size of your product, packaging instructions, the distance where the order needs to be shipped to, and the duration in which your products are stored at Amazon's warehouses. 

Pros of the Amazon FBA program

Shipping and returns are both well handled: An expert team manages the process, and you don't have to spend time following up on the after-sales service. Amazon's logistics structure is effortless and allows the seller to focus on other things like marketing and customer engagement.

Affordable shipping rates: It's hard to find such discounted prices on other shipping carriers. If your customers purchase many orders, they're highly likely to be eligible for free shipping.

For expedited shipping, Prime members get exclusive 2-day shipping, which seems like a huge plus for your business's future sales projections. 

Amazon offers a multi-channel fulfillment program: This solution is everything you need, especially if you want to fulfill orders right from other selling channels besides Amazon. The FBA shipping app for Shopify allows store owners on the channel to automate the fulfillment process without any emerging hitches. 

Cons of the Amazon FBA program 

Complicated inventory handling process: If you're just a new kid on the block, you might lose track of what's sent to the customer. And the ripple effect will be a stream of returns by dissatisfied customers.

The major contributor to this con is where your products are mixed up with those of other sellers. Even worse, they might be defective or of lower quality. 

Dry Inventory: There's a beehive of activities in all of Amazon's warehouses. You don't expect your products to grab all the attention. And this means that not all your inventory will clear up on their shelves as you'd expect. You, therefore, end up paying more in storage fee if you're products don't sell. 

Conclusion

Even with the patent cons at hand, the Amazon FBA business model is still a powerful gateway to help you make significant milestones in monthly sales. 

The FBA model is a far much easier channel to help you kickstart your ecommerce business. You can start small and use the program to fulfill as little as a single product each month. 

Conversely, the storage space on all of Amazon's warehouses is unlimited, so you can scale your business to a 6-figure grossing empire. 

Selling your niche products using the Amazon FBA model overrides many other fulfillment options, by far. It's only fair to say that the retail giant upholds an impressive reputation.

So customers get to trust the logistics formula Amazon uses a lot more than other third-party solutions. 

As a seller, there are so many perks to hang on. But what matters most is the capacity to automate your order fulfillment process. And the Amazon FBA is the right option to work with. 

 

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