Fulfillment by Amazon Basics
Fulfillment by Amazon streamlines the logistics and customer services processes. Amazon summarizes the services in the slogan: “You sell it, we ship it.”
It’s one of Amazon’s two biggest fulfillment options (the other being Fulfillment by Merchant (FBM)). It’s also one of the most polarizing as many sellers claim success with FBA while others claim failure. A 2018 survey of 2,500 Amazon sellers, 50 percent of sellers report that they earn $10,000 in monthly revenue within just 18 months.
But what does it take to achieve this earning potential? And at what cost?
How Does FBA Works?
There are at least 4 basic steps in FBA:
- You Ship your products to an Amazon fulfillment center. You need to properly label and pack the products or hire Amazon’s FBA Label Service and/or FBA Prep Service to do the job. You also need to list the products in your Seller Account with a shipping plan set up in your Seller Central dashboard. Only then can you ship the products via Amazon’s Partnered Carrier program.
- Amazon will take care of your product inventory’s storage.Upon its arrival at the fulfillment center, Amazon employees will evaluate your products for proper preparation, labeling, measurement, and weight.
- Amazon may move the products to other fulfillment centers according to demand.You can track your product inventory online to assess the number of products available in any fulfillment centers at a time. It’s your decision if you want to ship more products to Amazon as you see the need.
- Shipping, fulfillment, and customer services by Amazon
- Amazon immediately prepares products for ship out the moment an order is made. They will take care of everything thereon, from providing tracking information to customer service.
How Much Does FBA Cost?
There are fees associated with FBA. There are five main fees you need to consider before registering to FBA:
- Fulfillment Fees
Fulfillment fees include charges for product pickup; order packing, shipping, and handling; customer service, and returns. Amazon charges per unit with the rate depending on the package size and total weight.
The definition for the small standard-size is any packaged item that is 12 oz or less and measures 15 inches or less on the longest side, 0.75 inch or less on the shortest side, and 12 inches or less on the median side. The large standard-size is any packaged item that weights 21 lbs or less and measures 18 inches or less on the longest side, 8 inches or less on its shortest side, and a median side measurement of 14 inches or less.
Small oversize weighs 71 lb or less with the longest side measuring 60 inches or less, the median side that is 30 inches or less, and long side with girth at 130 inches or less. Medium oversize is 151 lb or less with the longest side at 108 inches or less, and longest side plus girth at 130 inches or less. The large oversize package should weigh at 151 lb or less, measure 108 inches or less on the longest side, 165 inches or less on the longest side plus girth. The final size category is special oversize. The product either exceeds the large oversize weight and/or dimensions or require special handling and/or delivery.
To calculate the fee for standard-size units and special oversize units, you just need to add the product weight + dimension weight ((length x width x height)/139). For the large standard-size, small oversize, medium oversize, and large oversize, the rate will depend on which weight (product or dimension weight) is greater.
There are an additional $0.40 per unit fee for clothing items and $0.11 per unit fee for items with lithium batteries.
You can also use Amazon’s Free Preview to calculate core fulfillment fees.
- Monthly Inventory Storage Fees
This is basically a fee for the use of space in the Amazon warehouse. It’s charged per cubic foot of occupied space in the fulfillment center based on the month of the year and daily average volume.
The fees also vary according to the product size (see above). Standard-size products, for example, requires shelving and storage bins, considerably reducing the product storage footprint but at the same time, increasing the cost of storage.
Dangerous goods sold under the FBA Dangerous Goods program have higher storage fees due to the special handling requirements. Product units stored in the fulfillment center for more than a year are subject to a long-term inventory storage fee.
You can calculate the amount of space a package can occupy by dividing the package’s volume by 1,728.
- Removal Order Fees
Amazon charges for every product unit removed. During peak removal periods (mostly holidays) the removal order fulfillment may take up to 30 business days. On regular days, fulfillment will only take about 14 business days.
- Returns Processing fee.
This fee is straightforward. You, as an FBA seller will be required to pay a returns processing fee for every product that qualifies for a free return. This fee is equivalent to the product’s fulfillment fee.
- Unplanned service fees.
This fee serves as a penalty for your failure to properly prepare and label products sent to Amazon’s fulfillment center. Amazon will do the job for you but they will charge you per-item.
Pros and Cons of FBA
Pros of Amazon FBA
If calculating all the fees turned you off from Amazon FBA, here’s some good news.
- You can focus on growing your business. Amazon FBA made big-name ecommerce more accessible to entrepreneurs without the resources to hire numerous employees or lease a warehouse. It’s the digital dream: selling real products without even touching them. This will give your business more room to grow. You can divert operational resources to focus on market research, product development, and marketing campaigns.
- Customers trust the Amazon brand. “Fulfilled by Amazon,” adds credence to you as a seller. Must customers browse Amazon with a set of doubts with them: doubt on the quality of the product, doubt on your reliability as a seller, doubt on the smoothness of the transaction, etc. The FBA badge somehow removes some of these doubts. It’s an assurance to customers that the right order will ship out in time, properly packed, and delivered on time. The automatic Amazon Prime eligibility is just an added bonus that seals the deal for customers.
- Buy Box preference. That white box on the side of the product detail page is very powerful. It accounts for 82 percent of Amazon’s desktop sales and it’s said that the figures are even higher for mobile. The box’s “Buy Now” and “Add to Cart” buttons are a reseller’s dream. There are several ways to “win” or “beat” the Buy Box but FBA sellers already have an advantage when it comes to one Buy Box eligibility criteria: availability. The advantage becomes more evident when you consider the top factors that the Amazon algorithm favors for the Buy Box: fulfillment method landed price and shipping time.
Cons of Amazon FBA
Are all those fees and preparation requirements worth it? It depends.
- It can be daunting for new sellers. If you are still to earn anything from your foray into Amazon’s competitive marketplace then FBA costs may turn you off. The fees basically have fees even failing to prepare your products properly can get you penalized.
- It’s not an assurance that your products will ship out on time. Peak seasons will still cause delays in shipping and restocking even if your products are already in the fulfillment center.
- You don’t have a lot of control. The promise of convenience is really tempting that you can forget what you can miss out on. You won’t be able to offer limited-time offer product bundles or create an email list for remarketing.
How To Start An Amazon FBA Business With Little Money?
Here’s the truth: You can start Amazon FBA business with little money, but you won’t get very far!
$0 will allow you to signup for an Amazon seller account on the individual free plan. From there you’ll need to sell products. But to sell products you first have to buy them and ship to Amazon. So basically you need to spend money to make money right?
I assume since you’re asking if it’s possible to start an amazon fba business with little money that you don’t have a lot of money so you’ll want to start with Aliexpress ebay arbitrage (as oppose to Private Label selling which I recommend $2000 to start). Arbitrage only requires you to find products (already available to the masses) at a price less than it’s selling on Amazon or ebay.
Buy it, ship to Amazon, sell, profit, rinse and repeat.
Ok, but you don’t have any money so how do you fix that? Get after it and pound the pavement! You can literally start an FBA business with $100. Sell your extra DVDs or video games. Drive for Uber or Lyft. There are a MILLION ways to make $100 in today’s gig economy so there’s no way you could be stuck with “no money”.
Fulfillment by Amazon is not for every seller. It’s an excellent fulfillment solution for sellers that want to leverage the Amazon brand to increase customer base, build customer trust, and gain an edge in a very competitive market.
But if you are a new seller or if you ship less than 40 products a month, or your profit margins are low, FBA may not be worth it. You can use FBA as a growth strategy but the success still relies on how fast your inventory moves and market niche’s demand for FBA products.