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Amazon FBA

What is Amazon FBA and How Does it Work?

Amazon is an e-commerce giant, which started as a small e-commerce player in 1994. Jeff Bezos Amazon started its business selling books online and later moved to sell other products. Today, one can get everything from clothes to furniture to toiletries on Amazon. From being a company that no one cared about to the company that everyone needs today, they came a long way.

Amazon owns 40% of the overall e-commerce market share in the USA, and it is the most searched e-commerce website in India. With over 150mn paid prime members and approximately 300mn active users worldwide, it is the world’s biggest e-commerce site.

Amazon provides a lot of tools and services to leverage its sellers and increase their business, one such service is FBA, Fulfillment by Amazon. Today, Amazon has become one of the many ways to generate revenue for several sellers, and there are approximately 2mn sellers selling their different products using Amazon.

So, here’s how Amazon FBA works?

In one line Amazon’s FBA is ‘you sell the product, Amazon will ship it to the customers’. Below is a more detailed explanation for Fulfillment by Amazon.

Once you sign for this service from Amazon, the seller needs to send its product/services to be stored in Amazon’s fulfillment centers. After Amazon gets your inventory, you can track the inventory through their user-friendly tracking system.

Further, when a customer orders your product from Amazon.com (other e-commerce sites), Amazon picks the product from the fulfillment center, and sells it to the customer, using the method selected by them. Fulfillment by Amazon (FBA) helps sellers increase their online sales, they even give the sellers access to Amazon’s fast and free delivery options along with trusted customer service.

Related – Expert Tips for Amazon Sellers to Increase Sales in 2021!

Once you join FBA, your products are more visible and competitive. Further, your FBA products become eligible for single-day delivery and free delivery options for millions of customers in India. Also, as per the study done by Amazon in 2014, it is observed that 86% of FBA subscribers showed an increase in their sales.

Benefits of Amazon’s Fulfillment by Amazon (FBA)

 

Benefits of Amazon FBA

 

Fulfilling customer’s needs and requirements is one of the most challenging things to achieve. Further, there are several aspects in a delivery that can go wrong. As per studies, it is observed that 84% of the customers that have a bad experience with a particular brand, do not return to the same brand. So, brands move to Amazon’s FBA for their fulfillment services. With this, the seller can fulfill customer’s needs and even get the flexibility to reduce the price to be more competitive.

Also, you get to display your product in the Buy Box’, a place that guarantees sellers increased sales. However, it is difficult to understand Amazon’s algorithm, but two things that certainly put the product in the amazon buy box are free and fast shipping. Moreover, through FBA you can achieve free and on-time shipping, increasing your chance of being in the Buy Box.

Further, there are several other benefits like winning customer trust, a chance to reduce shipping costs, good customer service, and return management. Also, FBA can be used for services outside Amazon, you can use this service for your e-commerce website, providing the same single-day and fast delivery to the customer.

Amazon FBA Calculator

Every seller wants to take their business to the next level, increase their sales and even reach millions of customers, and they can do so by being a seller on Amazon. Once you become a seller on Amazon, start getting the orders, start calculating profits. Before, you have to calculate how much you are paying Amazon. Amazon FBA calculator is one of the powerful tools to calculate all the fees and taxes.

Amazon charges seller Amazon’s referral fee, closing fee, and shipping fees on top of taxes. So, you need to price the products accordingly to attract customers and earn profits. The referral fee varies as per the product category, like referral fee for laptops and mobiles is 5%, and for automobile parts/accessories it is 16%. Further, Amazon charges a fixed closing fee and transportation charges.

Amazon FBA fees

Amazon’s FBA fee structure is defined by three factors, size of the product, place where the product is sold (Amazon or other e-commerce sites), and the product’s weight.

Further, the seller who has signed up for Amazon’s FBA service has to pay different types of Amazon FBA fees as mentioned below:

  • Amazon’s Fulfilment Fee

A seller who has subscribed for FBA has to pay this fee. The fee includes the cost for picking, packing, shipping the product, and customer service. Further, the return fee is also included in the contract, but that is determined on a per-unit basis.

  • Monthly Inventory Storage Fees

This fee is charged for providing storage space in Amazon’s godown known as ‘Fulfilment Center’. The fee is defined by the area occupied and is calculated on a per-cubic foot basis.

Another crucial factor that determines Amazon’s FBA fee is the size and weight of the product. Amazon has set products into two categories based on their sizes, standard size, and oversized size.

The products that are less than 20pounds, and when packed are not more than 18x14x8inches in dimensions fall under the standard size category, and products more than 20lbs and have 18inches longest side come under the oversized category.

  • Additional Fees

Storage fees and FBA fees are the two major types of fees that the seller has to pay. Along with that, there is an additional fee that the seller needs to take into consideration

  • Labelling and prep service: Amazon sticks barcode labels on products and preps your products for storage. They charge these fees as a per-item fee
  • Repackaging: When the item is returned, it charges you a repackaging fee on the resold item.
  • Long-term inventory storage: Amazon charges sellers if the products are stored in the fulfillment center for more than a year.
  • Unplanned services: They even charge you if you send the inventory without proper preparation or labelling.
  • Returns processing: This is charged when the customer returns a particular product.
  • Removal order: They even charge you if you ask them to return or dispose of your inventory in the warehouse.

Resources to calculate Amazon FBA fees

Due to the complexity of fees and understanding the cost, Amazon offers various tools to calculate the FBA fees conveniently and effortlessly. Further, you can even make use of Amazon’s Revenue Calculator. This tool is ideal for sellers that have few products that they sell on Amazon. Also, they can go through the FBA bulk calculator to check the prices of several products at one time.

Moreover, as a seller, you need to keep in mind the Amazon keeps updating its fee annually. So, you want to ensure that you are updated with the latest fee structure.

Disadvantages of FBA

 

disadvantage of amazon fba

 

Though Amazon is one of the world’s best e-commerce sites with excellent services for the sellers. But sometimes you even need to look into the disadvantages of FBA before opting for it.

  • Commingling Goods

This is very common in Amazon. If you are based out of Mumbai and want to sell your products in Bangalore. Amazon will send the product from the nearest fulfillment center from another seller to save time, as both the products are similar. These have raised several issues, as the product sent is not of good quality, causing difficulty to the seller.

  • Long-term storage fee, prep fee. and managing fee

If your product has stayed in Amazon’s warehouse then you need to pay a storage fee. If a product is not selling off, you are spending more than you can earn on rent, making that product a burden. Plus, if you ask to return or destroy, it is charged extra. So, you need to continuously keep monitoring to avoid such complications

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