There is a lot of work that goes into running an ecommerce business. Even if you run an online business, it could easily take up your time if you do all the work – from listing products, customer support, pricing strategy, and marketing your products. The Amazon FBA program aims to solve that so that you can ease the burden off your shoulder while the Amazon employees do the heavy lifting for you. Sounds like an ideal way to run an online business? You bet it is!
However, there are FBA fees that go with joining the program. You need to know more about the in-depth information of the Amazon FBA program to help you determine if this is the right fit for your ecommerce business goals.
How Does FBA Work?
The Amazon marketplace is one of the biggest ecommerce platforms in the world. If you sell products on Amazon, you have the potential to earn lots of revenue from your business because you can tap into the Amazon catalog of products. It is also one of the reasons why those who have a professional seller account on Amazon have made a promising income through the platform. Your ability to maximize your seller account and join the Amazon FBA program can take your business to the next level. The acronym FBA stands for Fulfillment by Amazon, which should give you an idea how the program works.
When you sell products on Amazon using your Amazon seller account, you have to handle the listing of the products, inventory management, storage fees (if you need to use a warehouse for your inventory of products), and shipping costs. Taking care of all of these activities to keep your online business running can use up a lot of your time.
However, setting up an account through the Amazon FBA program lifts off all of those duties from your shoulder. You will still be able to run your ecommerce business but now you can focus on the entrepreneurial aspects of your business, such as scaling it and marketing. The Amazon fulfillment centers and employees will handle the orders from your customers. You can leverage the tools and capabilities of Amazon’s fulfillment centers as leverage to propel your business to the next level.
Here is an overview of the Amazon FBA process to help you determine if it is a good fit for your Amazon seller account.
1. Amazon sellers will send their products to Amazon’s fulfillment centers. Once you are approved for the Amazon FBA, they will get in touch with you about the address and other necessary information.
2. Your products will be stored within the fulfillment centers owned by Amazon. You can leverage the Amazon warehouse to save on fulfillment and storage fees for your business.
3. List your products on your website or through the Amazon marketplace. Once a customer places an order, Amazon will find the product from your inventory and helps with the inventory management by keeping it updated. Amazon employees at the fulfillment center will also be responsible for packing and shipping those orders to your customers.
4. Amazon will also help with customer support and returns. Amazon will send you the profits for those sales every two weeks.
Amazon FBA Fees
The convenience offered by Amazon FBA to Amazon sellers is indeed a great opportunity to make more money or to scale an online business. However, the FBA program isn’t free. The ability to maximize your access to the fulfillment centers and the services of its employees do come with a cost.
There are several FBA fees that you must know about to help you determine if an FBA business is the right option for you.
1. Inventory storage fees
Every product you send to the Amazon fulfillment centers, you will be charged this fee for the ability to keep those items in the Amazon warehouse. The actual storage fee will vary based on the average daily volume of your product inventory. Take note of the product size tier to help determine how much you are going to pay towards inventory storage fees.
2. Fulfillment fees
The fulfillment fees are one of the FBA fees that Amazon sellers must pay for as part of the Fulfillment by Amazon program. This fee is calculated per unit upon the picking of orders from the inventory, packing those orders, shipping and handling. The fulfillment fees also cover the handling of returns and customer service support for those orders.
3. Long term storage fees
The long-term storage fees in the Fulfillment by Amazon program is based on monthly assessments of your product inventory, if they are stored in the fulfillment centers for more than a year. Maintaining a healthy inventory management flow is good to avoid long-term storage fees.
4. Removal order fees
If you want to dispose of the products in your inventory, Amazon employees can do it on your behalf. However, you will be charged a fee on a per-item basis.
5. Returns processing fees
The returns processing fees are charged per order where Amazon must facilitate free shipping for all returned orders by your customers.
6. Unplanned services fees
Amazon’s FBA program requires you to communicate before you ship products to the fulfillment centers. When that procedure isn’t followed, Amazon FBA charges additional fulfillment fees known as unplanned service fees.
Amazon FBA Services Benefits
When you open an Amazon store or set up a professional seller account, your goal is to make money by selling products through the ecommerce platform. As you learned from above, however, here is the cold truth: Amazon FBA costs money. Understanding the FBA costs will help you determine if this is a good business model to pursue.
You must factor in several variables to determine if the inventory storage fees and other FBA costs are worth the investment. Here are the notable advantages that you can enjoy with Amazon FBA.
Scale your business quickly with the Amazon FBA
Inventory storage is one of the most critical aspects of a retail business. Unfortunately, many small business owners don’t have access to a large warehouse or the long term storage fees are too expensive for small Amazon sellers to afford.
You can leverage the FBA inventory system to have access to a storage space for less than it normally would cost. However, unlike renting a storage space from a local warehouse for your inventory, you won’t have access to additional services such as order fulfillment because Amazon packs your orders for you.
This logistics benefit can facilitate a smooth and seamless order fulfillment process. The faster you can process and ship orders, the more orders you can accommodate. In turn, you will be able to scale your online business and maximize the profits.
Shipping discounts to customers
Another advantage with the Amazon FBA program is that you can take advantage of shipping offers from Amazon, especially those who are exclusive only to Amazon Prime customers. For example, your products can be eligible for the Prime FREE Two-Day Shipping advantage. You can also offer FREE shipping for qualified FBA listings.
Fast and free shipping is a critical factor that affects the overall customer experience. Amazon has transformed the way people ship online and one of the reasons why they are an ecommerce leader is their fast and free shipping. You can create shipping plans to match your needs and budget. With low shipping costs that are also reliable and fast, you can help your business grow faster.
Trusted customer service support
When you join the Amazon FBA program, you will be able to leverage the world-class customer service support by Amazon. Providing support to customers is one of the most time-consuming aspects of running an online store through Amazon. From handling customer inquiries to shipping updates and returns, you can ease yourself off that burden with the FBA services. The Amazon FBA fees cover the customer service team who will be available to respond to your customers, which ensures real-time updates and responses.
Your customers can speak to an Amazon employee via phone or email on a 24/7 basis. This service is available through the Amazon FBA process at no extra charge (except for the returns processing fees). You can use your time towards growing your business instead of dealing with customer service.
Speaking of returns, the order fulfillment process is simplified because Amazon can handle the details of your customer concerns so you don’t have to.
Inventory management
Tracking and managing your inventory of products can be difficult and overwhelming, regardless of how much inventory you got. Keeping track of the products to ensure availability is time-consuming, especially if you are managing this on your own. Amazon has an inventory performance index that is based on the inventory for certain products. If a product is out of stock, its product ranking and visibility drops. When the product visibility drops, the sales performance drops, too.
As an Amazon FBA seller, you must stay on top of your inventory at all times. When you have a professional account at the Amazon Seller Central, you can use that to see all important information in your dashboard. The dashboard allows you to manage excess inventory, track the inventory age, and restock your low inventory.
Make sure to analyze your inventory reports to ensure that you never run out of certain products. If you can optimize your inventory performance, you can leverage the popularity of the retail giant to generate sales for your products that can make up for the Amazon FBA fees.
Amazon FBA Services Drawbacks
FBA Costs
The Amazon FBA cost is one of the major reasons why many of those with an Amazon seller account opt out of the program. While there are many advantages to becoming one of the FBA sellers, the FBA fees are too much for most sellers to afford it.
It’s not just a one-time fee. There are several types of FBA costs that you have to consider, such as the long term storage fees, fulfillment and storage fees, and other Amazon fees. If you’re already expecting a slim profit margin, that margin becomes even slimmer once Amazon takes a percentage of every sale. Even removing products from your inventory could also incur a fee!
The only way you can maximize the FBA costs would be if you have a large sales volume every month. If not, then you could easily lose money from this process. Make sure you use the FBA revenue calculator to determine the profitability of certain products before you add them to your inventory.
Limited branding opportunity
If you are making your own products, using the Amazon FBA platform will limited your branding opportunities. Amazon packs, ships, and handles all of your order concerns for customers. Therefore, you have limited room for branding since you are using the Amazon brand name and logo in the packaging and shipping of orders.
FAQs on Amazon FBA Program
Is Amazon FBA free to start?
No. Amazon FBA comes with a corresponding fee. You can choose from an individual or monthly plan. Amazon also takes a percentage of every sale and the fee will vary based on the product category.
What is the difference between Amazon and Amazon FBA?
The main difference between Amazon seller account and the Fulfillment by Amazon FBA program is that the products are supplied by you with the latter. You have to ship out the products to the Amazon fulfillment centers and then they will take care of the rest.
The Amazon seller account is available for online business owners and private label brands that want their products become available through the Amazon marketplace. However, these accounts are not exclusive to brands and businesses.
Does FBA include shipping?
The Amazon FBA program covers the inventory management, packing, and shipping of your orders. Therefore, you do not have to pay extra for shipping your products to your customers when they place an order.
What percent does Amazon take?
The percentage Amazon takes from the selling price of every product that are sold through the Fulfillment by Amazon FBA program varies based on the product category or the product price. For more expensive items, they can take as low as 3% or up to 45% for other product categories. The percentage that Amazon takes from your account is the same irrelevant of the fulfillment method.
Can I drop off my product at an Amazon fulfillment center?
No. Dropping off products at Amazon fulfillment centers is not allowed under the Amazon FBA model. The ecommerce giant requires that you ship it to them via UPS or FedEx and it should follow their strict packing guidelines.
How many Amazon FBA sellers are there?
Amazon has not disclosed the total number of sellers who have an FBA business. However, they can confirm that many Amazon FBA sellers have had success with this program. This program is a great option for Amazon sellers that want to ease the burden of fulfilling customer orders.
Is it better to use FBA or ship myself?
The decision to sell using the professional seller account in Amazon or the FBA process depends on your goal for your ecommerce business. There are currently 3 million Amazon sellers using various methods of making money through the Amazon marketplace.
If you choose to ship the products your customers ordered, you can save on the FBA fees but you won’t enjoy the convenience of the FBA services. On the other hand, handling the inventory, packing, and shipping of orders yourself can save you money to increase your profit margin. However, you must consider the other fees like outsourcing fulfillment centers and inventory storage fees.
Is Amazon Prime and FBA the same?
No, they are different but there are also similarities. You can still qualify for the Amazon Prime badge if you choose to become an Amazon FBA seller. One of the benefits of becoming an FBA seller is the Amazon Prime Free Two-Day Shipping at no extra cost. These perks help to maximize the FBA cost for joining the program.
