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Essential Guide to Amazon FBA

Essential Guide to Amazon FBA

What is Amazon FBA?

As the name suggests, FBA or “Fulfillment by Amazon” is a service offered by the eCommerce giant Amazon to third-party sellers. Amazon takes care of order fulfillment and shipping with the help of thousands of warehouses scattered across the globe.

When a seller enlists with Amazon as an FBA seller, they effectively outsource their logistics and order processing over to Amazon. All they have to do is manufacture the product and catalog it on the Amazon website.

Once the seller gets an order, Amazon picks up the item from the store and handles the rest of the fulfillment process. This includes warehousing, shipping, picking & packing, returns & refunds processing, etc. In exchange for all these services, Amazon charges a commission for every order.

FBA through the years

When Amazon launched the FBA program way back in 2006, it had already gained its fame as one of the world’s largest eCommerce companies. What started as an online platform for buying and selling books had turned into an internet behemoth by then.

Amazon quickly took notice of the fact that logistics was one of the biggest challenges for small sellers. With FBA, Amazon looked to take over logistics management by taking advantage of its large network of warehouses.

Through the years, FBA has evolved into a much more seller-centric system. Amazon’s digital and real estate infrastructure has made the lives of countless sellers easier. All they have to do today is register as an FBA seller, make sure their products are always in stock and Amazon takes care of the rest.

Selling via Amazon FBA in 2021

Here’s how to join the Amazon FBA program in 2021 in 5 easy steps:

Step 1. Register as an FBA seller

Registering as an FBA seller is an easy and convenient process. You can either use your existing customer account or create a new seller account from scratch.

Amazon generally asks for a few documents to verify your identity and authenticity. So it’s a good idea to keep the following information handy before you start creating your seller account.

Here are a few things you’ll need to register yourself as a seller:

  • Credit card information
  • Latest tax invoices
  • Working business email address and phone number
  • Government ID
  • Bank account details (Amazon will send the payments to this account)

Step 2. Product Listing and Labelling

Once your seller account has been set up, the next step is to list all your products. Product listing is one of the most important activities for any Amazon seller. Your sales will rocket or plummet, depending on how well your listings are doing as compared to your competitors.

Labeling your products helps Amazon track them better. You can label your products yourself or take the help of Amazon FBA Label Service.

Step 3. Send the products to Amazon Warehouses

Once you’ve labeled your products, it’s time to hand them over to Amazon. When you contact Amazon, they will provide you with all the details about the warehouse where you need to send your products.

Upon receiving them, Amazon will send you a confirmation email and store them in the warehouse until a customer places an order for one of the products. Amazon charges a fixed amount for storing your products in their warehouses.

However, this amount is far lesser, compared to the cost of operating a warehouse on your own, especially if you’re a small business. In case of any mishandling or damage to the product while inside the Amazon warehouse, the company will reimburse you for losses.

Step 4. Amazon Ships Your Product

If someone is interested in purchasing your products, Amazon will pick, pack, ship, and track the order for you.

Once a customer places an order for one of your products, Amazon will pick it up from its location, pack and ship it to the customer. You will instantly receive an alert as soon as the order is received, and will be able to monitor your product all the way to the customer’s doorstep.

Moreover, if there are any returns and refunds to take care of, Amazon also handles those. You’ll of course be notified of the same.

Step 5. Rounding Up The Winnings

Amazon deposits the total profit into your registered bank account every two weeks. The profit is calculated based on the items sold during the period. Amazon takes its share of the sales price and deposits the remaining amount in your account.

What To Sell On Amazon FBA Simplified

If there is anything that Amazon loves as much as big bucks, it’s surely their customers. Known as one of the most customer-focused enterprises of recent times, it came up with Amazon FBA in 2006. Fulfillment by Amazon, for its customers, simply means that the responsibility to ship the product rests on Amazon. 

But that’s not the complete story, as it can prove to be a goldmine for smaller businesses that don’t have enough time and money to set up their own warehousing and logistics. You can leverage Amazon FBA to benefit from its vast network of storage facilities and shipping capabilities. This instantly solves a lot of your problems as a small business, doesn’t it? Read the blog ahead if you want to leverage it to expand your business and capture new territories:

How To Decide What To Sell On Amazon FBA

If you haven’t already made your mind, it can be tricky deciding the ideal products that you can sell on Amazon FBA. While you can choose from an endless number of items, we will try to give you a few criteria that will help you select the best products for your online business. Let’s begin.

Small In Size, Small In Weight Is Small In Cost

Go by this mantra, and you will make considerable savings over a period of time for every item you choose to store. The storage costs also vary depending on the season but taking care of these two factors is the bare minimum.

If you go for bigger items, they won’t pose much of a financial threat initially, but as the volume shoots up, it will start eating into your margins visibly. They also cost more when logistics and end mile delivery costs get involved, so it is in your best interest to stay away from mid to big-sized products to keep your finances healthy.

Inexpensive, Have Many Buyers

The third “small” that you probably need to add to the description of your ideal product is the selling price. Inexpensive products ensure that your inventory keeps getting updated and the sitting items don’t burn a hole in your pockets without releasing any returns whatsoever.

Also, don’t try to get too picky when it comes to selecting your niche. The best case is when a large number of people can buy your items. In that case, the affordable price tag will complement sales. The idea is to maximize opportunities of generating revenue with the help of a high inventory turnover rate instead of letting stagnant inventory block your funds.

Frequently Needed, Sells In Volumes

Given the increasing number of purchases made online, selecting frequently needed staple products to increase your odds of driving customer loyalty. Customers generally develop a preference for such items as they use them consistently, and you can even start booking pre-orders.

Also, the ability to sell in volumes is another beneficial aspect for any product as it ensures bulk profits. Many people confuse frequently needed with selling in volumes, but that is not the case exactly. Both shaving foam and shaving razors are needed frequently while razors sell in higher volumes.

Less Competition, Has Reliable Supplies

Perhaps, almost anything you try to sell over the internet will have its fair share of competition. When selling through Amazon FBA, it is likely that your customers will look out for similar products on Amazon. So having limited competition is a desirable situation if not wishful thinking.

But at the same time, it is necessary that you have a reliable sourcing option that can fulfill the demand in a timely manner. This becomes increasingly crucial during situations like back-ordering or, like in the case of the dropshipping business model.

Lastly, items with seasonal demand can be an attractive avenue since the branding game won’t be making a huge impact in most cases. The ability to bundle your products is always welcomed. This helps with stock clearances and offering discount deals without adding much financial burden. If they are easy to package, it’s yet another advantage for you.

We hope that these characteristics of the best products to sell on Amazon FBA will guide you in your product search journey. However, if you are dealing with heavy and large items, it is better to build your own storage facility.

Examples Of Products To Sell On Amazon FBA

In this section, we will have a quick look at the items that you can sell through FBA. Remember, it is not necessary that you need to be listed on Amazon’s seller program in order to sell through FBA. You can register separately, which is a great advantage for businesses that aren’t willing to sell on Amazon due to business reasons.

To sell on FBA, you need to complete some basic paperwork, and their team will contact you for the onboarding process. You will be made familiar with various aspects such as creating SKUs and other processes to make your Fulfillment by Amazon experience smooth. You might also need an inventory management system for your Amazon FBA business.

Let us have a look at the list of items that make a good fit to the criteria discussed above:

  • Decorative Jewelry
  • Purses and Handbags
  • Toys and Board Games
  • Outdoors Products
  • Smart Watches
  • Beauty Products and Personal Care
  • Fitness Equipment
  • Travel And Lifestyle Products
  • Baby And Maternity Products
  • Electronic Gadgets
  • DIY Kits
  • Novelty Items
  • Cutlery
  • Clothing
  • Fashion Accessories
  • Footwear
  • Office Supplies

How To Find Products To Sell On Amazon FBA

If you don’t have a supplier ready, it can get tricky to find one but shooting in the dark isn’t advisable. There are platforms where you can find both branded and white-labeled products from reputed suppliers. Here’s a list of platforms where you can easily find products to sell on FBA with handsome margins:

Fulfillment by Amazon is indeed a great value addition to both your customers and your businesses since it eliminates a significant chunk of workload off your shoulders. It will give you enough time to work on your core specialties and strengthen your revenue generation streams without risking your fulfillment quality.

How Much Does Amazon FBA Cost?

The Amazon FBA cost varies based on seasons, size and type of shipped or stored items, and many other factors. The chargers of Amazon for all sellers are 15% of the product’s selling price on every product sold, disregarding the whole e-commerce fulfillment process. Apart from the seller fee, Amazon FBA charges two fees, i.e., inventory storage fees and fulfillment fees. The Amazon fulfillment cost covers the whole packing, picking, and shipping process for every order shipped. The inventory storage fees of Amazon FBA cover the storage of your products in the Amazon fulfillment centers.

Amazon Fulfillment Fees

The fees of Amazon FBA fulfillment cover all the stages of the fulfillment process. The prices range depending on the product’s size and the shipping weight of the product that will ship. The two major categories of the size of the item are standard size and oversize. Items that weigh under 20 pounds are the standard size products that have dimensions smaller than 18x14x8 inches. The size and weight of the products both get shipped. Amazon makes use of dimensional weight that takes into account the shipment’s density for calculating shipping costs.

Inventory Removal Fees

If you decided not to use FBA, it would charge you to remove your inventory from the Amazon FBA fulfillment center. Now you are expecting Amazon to remove and return your whole inventory; they will charge you around $0.50-$0.60 per item, i.e., depending on the item’s size. For Amazon to get rid of your inventory on behalf of you, it will charge you $0.15-$0.30/item.

Packaging Preparation Fees

You can always choose to select Amazon for the preparation and packaging of your products by giving them extra fees. The order volume and margins protect your business and save you from spending unnecessary costs. It has been meant that it is being served as a high-level overview and is not complete. There are many different extra potential fees that Amazon FBA is holding.

Long-term Storage Fees

Such inventory kept in the Amazon fulfillment center for 365 days or more will be charged a long-term monthly storage fee, i.e., $6.90 cubic foot or $0.15/unit. This amount of fees is a huge amount to pay. The calculation of long-term fees is done with the help of an inventory snapshot every 15th of the month. The age of inventory is judged based on first in and first out.

Penalty Fees

Amazon has many rules for their sellers, and in the case of rules violation, they have penalty fees. Let’s understand this by using an example – The sellers who are not following the barcode label specification of Amazon for FBA stock will charge a labeling fee to all such sellers. Also, an unplanned FBA preparation fee is charged for all such sellers who have prepped products as per the stringent packaging and preparation guidelines.

Return Processing Fees

The return processing fee is free for many of the listed products. You need to keep in mind the important thing is tracking product categories that do not fall under their impression. That’s why Amazon FBA charges you return processing fees. If suitable, it can also cost you a repackaging fee; keeping your product requires repackaging for reselling.

Amazon FBA Export Fees

Amazon fulfillment allows exporting products across multiple countries, provided the complete export service is open in your particular country. That’s why an export fee is charged on your products, depending on which channel you are selling the products.

Monthly Storage Fees

Being a seller, if you have your inventory in the Amazon FBA warehouse at the month-end, Amazon will charge you monthly storage fees. The charges are subtracted from your account balance, or they may get added to your credit card.

Refund Administration Fees

If a shopper requests a refund for a product you had already paid for, Amazon issues the refund. For all these processes, Amazon FBA changes a refund administration fee. The fee is $5.00 or 20% of the total refund charge.

Referral Fees

Amazon FBA holds many kinds of fees. They have different charges for selling your products on their market, which are called referral fees. Typically, the referral fees range between 5% to 15% of the total sales price. Some exceptions are depending on the category and products’ final price. An extra fee is present there for the products that you are selecting for Amazon to fulfill.

FBA vs FBM: A quick cost comparison

With the help of the Amazon FBA revenue calculator, now you can compare FBA (Fulfillment by Amazon) and FBM (Fulfillment by Merchant)  costs for all your products and decide which fulfillment method works best for each product.

Here’s an example of how FBA and FBM models work:

Suppose you’re selling insulated stainless steel water bottles like the ones mentioned in the picture below.

The price of the bottle is $15.99. Suppose it costs $10 for you to make it, and Amazon charges $3.99 as standard fees for selling it on their website. However, there’s one more major cost involved here- fulfillment cost.

The fulfillment cost is the cost of transporting the product from your location to one of Amazon’s warehouses. If you go with the FBM model, you have to take care of this additional cost as well. Let’s assume that it costs another $6 for you to fulfill the order.

So the total cost for the bottle would be:

$10 + $3 + $5.99 = $18.99

While your selling price on Amazon is just $15.99. You’re effectively selling each bottle at a loss of $3 if you select the FBM option.

With FBA, while the selling price, manufacturing price, and standard Amazon fees will remain the same, the fulfillment cost will drastically decrease. This is because Amazon FBA charges are significantly lower than other logistics players, especially for products with smaller sizes.

So let’s assume the FBA charges for the stainless steel bottles are $1.99 per bottle. This means that the total cost price for the bottle would be $14.99 per bottle.

This means that with FBA you’ll earn a dollar per bottle as profits, as compared to the $3 loss you would incur with FBM.

This comparison holds true for most products with lesser dimensions and sizes. As the product dimensions start going up, FBA starts becoming the costlier option and merchants often prefer FBM.

Advantages And Disadvantages Of Amazon FBA

There are always pros and cons of selling on Amazon. Choosing the right strategy can build or break your business. It is always better to ensure that you’ve all the required knowledge of Amazon FBA’s benefits and drawbacks before you start using it.

Amazon FBA Advantages

Allows smooth scalability

Logistics is the most challenging part of scaling in any business. Amazon FBA is here to solve all such warehousing and logistics problems of your business. The retail giant takes full care of your packing, shipping, and storing the products. It will save a lot of money and will also uplift different parts of your business. If you are running a successful business and want to keep it growing, Amazon FBA maintains enormous success. Just ensure to keep your inventory stocked and healthy.

Smooth shipping and logistics

When it is about shipping and logistics, Amazon is present there to manage everything for you. You have to keep proper track of your inventory and ensure the products are adequately stocked, i.e., from start to finish. Making just a tiny effort, you will be able to remove this big responsibility from your shoulders.

Adept customer support

Amazon is responsible for managing the whole customer service part along with returns and refunds. Also, they make sure that the best customer service is delivered to their potential customers by hiring professional experts. These hired professionals handle issues 24*7 and save you from facing any kind of trouble.

Great discounts on the shipping rates

As you are working with a renowned company, Amazon, a global fulfillment firm, you will spend less on your shipping costs with their FBA platform. Even if you are paying shipping fees, it will still be low as Amazon FBA is your shipping and fulfillment management partner.

Omnichannel fulfillment

FBA permits you to sell to your targeted customers using the Amazon platform. Also, you will have full access to the new multi-channel fulfillment solutions. The Amazon Multi-Channel Fulfillment or the MCF lets you sell your particular products on different channels and platforms like eBay and BigCommerce. At the same time, there is still Amazon present to fulfill all of them.

Amazon FBA Disadvantages

High cost

For the people who are just starting their new business, money is significant. Choosing FBA service is a little expensive idea as it costs money. A person running a successful firm can take this risk in terms of spending money on FBA, but in the case of a start-up, you need to think twice before investing money. Also, this service is not very effective for low-cost products as it has vast calculated fees, and then you might need to become a little selective about what items you want to enroll. Fortuitously, Amazon holds a handy FBA calculator that will provide you a full assistance for knowing whether it is a profitable move or not.

More and more returns

There are so many sellers in the market seeing immense growth in the number of returns. Talking about the return policy of Amazon, it handles the whole process, so it takes time. Now the cycle goes like this: Amazon returns the shipment, and then you have to arrange the return by forwarding it. Amazon is making efforts to make changes to help you return the shipment directly to the facility.

Limited branding

If you are thinking of making a lot of money, you must create an attractive brand on Amazon. But when it comes to branding, then Amazon FBA limits the opportunity of doing branding. When Amazon is shipping the products, then at that time, they have their branding on the shipping boxes. You are still thinking to do branding; then you can use product packaging for building your brand.

Inadequate inventory access

Amazon FBA offers limited access to the whole inventory. Without knowing and accessing the on-site inventory, selles will face difficulties in controlling their products. If there is any problem in the inventory or there is some shipping mistake, you will have to depend entirely on Amazon to verify the root cause. Or else, you will have to ship back your product to the inventory of Amazon.

Long-term storage fees

Amazon doesn’t like to keep the supplies always ready. That is why you will have to pay more for the products or items that will stay for a more extended time. This long-term storage cost can be a difficulty for you, ensuring you are financially stable to work with Amazon FBA. Amazon doesn’t like to store such items that are not selling frequently. That’s why they will cost you for that, and this can change your whole metrics. You can view your entire inventory metrics under the vendor console. Also, you can opt for creating an action plan to get your products returned directly to your own warehouse.

Leverage Content Marketing

Creating product listings on Amazon is perhaps one of the most important tasks for a seller. Carefully curated product listings attract a great deal of organic traffic. An increase in traffic translates directly to an increase in sales and profits.

When you’re selling on a powerful platform like Amazon, which has a very large user base, there’s bound to be competition. Many sellers compete for an ever-diminishing attention span. If you want to stand out from the rest, you need to leverage a powerful tool known as content marketing.

Content marketing is a process of producing content that sells easily. If your listings and product descriptions are long-winded, or confusing, they can instantly turn off your potential customers. As a result, they will most likely move on and find a listing that’s easy to understand and solves most of their queries about the product.

When you’re creating product listings, you should put yourself in your customers’ shoes and address the issues that they care about. This becomes much simpler once you identify who your target audience is.

Buyer Personas

Buyer personas are an in-depth analysis of what your ideal customer looks like. A product can have multiple applications and hence could have multiple target audiences.

As long as your customers remain mere sales figures on your balance sheets, you will never be able to churn out relatable content for them. Creating a buyer persona for each type of target audience helps a seller visualize and humanize the customers.

Companies generally assign every buyer persona a name and a few characteristics that match the target audience. These include details like age, demography, likes and dislikes, etc.

While creating content, keep in mind that it should be relevant to each buyer persona. By doing this, you’re reaching out to the entire spectrum of your potential customers and leveraging content marketing to its fullest.

Amazon Ads

Along with organic traffic, you can also increase the visibility of your product listings by creating Ads for them. Amazon Ads is a powerful platform that helps users create various types of ads for their products.

Amazon Ads can appear in the search results, Amazon listings, and also on other third-party websites. They are easily distinguishable and have “sponsored” or “ad” written next to them.

Amazon Ads lets you choose your own daily or monthly budget for your marketing campaigns. These are some of the options you get when you start a campaign with Amazon Advertising.

Amazon Revenue Calculator

Before choosing the right fulfillment option for your products, you need to take into consideration all the costs associated with each kind. If you opt for fulfillment by Amazon (FBA), Amazon will charge different types of fees.

Amazon provides the sellers with a tool known as the Amazon Revenue Calculator. This tool helps the sellers calculate the costs involved and the exact revenue they will make on the sale.

All that the seller has to do is input the ASIN number associated with the product, and the calculator will show all the fees that Amazon will charge.

Basics Of Difference Between Amazon FBA, Amazon FBM, Dropshipping

Starting an online selling business often requires one to go with a marketplace platform like Amazon, as it simplifies a lot of things. This can be considered as the biggest reason behind newbies opting to sell through Amazon instead of doing it all by themselves. It becomes easier to source customers, build a steady revenue pipeline, and build a solid base for expanding their business. 

But even selling on Amazon isn’t the way since it requires you to have a few prerequisites. Among them, selecting your logistics structure is one of the important decisions that you need to make. 

On the face value, you might find that Amazon FBA (Fulfillment By Amazon) is better for beginners when compared to FBM (Fulfillment By Merchant.) But when it comes to differentiating between FBM and dropshipping, first-timers do get confused. In this article, we will get a clear walk-through of FBA, FBM, also known as Merchant Fulfilled Network (MFN, and dropshipping for Amazon sellers. Let’s get started.

What Is FBA, FBM, And Dropshipping On Amazon

Under FBA, your products are stored at an Amazon facility and shipped to the customer by Amazon on your behalf. This being said, you need to pay fees on the basis of the weight and size of the item along with the duration and its type. If it sits around for extended periods, you might end up paying long-term storage fees (in case of storage period extending over a year.)

FBM refers to the third-party sellers using their own logistics infrastructure to deliver the sold items at customer footsteps. This can be a tedious affair since you are responsible for customer communication and maintaining your account’s reputation. Dropshipping is very identical to FBM since the only difference between the two is the degree of control you have over the fulfillment.

The Difference Between FBA, FBM, And Amazon Dropshipping

As you might have understood, FBA is a more convenient option since you just need to make a sale. The rest of the operations, such as warehousing and last-mile delivery, are taken care of by Amazon. This can be cost-effective in many cases, while FBM comes with its set of advantages. In FBA, you don’t have much control over how interactions are made with your customers.

The lack of control can make it difficult when building your brand, while it also translates to possible stalling of your growth. This is due to the fact that either some other seller or Amazon itself will provide similar products, creating asymmetric competition. 

FBM, however, requires you to invest in a competitive fulfillment infrastructure that meets Amazon’s standards. If you are a part of the Seller Fulfilled Prime program, you need to be even more cautious as you might get delisted for slow customer response time or inaccurate/late deliveries. 

With Amazon drop shipping, you are supposed to act as a mediator between the seller and buyer, which makes it lucrative and risky at the same time. In most cases, drop shippers on this platform simply curate the products offered by other sellers.

Pros And Cons Of Selling Through FBA

Have a quick look at this table to get an overview of the pros and cons of selling through Amazon FBA:

Benefits

Disadvantages

Convenient

You have more chances to become eligible as a Prime Seller

You get preference for “Buy Box” feature

Lower shipping rates for small and light -weight products

You are laden with additional fees

You rely on Amazon for any issues with your inventory.

You don’t have a direct access to your customers

Taxation can become a problem since you are responsible for all tax-related issues.

In a nutshell, you should understand that selling through FBA is more profitable, provided that the items you sell have a lower volumetric weight and high inventory turnover ratio.

Pros And Cons Of Selling Through FBM

FBM surely requires additional efforts from your end, yet here’s a side by side comparison of its benefits and disadvantages for your reference:

Benefits

Disadvantages

Full control over the shipping

You still have chances for being eligible as a Prime Seller

Lesser fees for selling on Amazon

Lower shipping rates for large and heavy weight products

Shipping can get hectic since it directly impacts your Amazon account

Higher overheads since you are responsible for customer servicing, packaging and handling

Could reduce your conversions

Can induce setbacks for Prime eligibility and Buy Box

Long story cut short, FBM can be a good choice for heavy and large items that don’t sell in huge numbers. It is also the most natural choice for sellers who deal in customized items.

Summing Up: What Is Better Among FBA Or FBM

Without being diplomatic, we would like to say that you should go for both. FBA and FBM serve different purposes, and depending on your product portfolio, you might want to get the best of both worlds. FBA would help you with fast-moving, lighter, and compact products, while FBM will provide you with a more economical option in the case of heavy, bulky, and slow-moving goods. 

Having both logistics models at your disposal would help you minimize your costs (which directly translates to more robust profit margins) and boost your sustainability. FBA is a very good choice if your products fit into its criteria, and it allows you to focus on your business while saving money in the process. However, despite the greater responsibilities that come with the MFN, it can be both cost-effective and a sensible choice if your products attract higher charges. 

In fact, 34% of the sellers utilize both models while a majority of them stick with FBA:

You should come up with a proper analysis of your products and then make a choice regarding the fulfillment model. We hope this article helped you understand the difference between FBA, FBM, and Amazon Dropshipping.