Amazon Fulfillment by Amazon (FBA) is a selling online method that leverages the vast and deep Amazon fulfillment network's power. When you use Amazon FBA as your fulfillment method, the primary impetus is to sell and let Amazon take care of the rest.
You're able to store your products in Amazon's fulfillment centers. They do all of the heavy liftings to get your products to customers upon purchase and handle customer service on the backside of transactions.
So much of the pain of scaling an Amazon business comes in the logistics of picking, packing, and shipping when you're doing that independently. When you allow Amazon to do this work, you can focus on building and scaling your business rather than doing what you have day by day to keep it afloat. As long as Amazon doesn't split up shipments things usually run well with Amazon FBA.
For new Amazon sellers, Amazon FBA is a great way to ease into an Amazon business and keep things streamlined and simple.
As you learn more, you may or may not stick with FBA as your preferred logistics option. It's a great idea to start with it to get comfortable and figure out where you want to take your business as an Amazon FBA seller.
1. Stats to Know About Selling on Amazon FBA
In terms of online shopping apps, it goes without saying Amazon has no competition. According to Oberlo, over 151 million people accessed the Amazon app on different devices in 2019. The COVID pandemic has put some pain on business people's wallets in different industries around the world. It hasn't always been the case, though, for a business that was already selling on Amazon along with their brick-and-mortar presence. Or who were already 100% focused on the medium.
Two out of five sellers have said their businesses have performed better than expected during COVID, and three of five sellers said profits increased in 2020 over 2019. And, you have to figure a good percentage of these Amazon owners are Amazon FBA sellers. In fact, some studies show that as many as 73% of Amazon sellers in the United States use FBA.
And also that 66% of the top 10,000 sellers on Amazon use FBA as their fulfillment option. These sellers must be on to something, right? Especially considering this study noted that FBA leads to a 30-50% increase in sales over Amazon Fulfillment by Merchant (FBM), on average.
It makes sense, given you're leveraging all of Amazon's capabilities and not having to work through all of the intricacies and legwork FBM requires. And better yet, setting up Amazon FBA is a breeze. It certainly won't give you any unexpected headaches.
2. How to Sell on Amazon FBA?
Amazon FBA requires you to use your regular Amazon account and add a few things to your product listings within your profile's FBA section. It's effortless to set up, and you'll see the benefits of working directly with Amazon to get things rolling.
It's an easy five-step process to get started and work with Amazon FBA:
1. You send your products to Amazon FBA
2. Those products are stored in Amazon's warehouses
3. Your customer purchases a product from one of your Amazon listings
4. Amazon FBA picks and packs your products to go out to your customers, then
5. Ships those products directly to your customers
Just think of all of the steps you do not have to deal with here:
1. You do not have to figure out how to store all your inventory in your home
2. You're not having to deal with the hassle of sending products to your customers
3. Heck, you do not even have to deal with customer service issues - should those arise - once your customer receives the product - that's Amazon's responsibility.
When you're trying to scale a business, simplicity is key, where you can find it. And Amazon FBA certainly helps introduce a level of simplicity in your day-to-day work you wouldn't have otherwise.
Your primary responsibilities as an Amazon FBA seller are to make Amazon's life easy so they can do the same for you in return. Doing so includes:
- Getting the right products into your warehouses.
- Ensuring your inventory is always up to date, so there aren't any issues, and
- Developing product listings and marketing campaigns that do what they need to spread the word about your product mix to get sales kick-started.
3. Amazon FBA: Policies, Product Restrictions and Inventory Requirements
Even though it's relatively easy to get set up to use Amazon FBA, some policies, product restrictions, and inventory requirements are important to understand before you get started.
Amazon FBA Policies
Although Amazon handles customer service on your behalf, this doesn't mean you can ignore the impact that negative customer feedback can have on your seller profile and ability to maintain a thriving Amazon FBA business.
Customers can leave feedback for your FBA listings as they wish, similarly as they do when you have FBM listings. But here's the kicker. Amazon can strike through any negative feedback that places Amazon in a negative light. So there's that. It is not the best situation to be in if your customer encountered an issue due to a misstep by Amazon, and there's no way for you to address or rectify this. One of the downsides of FBA customer service versus FBM.
Any time a customer returns an item to Amazon after a purchase, general Amazon policies determine if or when you're eligible for any reimbursement for the return, and you're 100% responsible for any items that have to be fully replaced or refunded.
So, keep in mind: Just because Amazon's taking the heavy lifting of picking, packing, fulfillment, and customer service off of your hands, it doesn't mean working with FBA is painless.
Amazon FBA Product Restrictions
FBA prohibits sellers from selling a certain number of restricted products, including, but not limited to:
* Alcoholic beverages
* Vehicle tires
* Gift cards or certificates, and
* Products that include marketing materials that aren't Amazon-branded
There are also general categories of restricted goods, including anything with an expiration date and anything that could melt while being held in inventory by Amazon or in transit. It's your responsibility to know what these products are, but it's likely if you started with Amazon FBM and are moving over to FBA, you are familiar with what you can and cannot sell.
For eligible products, there are some important inventory restrictions to consider.
Amazon FBA Inventory Restrictions
Even if Amazon doesn't necessarily restrict a product, it still may have to undergo some additional vetting or prior authorization before you can add that product to your listings. This restriction is especially true of anything that could be on the borderline of being restricted (i.e., medications, meltable products, white-labeled products). These products will likely take longer to make it into your product mix and be "sellable" on Amazon, so if you're going to deal in any of them, this is something to keep in mind.
Amazon also has extensive requirements around:
* How products can be titled
* How to advertise "sold as new" products versus used products
* Packaging and preparation
* Shipping label requirements
* Shipping and routing
* Inventory storage requirements, and
* What can and cannot be included in your shipping boxes with products
We won't go into exhaustive detail here, but if you want to do further reading to prepare yourself for what you'll encounter, click here.
As you can tell, there are some distinct benefits and challenges to using Amazon FBA as your business model to sell on Amazon.
4. Pros and Cons of Using Selling on Amazon FBA
The pros of using Amazon FBA as your fulfillment method are pretty straight-forward:
* Easy logistics and shipping
* Management of returns is taken off your hands
* Discounting rates on shipping due to Amazon's processing volume
* As much storage space as you could ever use
* Customer service function is offloaded
* Amazon turns your products around fast and gets them delivered faster, and
* The multi-channel functionality, which would be impossible for you to manage on your own
When you use Amazon FBA, logistics and shipping best practices are all baked into what Amazon already does. You're not trying to invent the wheel from scratch. Instead, you're leaning on their decades of experience and deep connections and letting them do the heavy, time-consuming work.
If a product is returned, that's no longer your concern, as it would be with FBM. Amazon handles the returns and any customer service implications attached to it.
If your product suddenly becomes the next fidget spinner, no problem: you're covered. When orders come in, Amazon processes these quickly and gets your products delivered even faster through traditional shipping methods - and out to Prime customers. There is no more running around the house and back and forth to the post office or the UPS store trying to wrangle packaging, stamps, and printing out return labels.
It's all done for you.
It's also much easier to sell on multiple channels - think BigCommerce, Shopify, Walmart.com, etc. - using Amazon FBA than it would be with Amazon FBM. Amazon manages tech setup with these partners and makes things much easier than trying to do the same thing on your own.
As with anything that makes life easier, there's a price to pay to some degree. The same is true with Amazon FBA. Here are some of the challenges with dedicating your business to this model:
* FBA can get expensive fast
* It's possible you could see a higher rate of returns
* Amazon charges long-term storage fees for your inventory
* Product prep can be more challenging and particular
* Tracking inventory isn't always easy
* Pooling products can be a little nerve-wracking, and
* Keeping up with sales tax for all the different markets is a challenge
Whereas storage under FBM is a portion of your rent or mortgage - if you want to treat it that way for tax purposes - Amazon charges both storage and fulfillment fees for your inventory. It's your responsibility to have a deep understanding of how quickly you move merchandise to avoid these fees eating too much into profit margins.
If your products are in Amazon warehouses for over six months, that's when things can get expensive. After all, it's in Amazon's best interest to warehouse items temporarily that you're selling consistently.
So why wouldn't they charge a premium if they have to hold on to your merchandise longer than they would prefer? If you consistently have to pay these long-term storage fees, it's probably worth re-visiting your product mix to ensure it still makes sense. While the ease of returns for your potential customers under Amazon FBM is usually a big benefit, at times, it can also be a challenge. Because returns are so easy, customers can purchase something on a whim, knowing the return will be easy if they don't like it. They may also buy several products in a category to try them out, intending only to keep one.
When you're doing FBM, you can prep and ship out products using what you'd like, within reason. When selling Amazon FBA, you have to stick to Amazon's somewhat strict guidelines on product prep and shipping to their warehouses. The learning curve here can be a little steep at first, but it starts to flow relatively easily once you get things down. The challenges will always be steeper if you don't actively take best practices for Amazon FBA sellers into consideration and adopt those that make sense for your business and the unique challenges it provides you.
5. Best Practices for Amazon FBA Sellers & Things to Keep in Mind
The list of best practices for Amazon FBA is a mile long, but there a few tried-and-true that everyone should consider adding to their daily work:
1. Nail down your elevator pitch and unique value proposition (UVP)
2. Build a brand you can proudly stand behind
3. Make sure you're registered as a professional seller
4. Do your market research to ensure product-market fit, and
5. Don't be afraid to flex your pricing
Nail Down Your Elevator Pitch and UVP
Whenever someone asks you about your product line, you should describe why you built it, what it is, and whom it is intended for in 30 seconds flat.
This elevator pitch should roll right off the tip of your tongue. Along these lines, you should be able to answer the majority of questions you receive about your brand or products right off.
Naturally, this won't always be true, but it should be most of the time, so you come off as confident and in control. This combination of knowledge is your unique value proposition (UVP). Your UVP is what separates you from the competition and makes you unique.
It's the core DNA of your brand.
Build a Brand You Can Proudly Stand Behind
You are your brand, and your brand is you. There's no separation in the personal from the professional when you're trying to build a world-class FBA brand. Ensure everything you promote about your brand makes it clear to potential customers why they should purchase from you and not the competition. When the items in your product line start to become synonymous with your brand, that's when you know you're gaining some traction. This association is one of many reasons to consider white-labeling your product line, but that's a subject for another day.
Make Sure You're Registered as a Professional Seller
Being registered as a professional seller is one extra step to take when setting your selling on Amazon FBA, but it's absolutely worth the effort. When you're registered as a professional seller, you're able to save money on the commission of each item sold on Amazon. More importantly, you can upload items that aren't available to other non-registered sellers on the platform.
And best yet: You can sell in previously restricted categories. (I bet you thought they were "restricted restricted," right? Well, not exactly.)
Ensure Product-Market Fit
The above is a moot point if you don't do the legwork upfront to ensure you have a solid product-market fit. You have to do some deep due diligence to ensure there's a need for your product in the marketplace, and you don't get too excited on launch day to only hear crickets in response.
Survey your potential customer base. Do some focus groups. Allow people to try out samples of the product and give you their feedback to incorporate that into a final version. Don't be married to whom you think your audience is, but instead, craft everything you do to attract who your audience actually is.
Don't Be Afraid to Flex Your Pricing
Although you might enter into the early days of your product line with big goals of selling your product(s), the market will dictate what you can actually sell them for. Don't be afraid to flex your pricing to get into alignment here. If you stay too stubborn with your assumptions of what price should be rather than what the market is telling you they are comfortable with, you'll only lose out in the end.
Amazon FBA may seem a little intimidating at first with all of the requirements and work you need to do to get properly set up. However, every bit of that work is worth it in the end when so many of the headaches which Amazon sellers face are taken off of your hands.
As long as you’re diligent and understand best practices and how they apply to your Amazon FBA business, the pros far outweigh the cons.
DataHawk is here to help you do the homework you need to do to identify product-market fit, estimate how much you could sell of a product using FBM, and also figure out your early advertising budget. Check out our suite of Amazon FBA tools to learn more!