Fulfillment by Amazon (FBA)
You need to have a physical product to sell on Amazon. That physical hard good product can be sold on Amazon.com, amazon.com.au, amazon.ca, amazon.co.uk or any of the other Amazon websites . Lets say you are trying to sell wallets. Maybe you need to source those wallets or already manufacture those wallets. That is the first step.
Then you set up an account with Amazon and set up a product listing. Buyers can then go see your listing and purchase your wallets.
There are two ways for those products to be fulfilled and shipped to the customer.
Fulfilled by Amazon Or Fulfilled by Merchant
If you are Fulfilled by Amazon, you put your wallets into the Amazon warehouse. Amazon will handle all the logistics of that wallet. They will handle the shipping, packaging, storage and returns. So if you have a 100,000 customers, Amazon will send out all those products to the customer. Amazon has one of the most advanced fulfillment networks in the world. However, the fees can start to add up if you go this route especially some of the long term storage fees.
Some of the fees that can start to cost you include
- Labeling fee
- FBA Packaging fee
- Return processing fee
- Long term storage fee
- Stock removal fee
Amazon Prime is one of the features that is associated with Fulfillment by Amazon. When you are Prime Seller it means that Amazon is handling all the packing, delivery, customer service, and returns. It also guarantees the customer free delivery and helps the seller win the buy box in that particular category.
Amazon Buy Box
The buy box is the go to shopping cart tab located on the right hand side of Amazons website when you are looking at a product. It has the ability to order in one click if you have properly set it up. It is a powerful tool as a seller.
The charges for storing and Fulfilling by Amazon are pay as you go.
The process is fairly simple for Fulfillment by Amazon.
- Set up FBA
- Create a product listing
- Prep the products for shipment into Amazon
- Ship the products into Amazon
- Customer Orders the Products and Amazon ships it out
- Amazon provides support from there
Amazon FBA will help you gain more customers from what are called Prime members. Prime members are potential customers that pay $12.99 a month or $119 a year. The benefits include free fast shipping on Prime purchases. They get a streaming service that is similar to Netflix, and an exclusive shopping deals section.
There are a lot of other 3rd party fulfilled services that will fulfill your products if you choose not to go with Amazons FBA services.
A great reason to be fulfilled by Amazon is because of these prime subscribers. They tend to purchase almost double the amount per year on Amazon compared to non-prime customers. The prime customers want to choose your product because of free shipping and time of shipping. It helps you differentiate from the competition. The speed of shipment, cost of your product and quality of your product are going to influence your bottom line.
There are some things to keep in mind when you are selling through Fulfillment by Amazon (FBA).
Sourcing the correct product
- If your product is not actively selling, your storage fees and storage management will need to be monitored in order to avoid costs.
Maintaining your Inventory
Another thing to look out for is where and how you are sourcing your product if you are selling on FBA. You must ensure your manufacturer is producing your product in time to fulfill your Amazon orders in FBA. If you run out of stock in FBA it can hurt your listing and the health of your account.
Advertising and marketing will be the next big thing to manage aside from sourcing and stock management when using Fulfillment by Amazon (FBA). You must get consumers to see and believe in the quality of the product. For consumers everything will matter to them including the price, advertising, quality and ongoing support if needed. With the millions of products listed on Amazon there is a lot of noise online.
Your business can stay lean since you do not have to deal with the logistics of shipping to the customer, finding the customer base, and management of returns. It allows you to develop a great product and focus on marketing that product.
Fulfilled by Merchant
Merchant Fulfilled (MF) is the old way of shipping a product. If someone orders from you, you are responsible for the shipping and logistics of that product. That product is shipped from your house or your own warehouse. The seller is in charge of the packaging, shipping, returns and customer service. The FBM fees are 39.99 a month for the pro plan. The individual selling plan is free. The per item selling fee is free for the pro plan and the individual seller incurs a $.99 or $1.99 charge for each unit sold.
The referral fee for most categories again is usually 15% based.
The shipping fees obviously are paid by the seller and the seller would have to arrange how that is going to be handled.
The other thing that FBM sellers don’t have is a free pass into Amazon Prime. They have the ability to obtain it but it will take time and resources to achieve that status.
The buy box will also be harder to achieve if you are Fulfilled by Merchant due to a lot of reasons. One of them being the location. Amazon has over 100 fulfillment centers in the United States. They want to ensure that the product is shipped to the customer as fast as possible. If you are fulfilling the product yourself, It will be harder if your order is shipped from across the country. In Australia the rules change a little because there is only one fulfillment center in Melbourne and doesn’t have the complexities yet. Obviously, other geographic regions will differ.
FBM does have its benefits in a number of situations including exclusive products, lower turnover and smaller profits.
In each of these scenarios FBM can help you cut costs associated with Amazon FBA fees. There are also situations where dimensions and weight play a factor in your shipping fees.
FBM also sets out more control over the long term of their business instead of handing it over to Amazon. The costs to get the products into Amazon warehouses can add up along with the storage costs associated with those products.
FBM might be more practical if you are running a brick and mortar store. It will allow you to control and manage your inventory. Since you are also interacting with the customer on returns and order fulfillment you will also get a better sense of the pros and cons of the product you are providing. Fulfillment by Amazon lets you stay lean and focused but you may loose some core competencies and lessons through the ease of use.