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Amazon FBA automates the inventory and fulfillment services for online merchants. I describe the benefits of this service and whether Amazon FBA makes sense for your business.

What is Fulfillment by Amazon (FBA)?

Contents
Amazon-FBA-delivery-truck

FBA Overview

Inflow Inventory Management

Fulfillment by Amazon (FBA) is a service that provides Inventory Management services for online retailers. FBA handles storage, pickups, packing, and shipping of products for online merchants. FBA also provides returns and limited customer service for product sales that utilize FBA.

What are the Benefits of Amazon FBA?

1. Eliminate Your Warehouse

Fulfillment of orders is really just a simple process and actually quite routine but it can also be rather stressful and time-consuming for busy online sellers. Amazon FBA can eliminate these problems and give a multitude of other benefits not only for merchants but for customers as well.

2. Prime Delivery

If you are an Amazon Prime member, then you are already familiar with the Prime logo on Amazon merchandise. This logo guarantees a certain shipping speed (typically two days) on products, and zero shipping charges. As an FBA merchant, your inventory automatically gains Prime delivery status. This results in increased visibility and sales for your products. 

3. Customer Support

Amazon provides extensive customer support for all products listed in the Amazon database. If a customer has any question or issue about a product, they can get in touch with Amazon’s customer support where a specialist can provide all the assistance they need. The merchants will no longer have to spend time on such interactions and instead are free up to spend time managing other aspects of their business.

4. Product Returns

The Amazon FBA service includes everything that has to do with the fulfillment of registered products, and this includes returns. Merchants do not need to personally deal with these customer requests for product returns because Amazon has several Online Returns Centers that are fully equipped to systematically handle these kinds of issues.

5. Reduced Storage Expenses

Keeping products in storage can be an expensive investment, especially for merchants that have rather large items or maintain a sizeable inventory. When renting storage space, you will likely be paying for the entire storage unit or warehouse, and not just the space that you actually use. With Amazon FBA, there is no minimum volume of products that you have to send in order to qualify for their service. You will not only have someone handling fulfillment but also enjoy cost-efficient storage.

6. Faster Growth

In addition to the freed up time that you can use to focus on growing your business, Amazon FBA also provides specialized services that allow merchants to expand their business without making additional investments. For businesses that are still in the starting stages, there is the FBA Small and Light which offers very affordable services for businesses with small or lightweight inventory. For businesses that want to expand to the global market, there is the FBA Export that makes products accessible to international customers at no additional cost to the merchant.

7. Other Benefits

Other specialized services include subscription discounts for repeat customers and multi-channel fulfillment for merchants that have several eCommerce websites.

How Much Does FBA Cost?

Amazon FBA Fees InfographicOf course, Amazon doesn’t provide FBA as a free service. Just like any other logistics provider, it costs Amazon money to store and manage inventory on behalf of its sellers. There are fees, but you do benefit from Amazon’s scale and leverage. For this reason, it’s relatively affordable given the service provided to online retailers. 

All Amazon FBA fees are detailed on Amazon Seller Central. The exact costs will depend on a number of factors like the size of your inventory, the amount of storage you consume, and the number of customer returns. 

Fulfillment Fees

For each item that Amazon fulfills on your behalf, there is a corresponding fulfillment fee that ranges from $2.50 to $5.42 per transaction, based on product weight. This fee covers all processes that have to do with fulfillment, like picking up and packing orders, shipping, handling, customer support and product returns, if applicable.

Inventory Storage Costs

This is an expense that you have to pay only for the items that Amazon maintains for you in storage at a fulfillment center. The costs are per cubic foot, and ranges from $0.75 per cubic foot (non-holiday) to $2.40 per cubic foot (holiday season).  The inventory storage fee is calculated from the daily average inventory volume that you have stored in the center.

Returns Processing Fee

Amazon FBA service includes the handling of product returns, as well as customer support during the processing of said returns. However, there is an extra returns processing fee charged to the merchant to cover the return shipping of the products in question. The returns fee is equivalent to the fulfillment fee. 

It can also use up a lot of time that could otherwise be spent more efficiently in handling other areas of your business. So by entrusting a service provider to handle all these repetitive tasks, you can free up a huge chunk of your time and focus instead on other aspects of the business.

Removal Order Fee

If for any reason you need certain items to be removed or disposed of from your inventory in the fulfillment center, Amazon will charge a removal order fee. The fee ranges from $0.25 to $0.40 per item, based on product weight. 

Referral Fee

Amazon charges a referral fee for selling products on Amazon.om. The fee is a percent of sales, and varies based on product category. The fee ranges from 6% to 20% of sales for every category except for accessories for Amazon products. 

Long-term Storage Costs

Amazon conducts a monthly assessment of items stored in any fulfillment center in excess of 365 days. You can avoid paying for this fee by making sure your inventory does include items that will not sell within a whole year.

Unplanned Services Fees

When items arrive at an Amazon fulfillment center for your inventory without prior notice, or without the appropriate labeling, you will be charged a fee for unplanned services. This can easily be avoided by maintaining proper coordination with regards to the delivery of your items.

Does FBA Make Sense For You?

Amazon FBA is a service that is practical for all kinds of online selling business. Regardless of the size of your business, if you want to reach a wider market and gain more exposure for your products, then it certainly makes sense to sign up for Amazon FBA. Amazon is the world’s biggest online retailer with thousands upon thousands of returning customers. By registering for the Amazon FBA program, you will be exposing your items to a worldwide market, thus tremendously boosting your sales potential.

However, retailers also have to understand that this service is not a magic wand for business success. There are matters to consider as the higher likelihood for product returns, or changes in the way you track inventory. You will need to be prepared for these new challenges in order to maximize the benefits that Amazon FBA can offer your business.

How to Get Started With FBA

  1. Set up an FBA Account. Merchants that sign up for FBA will need to create an Amazon selling account and set up the FBA service by logging in to Seller Central. Then they will list their products in the Amazon catalog, making sure that FBA inventory is indicated in the appropriate fields.
  2. Prepare Inventory for FBA. Following Amazon’s packing guidelines, the seller will then prepare their items for transfer to one of Amazon’s many fulfillment centers, typically the one closest to the seller’s physical location.
  3. Send Inventory to Amazon. The seller will just have to ship their inventory  to the designated fulfillment center, again following the protocol indicated in Amazon Seller Central.

Conclusion

Amazon FBA is a practical and valuable service for online retailers wanting to grow their business. With this service, merchants can free themselves of the monotony of the fulfillment process and devote their time to other ways of boosting revenue. With proper implementation and by following the right strategies, Amazon FBA can be a major stepping stone for taking your business to the next level.

About the Author

Bryce Bowman

Bryce Bowman

Bryce has over two decades of leadership roles in finance and supply chain. In his supply chain roles, he built reporting for multi-billion dollar supply chains. As Division CFO, Bryce established reporting and controls for a multinational industrial business. Bryce now helps companies solve inventory issues through better planning.

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