Fulfillment by Amazon- The need to Know
If you’re a seller on Amazon, you’re sure to be familiar with the process of shipping and order fulfillment. To ship products requires staff, a warehouse, transportation, and more. This can be trying on sellers who are just starting out or who may not have the funds to pay for shipping. Amazon offers a solution for sellers who do not wish to be in charge of shipping and fulfillment: Fulfillment by Amazon (FBA). FBA is a service Amazon provides where a seller can outsource their orders to be fulfilled and shipped at an Amazon warehouse. Here we’ll go over how FBA works and some standout features of the program to help determine if it’s right for your business.
How it Works
FBA is a way for sellers to sell their products on Amazon but not have to worry about shipping and fulfillment. The program began in 2006 and is quite popular, with Amazon stating in 2021 that about half of its 3rd-party sellers take advantage of FBA. Fortunately for sellers, FBA is actually pretty simple to set up and use. FBA requires a professional seller account on Amazon called Seller Central. Once you have an account, you’ll need to create product listings. When creating a new product listing, you can specify it as FBA inventory by changing the “Fulfilled by” status from “Merchant” to “Amazon”. Once your listings are specified as FBA, all you need to do is prepare, label, and ship your products to an Amazon warehouse (in line with Amazon’s packing/shipping and routing guidelines). You can also easily change current product listings to FBA using the Manage Inventory page on your Seller Central account.
Once your products arrive at the warehouse, customers can order them online. From here, Amazon takes care of the rest of the process including picking out the products, shipping them to consumers, and updating your inventory. Amazon will also deal with the customer service side of things including returns, refunds, and inquiries. So basically, with FBA the seller is responsible for selling on the platform and restocking their inventory; Amazon handles the rest.
There are many benefits to using Amazon FBA; one huge plus is being eligible for Prime shipping for your products. When sellers use the FBA program, they have the option to offer free 2-day Prime shipping. Amazon will advertise the Prime logo on your listings and consumers will see the phrase “Fulfilled by Amazon” on the product page. This is a huge benefit of FBA because it is very hard to compete with Prime free 2-day shipping. A 2020 survey showed that fast, free shipping was the #1 reason US shoppers use the platform with nearly 80% of respondents citing this as their motivation to shop on Amazon.
Another helpful feature of Amazon FBA is that the E-commerce giant handles all customer service of a seller’s products and provides 24/7 assistance. This is useful because it relieves the seller of having to deal with returns, refunds, and questions. On the flipside, this gives the seller less control over how they want to deal with customer concerns and the quality of customer service. However, having Amazon carry out customer service does give customers the comfort and safety of a large corporation being responsible for the product. Having Amazon involved in the buying process and partnered with the seller is appealing to consumers and builds loyalty and trust in your brand. So basically, there are pros and cons to Amazon being in charge of customer service. But ultimately, it will save business owners a lot of time and energy and could help improve the reputation of your brand.
FBA also offers a few specific services. FBA Small and Light allows sellers to pay less for fulfilling small and lightweight orders. Sellers can offer customers discounts through Amazon’s Subscribe & Save when using FBA as well. Sellers can even sell products from their own 3rd-party E-commerce sites and use Amazon FBA to handle and ship the orders with Multi-Channel Fulfillment.
FBA offers many features that make it easy for sellers to manage their inventory. Sellers will have an Inventory Performance Dashboard which will display an Inventory Performance Index score (IPI). This score gives sellers an idea of how efficient they are in managing their inventory. FBA also offers various tools and suggestions for sellers to properly manage their inventory and save money. One of these is the Restock tool on Seller Central which offers recommendations based on your sales history, demand predictions, seasonality, and your own input.
The way Fulfillment by Amazon works is through charging fees for their services. Amazon charges fees for the following: inventory storage, fulfillment, order removal, long-term storage, unplanned services, and returns processing. This may seem like a hefty load of fees, but keep in mind that Amazon is paying for shipping, handling, and customer service. Paying for shipping specifically can be so costly that many sellers will lose money trying to ship their own products. When deciding whether or not to try out FBA, sellers should take all of the finances into consideration and do what makes the most sense for their business.
Amazon FBA is constantly changing with new features being added to program. In 2020, FBA added the Commingling Inventory feature. This new option takes the inventory of multiple different sellers and stores it together. These items are referred to as “stickerless inventory” because they do not have a specific merchant ID or merchant label associated with them. This feature is used to essentially bundle items that are nearly identical but that come from different 3rd-party sellers. This means that when a customer orders an item from one seller, that seller will reap the profit of the sale, but the item the customer receives could be from any of the sellers involved in the commingling inventory setup for that item type. The two major benefits of this feature are that it eliminates the labeling process for sellers and allows for very efficient, quick shipping. One drawback of the feature is that if a customer orders from a specific seller, he/she may not be receiving that seller’s product. This means that if the product is faulty in some way or doesn’t work properly, the seller will have to take the heat, even if the product did not come from his company. Thus if you are using the Commingling Inventory feature for your business, you’ll want to keep an eye on product reviews and consumer feedback to ensure customers are still getting quality products.
All in all, Fulfillment by Amazon offers sellers a unique way to have a brand independent of Amazon but take advantage of the platform’s efficient shipping and handling. FBA will not necessarily work well for all businesses and sellers should take all the factors into consideration when deciding whether or not to implement the program. But for many owners, FBA is a great way to run a more efficient business, save time and money, and focus on their expertise- the selling. Now that you have all the information, you can go check out FBA and see if it’s right for your business. Happy selling!