What is Amazon FBA?
Fulfillment by Amazon, Amazon FBA, is a 3PL service provided by Amazon.
In one sentence, Amazon FBA is a service where you put all or some part of your stock in an Amazon Fulfilment Center and then Amazon works on Storing your products, as well as Shipping and Fulfilling your orders.
Amazon FBA allows sellers, such as yourself, to use its most advanced, extensive and global fulfillment network at a very competitive price.
With Amazon FBA, you can safely store your products across more than 300+ global fulfillment centers.
Once customer order is received, Amazon associate will pick, pack and ship product to customer.
Amazon FBA will also provide customer services related to all shipped orders and any returns for your product.
What are benefits of using Amazon FBA?
Amazon FBA works both as revenue boosting and cost cutting service. Let’s first look at how you can use FBA to turbo charge your sales on Amazon.
Let’s Start by looking at how can you improve Revenue by opting for Amazon FBA
110% increase in sales due to free 2-day shipping
- With amazon FBA, your product listing will be marked as a Amazon Prime Offering and gets Prime logo.
- Amazon prime makes your product eligible for 2-day free shipping, no shipping cost to prime customers.
- Customer are much more likely to buy your products without any shipping cost, especially when delivered within 2 days.
- Research report published by Alexis Partners for 2017 holiday season concluded that 36% of customers, on an average, abandon their buying decision due to shipping cost.
- Same report also found that for most product categories, free & quick shipping, such as Amazon 2-day, can increase sales revenue by as much as 110%.
- Amazon FBA is the only way by which 3rd party seller on amazon, is able to sell his product marked as Amazon Prime available.
Quadruple your sales by acquiring buy box
- 82% of amazon’s sales go through the Buy Box, and the percentage is even higher for mobile purchases.
- Winning Amazon’s buy box can increase your sales by as much as 400%. However, it is extremely competitive to win and retain this incredible sales booster.
- Amazon has time and again said that FBA is most important variable when it comes to winning Buy Box.
- Amazon’s Buy Box algorithm gives much higher weightage to Amazon FBA seller and their listings.
- Your amazon FBA product listing is much more likely to win buy box compared to same product sold as a non-FBA at same price and same customer ratings.
Increase sales by using “Subscribe and Save”
- Amazon FBA products can participate in Amazon’s “Subscribe and Save” program.
- “Subscribe and Save” program allows millions of customers to subscribe to receive your product every week, month or quarter for some discount.
- It is excellent program to be part of because it will help you create steady stream of sales every month.
- Our own Orderhive customers have been able to increase their overall sales by as much as 60% after participating in Amazon’s “Subscribe and Save” program.
Increase sales by selling Globally
- Amazon FBA is the most easiest way to expand globally in shortest time and most cost effective way. Period.
- As a US FBA seller, you can get complete access to Pan-European FBA and limited to access to other geographies (such as India, Australia and Japan).
- Participating in global FBA program is as simple as filling up registration forms. However, you have to put some level of effort in product listing in local languages on countries you plan to sell.
Increase sales by advertising products on Amazon
- Amazon gives favorable deal to FBA sellers when it comes to advertising their products on Amazon.com
- Our Orderhive FBA customers tell us that they get consistently 20% less advertising cost per order if product is FBA available.
- Amazon also favors FBA sellers when it comes to “lightning deals” flash sales.
- Advertising and promotions on Amazon.com is great way to get started as a seller on amazon, also great way to turn around your slow moving deadwood inventory.
Now, let’s look at way in which FBA can lower your operations and shipping cost.
Amazon MCF (Multi-channel Fulfillment)
- FBA sellers can use Amazon MCF to route customer orders from non-amzn sales channels such as eBay, Shopify etc. to Amazon FBA for fulfillment and shipping.
- Amazon MCF is big hit with orderhive customer. Almost all Orderhive customers using FBA also use MCF. Orderhive makes it super easy to automatically transfer orders to FBA. Please refer to Orderhive MCF video in description for more details.
Lower your Inventory management cost
- Amazon FBA sellers have consistently achieved 2x better inventory turnover ratios compared to non-FBA sellers.
- As a FBA seller, you are using same technology infrastructure that Amazon.com uses internally to fulfill its own inventory.
- These inventory systems have proven extremely stable, accurate and low-latency at inventory control never resulting in missed missed sales or sales without inventory.
- FBA Sellers can achieve significant cost savings related to storing, managing, counting and updating inventory by using automation tools provided by amazon FBA.
- For non-FBA sellers, order cancellations due to non-inventory attracts significant penalties. This is unlikely to happen if you sell through FBA.
- Amazon API provides near instant inventory level for every product to sync it other channels. You can use Orderhive to sync any FBA inventory change to any outside sales channels. This is significant time saver.
Customer service cost
- FBA sellers save significantly on customer service as Amazon’s 24/7 customer service takes care of almost every customer service calls or incidences related to operations & shipping.
- This significantly improves customer experience. FBA sellers are much more likely to accrue 5 star reviews which results in higher rating and high visibility for your product listing.
Shipping cost – Co-mingling
- Amazon negotiates most competitive shipping rates with shipping carriers given its huge volumes.
- Although amazon does not share all its shipment savings with FBA sellers, it does reflect in its overall competitive fulfillment pricing.
- You can significantly reduce shipping cost by opting for Co-mingling service. With Co-mingling service, amazon is able to ship customer orders from nearest fulfillment center and in same packaging saving significantly on shipping cost.
- Amazon offer very competitive storage cost if you are considering placing your products near important population center.
- We recommend you don’t look at storage cost in isolation. In logistics, it should be analyzed in combination with shipping cost. Better placement of product will result in higher storage cost, however lower shipping cost will make it for that higher cost.
Frustration free packaging
- FBA seller can take advantage of Amazon’s FFP program to lower cost of packaging.
- Given that products are shipped to customer in brown sturdy boxes, you can avoid hard packing your products.
- Most of our FBA sellers save significantly by using light packaging material and lower dunnage that amazon recommends.
Theft & Damage to inventory
- Amazon covers all cost related to Theft or damages to your inventory placed in their fulfillment centers.
- Amazon fulfillment charges accounts of insurance premium against any inventory damage.
- Amazon operates world’s largest and most sophisticated returns management systems processing more than $5 billions worth of products every year.
- Shipping route from UPS store to Amazon return centers is highly optimized, so return shipping cost are much lower for Amazon vs. non-FBA sellers.
- Also, return operations such as unpacking, dunnage disposal, product analysis, cleaning, data wiping, buffing, refurb/repair, repackaging are all done under same roof, to lower cost of return, re-stowing and reselling.
- Also, return operations are quick and products are usually made available to resell within 3 days.
- If returned product is used or slightly scratched, you can opt to get product listed on www.warehousedeals.com (biggest website for refurb sale in world) and have Amazon fulfill it.
Bulk shipping cost
- Amazon FBA has partnered with various logistic partners across US to provide you with competitive bulk shipment of products directly from port to Amazon fulfillment centers
- Amazon start taking orders once it gets notified of inbound transit even though products are on trailer.
- FBA sellers can use Amazon liquidation partners to get rid of damaged or non-sellable returned products at better price than doing it standalone.
- Most of our sellers get better liquidation yield going through amazon rather than doing it themselves.
How to Decide whether you Should Sell on Amazon FBA or not?
Amazon FBA may provide the perfect solution in terms of reducing the hassles of inventory management and fulfillment costs. However, there are a number of considerations to take into account before you decide to start your own FBA business.Here are some parameters you should consider before you start opting for Amazon FBA.
- Profit Margin → Is Selling on Amazon FBA profitable?
- 32% of Current Amazon FBA sellers have a profit margin between 25% to 50%
- 14% of current Amazon FBA sellers markup their profit by 50% to 100%
- These margins are exclusive of Amazon Fulfilment fees, Amazon FBA fees, Packing costs and then the profit margin is added above it.
- Keeping the perception value of a product in mind it is advisable to start with a strategy of selling at profit of 25-50% and slowly move towards a 50-100% margin.
- Amazon also provides a revenue calculator for understanding profit margins you would earn on each of your SKUs. You can check out the revenue calculator by checking the link in the comments section
- Private Labeling
- Private labeling is always a good match with Amazon FBA
- 50% of Amazon FBA sellers either sell some or all private labeled products.
- Out of which 25% started off by having around 30% of their stock as private label and 70% of their stock was generic labeled.
- Usually, most sellers prefer a strategy of leveraging the brand name that any of the well-known brands to gain volume for the top-line and then attracting customers on the private label to gain value for the top line
- Product category and Niche
- In case you haven’t already decided your category of sale. Here is the list of top categories with the highest revenue for Amazon FBA
- Personal Care Products
- Toys and Baby Products
- Gold, Gems, Precious Metals
- Exercise Clothing
- One important point to give thought is the size and weight of your product. If your product weighs higher you might end- up paying separate storage fee to amazon fee
- Check out our video explaining the costs of putting products on FBA for further discussion on the size and weight of the products and how do they impact cost.
- In case you haven’t already decided your category of sale. Here is the list of top categories with the highest revenue for Amazon FBA
- Selling an innovation
- Amazon provides a program by the name “Launchpad” to support retail startups and companies with innovative products.
- Benefits such as lesser cost, wider reach, and accessibility of best advertising options have helped many startups grow using Amazon platform
- 82% of startups registered under launchpad are actually happy with the platform Amazon has provided them.
- 32% have crossed a mark of $100k in sales revenue.
What type of products should I sell on Amazon FBA?
The whole dynamics of selling on Amazon FBA depends on the product you want to sell. You have to strike a balance between the products you think would sell well and the facts and figures to prove it.
You can start by checking out current trends for products selling fast on Amazon. A certain product can be popular among the masses on the basis of four criterion – emotional impact, utility, social validation and visibility in the market.
Products that are in demand can be found by using an online sales estimator like Junglescout to check whether the item you are looking to sell is generating enough sales or not.
Social media trends and search queries for specific products will also give you a fair idea about which products are in demand and which are gradually fading out.
How Do I Signup for Amazon FBA?
You’ve decided you want to sell on Amazon FBA and you’ve narrowed down your product. Now how do you start selling on Amazon FBA? The following are the steps that merchants need to follow to create a store on Amazon FBA.
1. Set up an Amazon FBA Account
The first step requires you to set up a Selling on Amazon account to start selling on the platform and add the FBA shipping method to your account. You will have to select between Individual or Professional Selling Account. For this account creation process, you will need to fill in details like your business information, banking, and tax details.
2. List your Products
Add your products to the Amazon catalog and create listings. You can list products your products one at a time, in bulk or through Amazon’s API Integration.
3. Prepare and Ship your Products to Amazon’s Fulfillment Centres
You will need to prepare your inventory, i.e., pack it properly to ship it securely to Amazon’s warehouse. For this, you can even get Amazon’s prep and shipping supplies delivered to you.
Once you have prepared your products for transportation, you can create your own shipment plans and tie up with Amazon-partnered shipping carriers to avail their services at discounted rates.
4. Amazon starts shipping your products
Once your products reach the Amazon fulfillment center safely, Amazon lists your products as ‘ready to sell’ on the platform. Customers order your products and Amazon picks, packs and ships them. A good thing is, on selling with Amazon FBA, your products automatically qualify for Amazon Prime. Prime customers get fast, free shipping on all eligible orders.
5. Amazon provides Customer Service for your orders
Your customers get their orders delivered at their doorstep with full tracking information as well. Amazon also provides its renowned 24/7 customer support for all your orders, handles returns and complaints.
What Documents Do I need to set up an Amazon FBA Account?
To register successfully for an Amazon Seller Account, you need to have the following documents and information in place.
1. Business and Contact Information
This entails the name of the business you plan to sell as, location and address. You will also need to provide contact details such as email, and phone numbers.
2. Credit Card details
This will be your internationally chargeable credit with a valid billing address. Make sure this is correct as Amazon is liable to cancel your registration if the card number is not valid.
3. Tax ID and State Tax ID
This includes your tax information and Social security number or your company’s Federal Tax ID number. State Tax ID is information on the states where you have a tax nexus. Tax Nexus is basically the physical presence of the company in a state where it is required to collect and pay taxes.
Methods of Putting Stock on Amazon FBA
Amazon offers three ways of uploading stock listings on FBA.
1. Adding Products one at a time
If you have a small number of items then you can list them one by one. You can add them from the Amazon.com catalog via Seller central, the web-interface to help sellers find their products.
2. Adding products in Bulk via Flat files
For a large number of items, you can list products by uploading a flat file like an Excel sheet through Amazon’s web tool. This enables you to list items directly for Fulfillment by Amazon.
3. API Integration
Amazon allows you to list a large number of items by integrating your website or inventory management system with Amazon’s inventory catalog through API integration.
So there you go, this was a detailed step-by-step guide on how you can start your Amazon FBA business. Hope this was helpful to you. All the best on your journey to becoming a successful Amazon FBA seller.