If you’re running an ecommerce business and want to focus on being an entrepreneur and less on day-to-day operations, the Fulfilment by Amazon (FBA) program has likely caught your attention. It’s an outsourced shipping and handling solution provided to Amazon sellers. Amazon handle everything for you if you enter the program. Basically, you ship your products to Amazon and then they ship them from there once they sell on the platform. If you’re considering Fulfilment by Amazon, then he’s everything you need to know about it.
Nothing is free, and that includes FBA. Amazon charge their FBA sellers for both the storage and actual fulfilment. Keep in mind that you’re basically renting out the space in the warehouse and paying other costs associated with fulfilling an order. Though, you won’t need to pay for the shipping, as this is considered part of the cost of fulfilment.
The good news is that signing up for FBA means you are eligible for Amazon’s free two-day shipping for Prime customers. This means ardent customers will be able to purchase your product and receive it in just two days without either of you having to pay a penny.
It takes an old-fashioned cost-benefit analysis to see if FBA is worth it for you. The costs of using FBA are those storage and fulfilment costs. They will be based on the size of products, how much stock Amazon stores, and how often orders are placed. The good news is Amazon have their own fee calculator so you can assess what FBA may cost you.
The benefits of using FBA are outsourcing shipping, high quality customer service, and appealing to Amazon Prime members with free two-day shipping.
It all comes down to your bottom line; consider FBA like you would consider any investment. Is it worth it? Will your returns be worth the cost of investment?
You might assume a company the size of Amazon would require you to sell a certain amount of stock each month to be a member of the FBA program. That’s not the case. FBA allows you to sell just a few products each month and still be a member. Amazon understands there will be more demand for some items compared to others. They are happy to provide FBA services to small business owners that don’t move lots of products each month.
You can sell your products through Amazon without enrolling in FBA if you want. Some sellers feel able to handle everything for themselves without having to spend the money it would take to use Amazon FBA. Of course, it means finding space to store your products and handling the problems of returns and complaints. It is worth it to those people though.
Remember, FBA should be considered an investment. Selling merchandise through FBA may generate a positive return on that investment. If you would make more money by handling the fulfilment process on your own though, then take that route.
You might think that FBA only fulfils orders from Amazon, but you would be wrong. A major appeal of FBA is that Amazon can – and will – fulfil orders from other marketing channels. You aren’t limited to only using FBA for Amazon listings.
As an experienced entrepreneur, you may find that you get customers from around the world by listing products through several websites. If that has happened to you, then you should know FBA can fulfil orders through those other sites.
When you choose FBA you get a centralized shipping and customer services operations center ready and willing to fulfil orders placed through a range of marketing channels.
While the shipping cost to customers is factored into the fulfilment costs, you will still have to pay to ship your products to an Amazon fulfilment center. You’re technically still dealing with shipping to an extent. The good news is that Amazon offers Partnered Carrier options that allow sellers to get products shipped to Amazon at a vastly reduced rate.
When using one of these carriers, the company gives you a shipping label you attach to the boxes being sent to the warehouse. The cost will be billed as “Inbound Transportation Cost” on your account.
If you want to ship a lot of merchandise to Amazon, they do offer partial truckload and full truckload options through their partnered carriers. You will likely require a dock or a forklift to use this service, however.
We already mentioned that Amazon charges fees for storing products in their warehouses. If you happen to be an accountant as well as an entrepreneur, then maybe you’re wondering how they calculate those charges. They use the “First In, First Out” (FIFO) method for this.
It means that the first batch of products shipped to the warehouse are the first ones shipped to customers who order them. After these products are gone, there is no storage fee for them. Of course, you will want to send new items to replace the old ones, and those ones are subject to the storage fee until they sell. Adjust the amount of stock you send to Amazon accordingly.
You may feel that you could save the people at Amazon some time – and maybe save a little money for yourself - by packing your products up how you want them to be sent to customers. This is not the case, as it’s impossible to avoid the “pick and pack” fee. Save yourself the time and effort and ship the products to a fulfilment warehouse as simply as possible. If anything, you’ll just be creating more work for the people at Amazon who have to re-pack it before sending it out. It’s not worth it, for anyone involved.
You want to start off small with most things in life, and that includes FBA. This is because, quite simply, you don’t know the things you don’t know. There are bound to be unexpected challenges and expenses. It’s best to face these on a small scale. Begin by offering a small amount of products through FBA and try it out for a few months. Evaluate your income sheet after a few months and see if it’s worth putting more money into FBA or pulling out altogether.
Fulfilment by Amazon is a fantastic way to delegate most of the hassle of running an e-commerce platform to a company that has a solid online reputation. Just keep in mind that this help comes with a price.
Be sure to consider the cost factor of signing up to FBA and what it might do to your profits. If you stand to make more money by taking care of everything yourself, then why not take care of everything yourself and make that extra money? FBA is an investment. Do your due diligence to ensure that the investment will be worth it in the long run.