Amazon FBA: Can It Work For You?

Figure out whether the ecommerce giant’s proprietary system is right for you

Logistics, inventory management, and shipping can be laborious procedures. There’s no fun in being constantly surrounded by cardboard and plastic wrap. They are, however, critical processes when building a seamless customer experience, which can in turn make the difference when converting web traffic into actual paying customers.

Retailing giant Amazon understands this. Its Fulfillment by Amazon (FBA) service brings all seller-centric logistical support under one roof. Amazon FBA manages your inventory for you: Amazon stores your stock at a fulfillment centre, ships out orders to be fulfilled, and provides customer support (including returns). All you need to do is get your stock to the Amazon fulfillment center–and Amazon can help with that as well.

What You Need To Know About FBA:

  • You can fulfill orders either by FBA, or by Fulfillment by Merchant (FBM), where you or your distributor undertake storage, packaging, shipping and customer support. You can also mix the two if you have a range of products, choosing FBA for some products and FBM for others.
  • FBA makes your orders eligible for Free Shipping or Prime One Day/Two Day Delivery. Customers are more likely to hit the Buy button if shipping is free.
  • FBA gives you a greater chance to land the coveted Buy Box on Amazon–otherwise known as the white box on the side allowing customers to add items to their carts. Not all sellers are entitled to this feature; you need excellent fulfillment metrics to win a ticket in without using FBA.
  • Amazon also picks up your stock from your doorstep at a discounted rate if you opt for FBA.

Club Amazon FBA with other Amazon services for consolidated fulfillment services:

  • Your FBA inventory may be eligible for Amazon’s Subscribe and Save, and could also act as stock for Amazon’s Multi-Channel Fulfillment (MCF), where Amazon will act as your logistics partner for orders from third-party sites. (MCF is available in the United States, Canada, Mexico, United Kingdom, Germany, France, Italy, Spain and Japan).
  • Avail reduced fulfillment fees for products that are small and lightweight. Check if your products are eligible for international fulfillment–Amazon is currently testing this with the US, UK, Spain, Germany, France, Japan and Italy markets.
  • Opt into other fee-based Amazon services such as barcode labeling, product prep, manual processing and other distribution services.

All of this sounds great for a seller, but remember that these are chargeable services. As an individual seller, you may already be paying a ‘Sell on Amazon’ fee.

With FBA, fees for fulfillment, monthly inventory storage, long term storage, removal orders, returns processing and unplanned services (such as when a stock item arrives at an Amazon fulfillment center without any labeling) could possibly eat into your pockets.

Think about it more as a business model than a benefit. If some or all of your products are small-sized and lightweight, or if you have fast inventory turnover, opting into FBA is a good idea.

It also makes sense to expedite logistics through FBA if you have no logistical experience–you don’t want to lose customers or get a bad review over this. Free delivery is a another benefit that you want to leverage, if you can’t offer it yourself.

If you have slow moving stock, however, using FBA will bump up your cost margins. If you have a shipping strategy in place that works for you, or generally want greater control over the fulfillment experience for your customers, then you might want to skip the FBA route.

It’s not a take-it-or-leave-it situation. 94% of Amazon sellers use FBA to fulfill all or part of their orders. You can have it all done through the FBA or FBM model, or you can mix the two strategies together. This works best if you have a diversified product line–let Amazon FBA take care of the fast moving, small, and light products, while you process the bulkier or slower moving stock independently.

Is FBA a good option for your logistical needs? The answer has a lot to do with the scope of your sales, storage needs, and expense margins. Check out FBA fees and rate structure or compare costs between Amazon fulfillment and seller fulfillment with Amazon’s FBA Revenue Calculator. In the end, it all boils down to mitigating logistical expenses and creating the best delivery experience for your customers.

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