Amazon FBA: What Is It and How Does It Work?

You run a business selling marked-up wiffle ball bats you find on clearance at sporting goods stores. Or maybe you’re a woodworker who crafts picture frames of high quality with a small staff of workers. If you’re a manufacturer of coffee machines, perhaps every day you receive a lot of orders.

No matter what products you move and how you obtain them, your plate is full. The product you are developing needs to be developed. Facebook advertising campaigns should be optimized. Managing your business’ finances is essential.

Essentially, you don’t have the time to handle inventory, pack and ship orders, and oversee customer service operations. Amazon Fulfillment by Amazon, or FBA, is an option whether you are already selling on Amazon or you are seriously considering it.

What is Amazon FBA?

Amazon FBA, which stands for Fulfillment by Amazon, is a service that allows you to store and ship your products through Amazon’s extensive warehouse network.

With Amazon FBA, you can grow your online business without the need for expensive storage facilities or hiring additional staff. Let me explain its benefits with a simple scenario:

Imagine you have a successful Amazon store with some popular items that are selling well, thanks to your research and sourcing efforts. As your business gains traction, you might want to buy more stock to meet increasing demand. However, storing the extra stock and managing timely order dispatch can become challenging.

But don’t worry! Amazon FBA comes to the rescue.

By using Amazon Fulfillment, you can seamlessly handle the increased orders without the hassle of managing storage and shipping. What’s great is that most customers won’t even realize they’re buying from a third-party seller using Amazon FBA. The delivery options, return policies, and customer service remain the same as if they were buying directly from Amazon.

While Amazon FBA can save you significant time and provide many benefits, it’s essential to remember that it’s not a magic solution. Getting started with it will require some effort, but it can certainly be a game-changer for Amazon sellers.

How Amazon FBA Works

Adding your products to your FBA section on Amazon is as simple as using your regular Amazon selling account and following some simple instructions. Using the direct help of Amazon, you can expand your business entirely cheaply in just a few clicks.

FBA on Amazon works in a straightforward way:

What Amazon Does For You

  1. Amazon will let you know which warehouse to send your products to so you can send your products to one of their warehouses.
  2. Products are stored safely at Amazon’s warehouse.
  3. From the point of sale to inventory updates, Amazon handles the entire transaction.
  4. You ship your product to Amazon. The company packs and ships your product.
  5. You can return or refund items through Amazon for the most part.
  6. You receive your sales profit directly from Amazon every two weeks.

You have your own warehouse, pickers, and packers with Amazon FBA!

You just have to provide Amazon with the stock and earn the money; the Amazon team will handle all the orders, handle all the customer emails, including informing the customer that their item has been dispatched, handle shipping and payments; the Amazon team handles the logistics for you.

The fees for the FBA service at Amazon are reasonable as you’d expect, but the postage savings are also beneficial.

In addition, you will not be battling Post Office queues or having to contend with bubble wrap and sellotape, because you will be utilizing the power and convenience of Amazon when attempting to make sales!

Those are Amazon’s responsibilities, but the rest is yours.

What You Have to Do

  • Choose your products: Amazon does a lot of the heavy lifting in terms of the back end, but you’ll still need to do some research and find the right products.
  • Stocks must be replenished when necessary: Amazon tells you when your inventory is low, so make sure you replenish whenever your stock level drops.
  • List your products correctly and market your products effectively: Amazon is huge, but you must list your products accurately, use descriptive titles, and market your products so that they can be found.

Signing up for Amazon FBA is easy! Just follow these steps:

  1. Check if you’re already enrolled: Go to Seller Central and open the Settings menu. Select “Account Info” and scroll down to “Your Services.” Click on “Manage” to see if you are registered for Fulfillment by Amazon (FBA).

  2. Enroll in FBA: If you’re not already registered, don’t worry! Just follow the on-screen instructions to sign up for FBA. You’ll need to agree to Amazon’s FBA service terms.

That’s it! Once you’re enrolled, you can start taking advantage of Amazon FBA’s convenient fulfillment services for your products.

The Costs of Amazon FBA

When you use Amazon’s FBA (Fulfillment by Amazon) service to sell your products, there are several fees to be aware of. Let’s break them down into three categories for easier understanding: per-unit order fulfillment fees, storage fees, and long-term storage fees.

  1. Per-unit Order Fulfillment Fees

The per-unit order fulfillment fee includes various services such as picking, packing, shipping, handling, customer service, and handling product returns. The fee amount depends on whether your package is of standard size or oversize.

There are additional fees for specific items, for example:

  • Clothing: $0.40 per unit
  • Lithium batteries: $0.11 per unit for items containing lithium batteries
  1. Storage Fees

The storage fees are based on the amount of space your products occupy in Amazon’s fulfillment centers. These fees are charged on a monthly basis, typically between the 7th and 15th of the following month. The rates vary based on regular storage, seasonal storage, storage of hazardous items, and long-term storage.

Amazon enforces a minimum per-unit storage fee of $0.15 or the cubic foot fee, whichever is higher.

To calculate the cubic feet of storage needed for your products, follow these steps:

  • Multiply the length by the width by the height in inches to get the volume.
  • Divide the volume by 1,728 (cubic inches per cubic foot).

For instance, if your unit measures 47-by-12-by-10 inches, it takes up 5,640 cubic inches of space. So, the calculation would be: 5,640 cubic inches ÷ 1,728 cubic inches per cubic foot = 3.26 cubic feet.

  1. Long-term Storage Fees

If your units remain in Amazon’s fulfillment centers for more than 365 days, you’ll be subject to long-term storage fees. The inventory cleanup date is on the 15th of each month. For items in storage for longer than a year on that date, Amazon charges $6.90 per cubic foot or a minimum of $0.15 per item, whichever is greater.

Different rules apply to items enrolled in the FBA Small and Light program. To be eligible, products must be in new condition, measure 16-by-9-by-4 inches or less, weigh 10 oz or less, and be priced at $7 or less.

You can find the current charges for these products and details on enrolling in the Small and Light program in Amazon Seller Central resources. Just click the magnifying glass icon in the Seller Central toolbar and search for “FBA Small and Light.”

To avoid long-term storage fees, consider taking the following precautions:

  • Submit an inventory removal order before the 365-day mark. The deadline is 11:59 p.m. Pacific Time on the 14th of the month.
  • Set up automated inventory removals subject to long-term storage fees.

Amazon FBA’s Product Restrictions and Guidelines

Amazon has specific rules to protect customers and staff, so it’s essential to follow them to avoid inventory loss or account suspension. There are four categories of products to consider:

  1. Used or Damaged Goods: You can send these to Amazon as long as they are accurately labeled to indicate their condition.

  2. Generally Prohibited Products: Avoid sending items like alcoholic beverages, fireworks, gift cards, and unauthorized marketing materials.

  3. Hazardous Materials: Certain products are classified as hazardous, including aerosol sprays, fuels, and items containing mercury. Make sure to check the comprehensive list of dangerous items.

  4. Date- and Temperature-Sensitive Products: Tropical and consumable products with expiration dates must be labeled correctly. Additionally, pay attention to temperature restrictions, shelf life, and storage times.

For any hazardous products, answer Amazon’s dangerous goods questions and provide accurate information, including a Safety Data Sheet if required. If approved, these products will be processed in dedicated fulfillment centers.

Remember, refrigerated or air-conditioned products, such as fresh fruits, are not allowed in FBA throughout the year. Temperature-sensitive items, like butters and chocolates, are accepted only between October 1 and April 30, and any remaining inventory after May 1 will be disposed of.

Follow these guidelines to ensure a smooth and compliant selling experience on Amazon.

How to Ship Products to Amazon FBA

Shipping your products to Amazon’s FBA fulfillment centers is an essential step in your selling process. Here’s a simple guide to help you through the process:

  1. Enrolling Products in FBA:

When creating your product listings, you can easily enroll products in FBA. Just follow these steps:

  • Log in to Seller Central and open the Inventory menu.
  • Select “Add a Product” and create your product listing.
  • Choose “Amazon Will Ship and Provide Customer Service” as the Fulfillment option.

If you’re uploading products in bulk, specify your fulfillment method in the product listing template before uploading it to Amazon.

You can also convert existing FBM (Fulfilled by Merchant) product listings to FBA. Here’s how:

  • Go to the Inventory menu and select “Manage Inventory.”
  • Choose the products you want to sell through FBA.
  • Open the Actions drop-down menu and select “Change to Fulfilled by Amazon.”
  • Select “Convert & Send Inventory” if you’re ready to ship or “Convert Only” if not.

Note: Products are not available for purchase until they arrive at Amazon fulfillment centers.

  1. Shipping Products to Amazon Fulfillment Centers:

When you’re ready to ship products, you can initiate the process for individual items or create a bulk shipping plan. Here are the steps:

a. Initiate Shipment from Manage FBA Inventory Page:

  • Log in to Seller Central and go to Inventory > Manage FBA Inventory.
  • Select the products you want to send.
  • Click on “Send/Replenish Inventory” in the drop-down menu.
  • Follow the prompts and provide the required information.

b. Initiate Shipment via a Bulk Shipping Plan:

  • Go to Inventory > Manage FBA Inventory > Shipping Queue.
  • Click on “Upload Shipping Plan File” and download the template.
  • Complete the template, save it as a .txt file, and upload it.
  • Review the file status and address any issues.

The shipping plan consists of six subsections. After completing them, your products will be ready to be sent to Amazon fulfillment centers.

  1. Prepping Products to Ship to FBA:

  • Apply a unique product label or barcode to each product box.
  • Create a unique SKU for each product item.
  • If the product has a label, cover it with an Amazon printed label if required.
  • Avoid including marketing materials or flyers with packaging.
  • For sets or bundles, pack them together and label accordingly.
  • Ensure boxes can survive a three-foot drop on all sides.

For products that require special preparation, indicate whether you or Amazon will handle it. Products must have barcodes; use the manufacturer’s barcode if eligible; otherwise, use an Amazon barcode.

How to Remove Inventory from Amazon FBA

To avoid paying long-term storage fees on products that aren’t selling, request that Amazon remove your inventory from its fulfillment centers and return it to you.

Removal order fees vary by service type (return or dispose of item) and product size (standard or oversize); the return fee is a flat fee charged per item to return products to the specified location:

Service Standard-size (per item) Oversize (per item)
Return $0.50 $0.60
Disposal $0.15 $0.30

You can submit an order to have products removed from fulfillment centers or set a date on which products will automatically be removed.

1. Submit an inventory removal order

To submit an inventory removal order, follow these steps:

1). Take one of the following steps:

  1. On Seller Central, open the Inventory menu and select Manage Inventory. Choose the items you want to remove, open the Action on Selected drop-down list, and select Create Removal Order.
  2. On Seller Central, open the Reports menu, select Fulfillment, scroll down to Removals (in the navigation bar on the left), select Recommended Removal, and click Begin Removal Process.

On the Provide Details page, under Method of Removal, take one of the following steps:

  1. Select Ship-to Address and enter the address where you want the inventory shipped (your address or the address of a supplier, for example).
  2. Select Dispose of to have inventory disposed of at the fulfillment center(s).

2). In the Set Order ID field, enter the customer order ID you want to use to track this transaction or leave the field blank to have an order ID generated automatically.

3). Save the removal order ID for tracking purposes.

4). Under Specify Ordered SKUs/units, enter a title, MSKU, ASIN, or FNSKU in the Search and Add Items text box, click Search, select the products you want removed from inventory, and select Add Selected.

Under Fulfillable Qty. enter the number of fulfillable units to remove from inventory.

5). Fulfillable quantity is the number of items that can be sold. The number of items you specify represent excess inventory to remove to avoid storage fees.

6). Under Unfulfillable Qty. enter the number of unfillable units to remove. Unfulfillable quantity is the number of items that can’t be sold for whatever reason, such as damaged product or packaging.

7). Click Continue. The Review and Place Order page appears. Check the details to ensure everything is correct and that you’re satisfied with the shipping speed and estimated removal fees.

8). Select Place Order to submit the inventory removal order.

An inventory removal may take up to 30 days to process, but as long as you meet the inventory removal request deadline, Amazon won’t charge you a long-term storage fee.

2. Set up an automated inventory removal

To have inventory removed from Amazon fulfillment centers automatically prior to sitting in storage for more than a year, schedule in advance to have the inventory removed:

1). Take one of the following steps:

  1. Open the Settings menu and select Fulfillment by Amazon.
  2. Open the Inventory menu, select Manage FBA Inventory, Remove Unfulfillable Inventory, and Auto Removal Settings.

2). On the Fulfillment by Amazon Settings page, locate Automated Unfulfillable Removal Settings, and next to that option, click Edit.

3). On the Automated Unfulfillable Removal Settings page, click Enable and select one of the following:

  1. Return to have products returned to you
  2. Dispose to have products disposed of at the fulfillment centers

4). Select your preferred schedule:

  1. Immediate
  2. Weekly (on the 8th, 15th, 22nd, and 28th)
  3. Twice a month (on the 15th and 20th)
  4. Once a month (on the 1st)

5). In the Email Address box, enter your preferred email address for receiving notifications about the inventory removal.

6). If you chose to have products returned to you (in Step 3), enter your address and phone number.

7). Select Update.

Amazon FBA Pros

Amazon’s Fulfillment by Amazon (FBA) service offers numerous benefits that can give your business a significant edge. Let’s explore some of these advantages:

  1. Leverage Amazon’s Trusted Reputation: With Amazon’s worldwide reputation, customers feel confident ordering from you, knowing they’ll get their products on time and have hassle-free returns.

  2. Super-Fast Service: Amazon’s award-winning online ordering system ensures faster processing and shipping than you could manage independently.

  3. Enhanced Visibility: Using FBA boosts your ranking in search results, making your products more visible and attractive to customers.

  4. Compete for the Buy Box: Even when Amazon sells a similar product, you can still compete and have a chance to win the Buy Box, increasing your sales opportunities.

  5. Free Delivery for Prime Members: FBA offers free delivery to Amazon Prime members, which entices more sales, especially during peak shopping seasons.

  6. Reduced Overhead: FBA eliminates the need for managing employees, storage, and administration, allowing you to focus solely on selling and growing your business.

  7. Increased Productivity: FBA handles customer service, returns, storage, and shipping, freeing up your time to focus on business growth.

  8. Flexibility and Global Reach: Your business can thrive from anywhere in the world, as Amazon takes care of orders and customer queries 24/7.

  9. Simplified Customer Service: Amazon’s customer service handles any issues, sparing you the need to interact with customers directly.

  10. User-Friendly: Amazon FBA is easy to use, eliminating the hassle of packaging materials, post office visits, and customer service problems.

Amazon FBA Cons

While Amazon FBA offers undeniable benefits, it’s essential to consider the possible downsides as well:

  1. Cost Considerations: Amazon FBA comes with storage and fulfillment fees, and if your inventory doesn’t move swiftly, storage costs can add up. Ensuring your products sell quickly is crucial to minimize these expenses and maintain profitability.

  2. Challenges in Product Preparation: Preparing your products according to Amazon’s guidelines can be tricky. Non-compliance may lead to delays and frustrations in the fulfillment process, so it’s vital to follow the instructions diligently.

  3. Loss of Brand Identity: When Amazon handles shipping, their branding appears on the packaging, not yours. This could make it harder to build brand awareness, so weigh this aspect against other FBA benefits.

  4. Potential Increase in Returns: The easy returns process with Amazon FBA might lead to a higher number of returns. However, providing quality products and good customer service can help mitigate this risk.

  5. Sales Tax Compliance: Managing sales tax compliance can be complex, especially if your business has sales tax nexus in various states where Amazon’s fulfillment centers are located. While Amazon collects sales tax in many states, it remains the seller’s responsibility to ensure compliance in others.

Read more: Other ways to make money on Amazon

Is Fulfillment by Amazon Worth It?

Determining whether Fulfillment by Amazon (FBA) is worth it for your business depends on three key factors: your monthly shipping volume, profit margins, and the uniqueness of your market.

If you’re shipping at least 40 items per month, FBA could be a good fit. However, if you’re barely meeting that minimum threshold, dealing with Amazon’s strict inventory requirements and fees might not be worth the hassle. In such cases, handling fulfillment yourself or using a more flexible fulfillment company might be a better option.

For eCommerce sellers with small profit margins, FBA might not be the best choice. The fees could eat into your already low profits, potentially turning them into losses. While shipping on your own has costs too, it’s essential to avoid unnecessary fees that can hurt your bottom line.

Selling super-niche items, like vintage zines for a specific subculture, might not require FBA. Prime eligibility is one of FBA’s main advantages, but if your target market doesn’t prioritize it, you may not need to use FBA for these unique products. Your customers will likely be happy just to find their rare items.

However, if your business sells a high volume of items with healthy profit margins in a competitive market, FBA can be a fantastic investment. It instills confidence in potential buyers and can lead to increased sales on your product details page. Ultimately, consider your specific business situation and needs before deciding whether FBA is the right choice for you.

Is Amazon FBA Suitable for Your Business?

Amazon FBA is a popular choice among eCommerce entrepreneurs, but it may not be the perfect fit for everyone.

If you primarily sell on Amazon and want to focus on growing your brand instead of handling daily fulfillment tasks, Amazon FBA is a great option. It’s particularly beneficial for businesses that are transitioning from small kitchen table operations to expanding online brands.

Using Amazon FBA can be profitable and worthwhile. To determine if it’s the right choice for your business, you must familiarize yourself with Amazon’s rules and regulations and, most importantly, understand your target market and customers.

The effectiveness of Amazon FBA depends on your products and business objectives. While it offers a convenient way to outsource various business tasks, you should carefully consider whether the benefits outweigh the additional costs.

If you are new to Amazon FBA, I suggest checking out our best Amazon FBA courses to see if there’s one that can help you get started.

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