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 FBA?

FBA stands for Fulfillment by Amazon, a service that enables you to store and ship your products via Amazon’s huge warehouse network.

amazon fba what is it and how does it work

The Amazon FBA process is a very simple, yet powerful way to grow your online business without having to invest thousands of pounds in storage facilities or staff.

Let me illustrate the benefits of Amazon FBA in the following scenario. There are a couple of hot items in your Amazon store that sell well thanks to your research and sourcing. Business is picking up and moving forward for you.

A seller who is both entrepreneurial and motivated is likely to consider buying more stock at this point. However, depending on how many orders you need to fulfill, you may not be able to store the extra stock and dispatch more orders on time.

Are your expansion plans now over? In no way. You can benefit from Amazon FBA in this situation.

As Amazon Fulfillment is so streamlined, most customers aren’t even aware they are buying goods from a third-party seller using Amazon FBA.

The same delivery options, return policies and customer service levels apply whether customers purchase from Amazon directly or a seller using Amazon FBA.

Amazon sellers can certainly benefit greatly from this solution, and it can save them a great deal of time. Getting started with it will require an effort, though it is not a magic bullet.

Here’s 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.

Amazon FBA Benefits

Fulfillment by Amazon is a powerful service, so let me explain a few of its advantages first.

1. You can benefit from Amazon’s reputation

Worldwide, Amazon is trusted. They know they will receive a product when they order it. If they need to return it, they know they can. Customers depend heavily on this when deciding whether to purchase from you.

2. You will be able to provide a super-fast service

Faster processing and dispatch is part of Amazon’s award-winning online ordering service. This enables them to ship products faster to your customers than you could.

3. Increase your ranking and visibility on Amazon

FBA allows you to rank higher in search results when you use the programme. Sellers who do not use FBA market their products based on their total price (the product price plus shipping costs). You will however be listed by price alone as an Amazon FBA seller, making it appear first in the search results.

4. You are more likely to secure the Buy Box

On all Amazon product listings, there is a large button that says ‘Add to Cart‘. Whenever Amazon and you both sell a similar product, they will always have a Buy Box, of course! However, you can still compete by using Amazon FBA.

It is highly likely that you will win the buy box on your other listings if Amazon can see you’re using FBA for your shipping method.

5. Free delivery can be automatically offered

 Your products will be delivered for free to Amazon Prime members. During the busy shopping season, Prime customers tend to purchase a great deal of items from you.

If you don’t use Amazon FBA, you are disadvantaged. Free shipping is one of the most attractive features of Amazon FBA, so reaching these sellers is a great advantage.

6. You will experience a significant drop in overhead

 By using FBA, you won’t have to worry about employees, storage, or administration, so you can focus on selling more products!

7. Increased productivity is a benefit

Increased productivity is one of the biggest benefits of FBA. Your time can be spent building your business instead of dealing with Amazon’s customer service, returns, storage, packing and shipping.

8. Your business can run from anywhere!

With Amazon FBA, you can be located anywhere in the world and still generate consistent sales. Your orders will be handled by Amazon 24 hours a day.

Client queries won’t be as frequent.

Customer service is handled by Amazon FBA. Customers can contact Amazon’s customer service department if they have a problem with their order, rather than you dealing with it directly. In addition, you won’t need to interact directly with the customer, saving you valuable time.

9. Ease of Use

 One of the biggest perks of Amazon FBA is its overall ease of use. Consider not having to handle any more packaging materials, queues at the post office, or dealing with customer service issues! FBA is operated by Amazon in this way.

Amazon FBA allows you to free up your time so you can devote it to other vital things in life, like finding new inventory and building your brand.

It seems as if these benefits are too good to be true! Do Amazon FBA’s disadvantages outweigh its advantages?

The Disadvantages of Amazon FBA

FBA on Amazon helps all Amazon sellers, without a doubt, as the company has a strong reputation. Having already touched on the benefits, of which there are plenty, it’s only fair to mention any potential disadvantages as well.

Here’s where we start!

1. Amazon FBA is expensive

Like everyone else, Amazon is a business, so they charge both storage fees and fulfilment fees just like you. Storage fees can mount if your inventory is not moving as quickly as you would like.

Thus, to minimize Amazon storage fees you will need to ensure that your inventory has a forward motion. If your inventory is not sitting around, and you are making sales, extra fees won’t apply.

Also, take into account your FBA fees to determine whether your products will still be profitable.

Here you can see a full list of fees and a fee calculator.

2. It can be challenging to prepare your products for FBA on Amazon

If you register for FBA with Amazon, you will have access to Amazon’s guidelines for preparing and shipping your products to their warehouse.

It is extremely important that you adhere to these guidelines. It will cause delays and frustration if your inventory is not properly labelled at the warehouse. Following the directions carefully is important.

3. Your logo is not on the product packaging

Amazon’s branding will appear on the packaging of your customer’s order delivered by Amazon FBA. Therefore, building your brand awareness will be more difficult, since your identity will not be on your packaging.

Brand awareness won’t benefit you, so you should weigh up how much of a disadvantage this is compared with the other benefits of Amazon FBA.

4. Your returns may increase

When using Amazon FBA you might experience an increase in returns due to the ‘easy returns process’. However, this risk can be mitigated in some way by always ensuring you supply quality products and customers don’t feel the need to return their products.

It is true that customers will sometimes make impulse purchases, have buyer remorse and return products.

The Amazon FBA program makes this possible. In addition, you may be out of pocket if Amazon finds a returned item is unsellable. The fact that this may not deter you from using Amazon FBA should not necessarily make you avoid it.

It’s the few disadvantages of Amazon FBA that will trump the benefits for many businesses and your success will also depend on other factors, many of which are up to you, the effort you make and the knowledge you have to successfully use Amazon FBA.

5. Sales Tax Compliance

FBA also faces the issue of sales tax compliance. If your business has sales tax nexus, which is when you store inventory in a state, you’re required to collect sales tax in those states. Amazon fulfilment centers store their inventory in states where they are liable for sales tax. 

Amazon hasn’t always been transparent about where their inventory is located with sellers before. Your seller account now includes this information in the Amazon Fulfillment Reports. It’s on the Fulfillment > Inventory Event Detail report

In most states with an Amazon fulfilment center, Amazon now collects sales tax on behalf of sellers. 

It is the seller’s responsibility to ensure they are sales tax compliant in states that do not require Amazon to collect sales tax for them. The Amazon Business page has an overview of each state and what it means.

Is Fulfillment by Amazon Worth It?

The answer to this question really comes down to three factors: how much you’re shipping per month, how big your profit margins are, and how niche your market is.

To qualify for FBA, you must move at least 40 items per month. It probably isn’t worth the hassle (and the fees) to prepare your inventory according to Amazon’s strict requirements if you’re barely meeting that minimum threshold. These responsibilities should be handled by yourself or by a more flexible fulfilment company.

Small margin eCommerce sellers should avoid FBA. With low profits per sale, it’s safe to say that FBA fees will reduce your margins to zero, if not negative. In spite of the fact that shipping everything on your own isn’t free – in terms of money or energy – you shouldn’t incur any fees that aren’t essential to your business.

FBA isn’t necessarily necessary for sellers of super-niche items (e.g., vintage zines geared towards old-school goth music fans). FBA’s prime eligibility is one of its biggest advantages. One thing a shopper will do if she sees a bunch of nearly identical products, but only a few of them are Prime eligible, disregards those that aren’t.

Amazon is not too common for selling ‘70s goth zines. Your niche product’s target market likely doesn’t care about Prime eligibility; they’re just glad to have found what they were looking for.

FBA can be a fantastic investment if you sell tons of items per month and drive sizeable margins in a competitive market. With this simple practice, you will gain the confidence of prospective buyers and earn more sales on the product details page.

Is Amazon FBA Suitable for All Businesses?

Amazon FBA is used by millions of eCommerce entrepreneurs, but like everything else, it isn’t perfect for everyone.

This is a great option if you’re primarily an Amazon seller and are looking to step up your brand rather than becoming bogged down with daily fulfilment tasks. It’s a great solution for anyone who’s stuck between a kitchen table business and an expanding online brand.

It can be worthwhile and profitable to use Amazon FBA. To decide if Amazon is right for you and your business, it’s essential that you learn about the company’s rules and regulations, and most importantly, understand your customers – your target market.

It will ultimately come down to your products and business goals as to how Amazon FBA works for you. Certainly, Amazon FBA is a simple way to outsource many tasks associated with running a business, but it’s important to ensure the benefits outweigh the additional costs.

Amazon FBA Courses Review

If you are new to Amazon FBA, you might be interested in some Amazon FBA courses.

There are many Amazon FBA courses, but some are scams. To help you avoid the scams, I have done thorough research about the most popular Amazon FBA courses.

Here are the Amazon FBA course reviews for you to make reference and see which course you should choose:

  1. Amazon FBA Heroes Review
  2. Proven Amazon Course Review
  3. The Last Amazon Course Review
  4. Blue Sky Amazon Course Review
  5. Amazing Selling Machine Review
  6. The Wholesale Formula Review

Is There Any Better Alternative to Amazon FBA to Make Money?

If you’re new to online business, you might wonder if there’s a better business model that doesn’t need initial capital and can do it as a side-hustle.

Of all the business models I’ve tried, affiliate marketing is the easiest and most rewarding so far.  

In affiliate marketing, you can run your business almost with zero cost. Most importantly, you don’t need to invest in creating and developing any products.

Also, it is less time consuming since you don’t have to manage inventory or handle customer service.

You can enjoy a steady stream of passive income while going on vacation or working a full-time job.

Since the world is full of uncertainty, I’d always choose a business model that has the lowest risk.

But How Much Can You Earn in Affiliate Marketing?

A 21-year old student from my #1 recommended training platform of affiliate marketing was able to earn $7,395 in just 1 week, which means he made more than $1k a day…all while using free traffic methods and affiliate marketing.

Amazing Selling Machine Review

Wealthy Affiliate has existed for more than 10 years and there are many success stories over the years.
To give you more examples, here are some of the other inspiring success stories of Wealthy Affiliate members.

If you don’t trust my words, you can go to Trustpilot to see what the members have to say:

Amazing Selling Machine review

At the time of writing, Wealthy Affiliate is rated 4.8 out of 5, which is excellent. It’s incredible to get such a high rating with more than 400 reviews.

If there are only two or three good reviews, you may say they are fake reviews. But you cannot fake it when there are more than 400 reviews there. Remember, Trustpilot has a very intelligent system to detect fake reviews.

Where to Join Wealthy Affiliate?

Wealthy Affiliate has a very simple pricing scheme. It has a free and premium membership.

If you want to feel about Wealthy Affiliate, you can sign up for the starter membership here (no credit card required). You can select to be a free member with no time limit.

And as a starter member, you can get instant access to the community, live chat, over 500 training modules, 2 classrooms, networking, commenting, 1 free website, access to the keyword tool.

You can enjoy all these values without paying a penny. 

So I strongly recommend you to register a free account and see it yourself.

If you’d like to be the next success story and get the most out of Wealthy Affiliate, you can upgrade to the Premium Membership later. 

After that, you can get access to everything without the bother from any upsells.

Recommendation: Here’s The Best Alternative

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