There are over 2 million third party sellers on the Amazon Marketplace worldwide, generating around 50% of Amazon’s total sales.
If you sell on Amazon, or are looking to sell on Amazon as a third party seller, one of the first decisions you need to make is whether to use Fullfillment by Amazon (FBA) or to handle your fulfillment in house (or by a service).
Using FBA can significantly impact your sales and fulfillment efficiency, but FBA may not be a good choice for your online store.
Below are some guidelines to help you determine whether FBA is the right choice for your store on Amazon.
For more information on how to get started selling on Amazon, check out these Amazon resources:
- What’s the Best Way to Sell on Amazon?
- How Much Does it Cost to Sell on Amazon?
- What should I know about Amazon’s Product Detail Page?
What is Fulfillment by Amazon (FBA)?
Fulfillment by Amazon, often referred to as FBA is a fulfillment choice for sellers on Amazon which allots fullfillment for sellers products to Amazon. Amazon sells its own inventory on the marketplace alongside products from outside sellers. When a product from a third party merchant is purchased on Amazon, who ships that item depends on the fulfillment method selected by the retailer.
Check out Amazon’s explanation of how Fulfillment by Amazon works:
Merchants who choose to participate in FBA hand off fulfillment- packaging, sorting and shipping to Amazon. Amazon has 13 warehouses in the US which handle fulfillment- both for itself and third party sellers.
FBA– Fulfillment by Amazon. Amazon’s fulfillment service, a paid option for Amazon sellers who do not wish to bother with, or cannot handle fulfillment.
Note: FBA is a fulfillment option which sellers can choose for any or all of their products. Sellers vary on the number of products they choose to fulfill (if any) using FBA, depending on their margins, product category, and related seller variables.
Why should I Use Fulfillment by Amazon?
Fulfillment by Amazon is a good option for merchants who are looking to increase shipping time, and reduce time and money allotted to fulfillment.
Other FBA benefits for Amazon sellers include:
Less Business Operations– FBA elliminates fulfillment shipping efforts for selelrs. Instead handling warehouse management & packaging (handling shipping, picking) and those associated fees, retailers can pass off those task to Amazon
Amazon Prime: Amazon Prime customers purchase more, and more frequently than traditional Amazon shoppers.
- Using FBA increases product discover-ability as FBA products feature Prime shipping, and appear for Prime filtered searches.
- Prime users and purchasers increase seasonally, and can add a boost around the holiday. Last Q4 more than 1 million people signed up for Amazon Prime in one week.
- Conversions are more likely on detail pages that are prime eligible, which can increase sales for products you sell using FBA.
Customer Service & Returns: Amazon handles customer service and returns with FBA orders, which is a perk for sellers who aren’t customer service specialists.
Shipping Speed: For online shoppers, FBA means quicker shipping rates, Amazon Prime eligible shipping, as well as 24/7 Customer Service and delivery tracking through Amazon. FBA products are shipped from Amazon, so they process faster and ship faster than products sent directly from the retailer. Amazon emphasizes customer service, so shoppers can rely on helpful assistance.
Buy Box Share: FBA impacts key factors in Buy Box share variables including shipping, and seller rating. FBA is a good way to boost your chances of getting a share of the buy box for products where shipping or other Buy Box eligibility requirements might be hard to achieve.
Amazon Branding: FBA is fulfillment by Amazon. Amazon has worked hard to curate a brand around customer service and ease of online shopping. FBA aligns your store with that branding, and lends that reputation to your store.
More Sales: An Amazon 2013 study noted FBA increased sales by more than 20% for 73% of Amazon sellers using the program.
Amazon highlights FBA customer benefits as follows:
Selling on Amazon charges a percent of total sale profits. In addition to those fees, FBA charges fees based on:
- Item weight
- Handling fees
- Pick & pack
- Storage costs (sq ft.)
For some sellers, FBA seems like an expensive option, but keep in mind FBA encompasses fees for all of fulfillment- costs including warehousing and shipping. Use Amazon’s Revenue Calculator to scope out whether your products will be profitable using FBA.
FBA Cost Considerations
Amazon Fulfillment impacts your margin for individual products, which arguably limits profitability. However, with the increase of total sale volume and exposure, FBA is likely a good investment for your online store. For example you may make less money overall on a particular product such as a waterbottle, but you are likely to sell more waterbottles overall for a larger holistic profit.
Remember you’re not forced to use the FBA option for all of your products, so take the time to calculate which products are profitable to fulfill with FBA.
FBA may not be an option for your store depending on the comeptition surrounding your products, what products you sell, where your business is located, your margins, and other related variables.
FBA products are sold by third party merchants, and need to be labeled and shipped to Amazon warehouses before Amazon can handling fulfillment using FBA. Amaozn offers two labeling options for FBA, both which come with variables which may affect your profitability and time.
FBA Labeled Inventory- Require an individual label for each product sent to Amazon for FBA
Stickerless/ Commingled FBA Inventory- Allow merchants to exclude an FBA label. Amazon will use product identifiers (e.g UPC) to group your products with similar commingled inventory
Commingled inventory requires less work with labeling, but groups your products with other sellers for faster shipping. Commingling issues can arise with damaged packaging and commingling fraud.
Consider both options and your products when choosing FBA labeling methods. Also keep in mind you may want to choose one label method for a portion of your products.
Fulfillment by Amazon is a convenient fulfillment option which allows Amazon sellers to leverage Amazon’s resources to increase marketplace sales. Determine what your store budget, margin and profitability is for Amazon as a whole and for specific products before deciding to leverage Fulfillment by Amazon.