How Does Amazon FBA (Fulfillment by Amazon) Work?

Do you want to scale your business through Amazon? If so, Amazon FBA may be the perfect scheme.

Many sellers use Amazon FBA (Fulfillment by Amazon) to fulfill orders, provide customer service, and process returns. It is estimated that over 90% of Amazon sellers are using FBA to start their ecommerce business.

How does Amazon FBA work? This guide will tell you everything you need to know, including how it works, its advantages, and whether or not Amazon is best for your brand.

Amazon FBA: What is it?

Standing for Fulfillment by Amazon, Amazon FBA is a service that enables third-party sellers to access Amazon’s order fulfillment features.

It’s an easy and affordable way for small businesses to expand their operations using Amazon’s fulfillment centers. Sellers will no longer have to spend much money on storage facilities or shipping services for their ecommerce businesses.

At the same time, Amazon also provides FBA sellers with customer support and return support.

By joining the program, you can benefit from multiple features to streamline your Amazon FBA business, saving money, time, and effort while enhancing efficiency.

How Does Amazon FBA Work in 2023?

You may wonder how Amazon FBA works, and here is how:

Sign up: Amazon FBA is only available to Amazon sellers, so you must ensure a suitable account. To sign up, visit Seller Central Account. You can either sign up for an individual account or a professional account. If you start to sell as an individual, you will be charged $0.99 per item. If you subscribe to the professional plan, you will pay $39.99 per month. Sign up for a professional seller account if you take your amazon business seriously and sell more than 40 items monthly. Once you get the account ready, sign up for the FBA program.
Print shipment ID labels: Ensure you include the Amazon shipment ID labels on any products before sending them to the warehouse. When Amazon receives your products, the staff will safely store them according to these labels.
Pack the items: Your packages must obey the packaging guidelines of FBA. Otherwise, Amazon may reject your shipment.
Ship products: Now, it’s time to ship your products to Amazon fulfillment centers. Amazon will inform you of which warehouse to send them to, so be sure to use the address provided. Pack the items according to the shipping guidelines.
Customer orders: When Amazon customers purchase from you, Amazon will process the orders. The process will include packing and shipping the product to the customer from one of the Amazon fulfillment centers.
Customer service needed: If you are an Amazon FBA seller, Amazon will handle your customer service inquiries.
Refund and Return: Amazon can handle customer service 24/7 and manage refund and return for your customers. The FBA customer returns policies make it easy for customers to return products they do not like and save time communicating with the
Inventory runs low: When your products are running low on stock, you will get a notification from Amazon. Then it is time to send more to the Amazon fulfillment center.

Where-are-the-fulfillment-centers-located

Where Are The Amazon Fulfillment Centers located?

The Amazon fulfillment centers, from North America to Europe, Japan, and Australia, are located worldwide. You can find the list of fulfillment center locations here.

According to Insider, in 2022, Amazon experienced a considerable growth spurt of 79 million square feet in warehouse space. In 2023, they are projected to expand even further by adding 63 million more square feet. With its expansion, Amazon can improve its fulfillment capacity further.

What Are the Benefits of Amazon FBA?

Amazon FBA services offer numerous benefits to sellers, including:

Scales Your Business

Scalability refers to the ability of businesses to grow, allowing them to make higher profits. Third-party sellers can increase the size of their shipping and packing facilities thanks to this feature. Amazon FBA can relieve the business and allow the sellers to fulfill customer orders more effectively.

Removes Pressure

For many Amazon sellers, Amazon is merely a side hustle. However, by answering customer inquiries and providing order fulfillment services, Amazon FBA relieves sellers of the pressure.

Provides Space

Many independent Amazon sellers tend to work from their own houses. Therefore, finding a warehouse to store the products is troublesome when starting an online business. However, once you join the FBA program, you can ship the products to Amazon fulfillment centers without worrying about storage space.

Improves Efficiency

As one of the largest businesses in the world, Amazon has a fast and effective network for dispatching packages. Using this service, most sellers can send packages faster than without it.

Saves Cost

By shipping with FBA, Amazon reveals that you can save up to 32% per unit compared to the slowest delivery services offered by many of the U.S.’s top carriers.

FBA two-day shipping is significantly cheaper (72%) per unit than their alternatives, and you only pay for what you use — storage space and the orders Amazon fulfills.

Win Buy Box

The Buy Box is a small box found next to the right-hand size of products. This box will urge customers to either “Buy Now” or “Add to Cart.” When joining Amazon FBA, this box will appear next to products, and the customer will surely prefer purchasing from the product listings with the Buy Box.

Eligible for Amazon Prime

When sellers join Amazon FBA, they automatically earn an Amazon Prime membership badge, creating a whole host of benefits for sellers, including the ability to offer fast and free shipping.

Amazon Prime badge will also help to increase your customers’ trust in your brand. Many Amazon Prime customers take advantage of this free shipping and tend to purchase multiple products.

Simplify Selling In Europe

For many third-party sellers, it takes a lot of work to sell products on a large scale. When you sign up for Amazon FBA, you can choose how your products distribute throughout Europe by joining the Pan-EU FBA plan. For example, you can send your products to Amazon’s fulfillment center in Germany, and all the other European countries can share the inventory. As a result, your customer base can grow without adding too much workload.

Work Remotely

Since your products remain at Amazon’s fulfillment centers, you can continue to work remotely. Consequently, you can work from anywhere you desire. Many sellers prefer to work from the comfort of their homes.

Multi-channel Fulfillment

If you have your e-commerce website or sell on the social media platform, you can offer your customer prime-like order fulfillment service if you are an Amazon FBA seller.

What Are the Disadvantages of Amazon FBA?

Now you understand how Amazon FBA work and its advantages. So naturally, you will likely be eager to sign up for Amazon FBA. But the truth is that there are downsides to this service that you should be aware of before becoming an FBA seller. The key one is that Amazon FBA costs money and quite a lot. So here are its downsides in detail:

Amazon FBA Fees Can Be Costly

Unfortunately, Amazon FBA isn’t a free service. As a business, it’s understandable that Amazon would need to make money through this arrangement. Otherwise, there would be no benefit for this company.

How much does Amazon FBA cost?

Fulfillment fee: The fulfillment fees are usually 15% of the cost of the product, depending on what category that product is in. Other factors, such as the size and weight of the product, will also affect the price.
Stickering & labeling fee: Amazon charges a fee ($.20 per unit) if your products require any stickering or labeling.
Inventory storage fees: You will also need to pay a storage fee if you have any inventory stored in Amazon’s fulfillment centers. This fee is based on per cubic foot and is charged quarterly.
Long-term storage fees: This fee applies to products kept in the warehouse for more than 331 days. To prevent this fee, sellers should pay close attention to their inventory. They should attempt to sell their products by creating enticing listings and promoting good PPC campaigns.
Other occasional fees: Alongside the fulfillment and inventory storage fees, you may have to pay additional fees for using Amazon FBA. For instance, sellers may have to pay a returns processing fee, which will occur when Amazon gives customers a return with free shipping.

The FBA fees, including storage, fulfillment, and other occasional fees, may be too high for some, meaning that Amazon FBA isn’t worth the cost.

In particular, Amazon FBA is unsuitable for more minor and inexpensive products (However, you may join the FBA Small and Light Program if).

To see whether this service is worth it, Amazon provides an Amazon FBA calculator. With the Amazon FBA calculator, you can calculate the cost of a product through the Amazon catalog.

Proper Packaging

Amazon has a strict set of guidelines that you must follow when packaging your product. If you fail to follow these packaging and labeling guidelines, Amazon may not accept your package. In addition, these guidelines are time-consuming, and improper packaging can lead to further delays.

Lack of Branding

When you use Amazon FBA, you sacrifice any control over the product’s branding. Instead, Amazon’s branding replaces the original.

Businesses trying to construct a clear identity through their branding might dislike this. After all, they can easily use packaging to increase brand awareness by including their logo or slogan.

What Other Services Does Amazon FBA Offer?

Once you’ve signed up for Amazon FBA, you will get access to a wide assortment of features that can improve both seller and customer experience. The most vital tool that Amazon FBA provides is its inventory management, which significantly benefits Amazon FBA sellers.

Inventory Management

Sellers need to keep on top of their inventory. To help sellers do this, Amazon FBA provides advanced inventory management tools, allowing sellers to devise shipment plans and organize shipments.

For instance, the service gives restocking recommendations so that sellers will ensure they never run out of products.

There is also a dedicated service titled Inventory Age, through which sellers can track how long their inventory has been in a warehouse.

With this feature, you can:

Track the age of the inventory
Consider restocking recommendations
Watch stranded inventory
Control excess inventory

Therefore, the sellers can better manage surplus FBA inventory and avoid storage fees associated with excess inventory, such as the aforementioned long-term storage fees.

How Can You Unlock Sales from Amazon FBA?

Amazon FBA is a service that can significantly benefit your e-commerce business. Yet, to make your business as effective and profitable as possible, you must optimize your use of this service. These top tips can help you to benefit:

Find a good niche

Create a niche for yourself on Amazon. It’s best to specialize in a specific kind of product. For example, you may have an online store selling tennis equipment. Stick to this brand to become an authority in this niche. Most successful Amazon stores are specialized in one specific place rather than more so that they can leave the customer with the impression that they are the authority in this industry.

Make sure you research the category thoroughly and use analytics tools before making the decision. You do not want to sell in a saturated and highly competitive niche.

Create gripping and factually-accurate product listings

To increase traffic to your product, ensure that you’ve created a gripping and factually-accurate listing. It should include high-quality images of the product that make it appear appealing. In addition, ensure that you include important keywords in the title and description of the product.

Enhance online presence

Use social media platforms, like Facebook and Instagram, to market your Amazon store. Keep posting and engaging with your audience. Promoting your brand and products with monthly campaigns is also an excellent way to interact with your existing customers and attract potential buyers.

Keep your expectations low

When you first join Amazon FBA, you should start on a small scale. You should only send products to the Amazon fulfillment center that you believe can benefit from being sold through this service.

Sign up for Amazon Marketing Services (AMS)

Consider signing up for Amazon Marketing Services (AMS). As one of the largest e-commerce brands in the world, Amazon has impressive marketing strategies. To get ahead of your competition, FBA sellers should join AMS. Consequently, Amazon will promote your products through advertisements on shopping searches.

How Can You Tell If Amazon FBA is Right For You?

Before signing up with Amazon FBA, Amazon sellers must carefully consider whether or not this business model is suitable. While Amazon offers plenty of benefits, as outlined above, these advantages might only suit some businesses.

Amazon FBA is most suitable for businesses and sellers trying to grow and scale. The reason for this is that the service can help you to complete time-consuming tasks more efficiently. In addition, sellers can grow their customer base through this platform and increase their sales rank on the Amazon marketplace. They can also win features like Buy Box advantage to earn credibility from customers.

If you cannot keep up with the demands of Amazon FBA, such as regularly maintaining your inventory, this service may not be worth it. If the monthly storage fees that your stock would incur are too high, avoid Amazon FBA. Rather than selecting fulfillment by Amazon, you may choose other shipping methods.

Plus, this service may only suit some Amazon sellers trying to establish a unique brand identity through their packaging. Since Amazon has more control over the packing, sellers can lose their identity through the absence of logos. This is because when the parcel arrives at the customer’s, they will be impressed by Amazon rather than your brand.

Can Anyone Join Amazon FBA?

Yes, practically anyone can join this service, no matter the size of their business or level of experience. However, there are a few stipulations that you must be aware of before signing up.

Firstly, you must have an Amazon seller account. If you do not already possess one of these accounts, you can sign up through a business email address. You will also need a valid debit or credit card to join Amazon FBA if you incur various FBA fees.

Final Thoughts

Amazon’s FBA program is an excellent service for Amazon sellers who want to take their business to the next level. This platform offers many advantages, such as faster delivery, returns processing, and more effective inventory management.

However, this platform might only be suitable for some types of business. For example, if you cannot keep up with the demands of Amazon FBA or its fees, it may be better to look for another fulfillment option.

Before signing up for Amazon FBA, ensure you fully understand the requirements and costs of this service. This way, you can determine whether or not this model is suitable for your business.

Frequently Asked Questions

How Frequent are the Amazon FBA Storage Fees?

Storage fees are charged monthly. Typically, sellers must pay these fees between the 7th and 15th of each month. This payment will include the outstanding charges you incurred for the previous month.

Is it Free to Join Amazon FBA?

Technically, joining is free, as you won’t have to pay to set up an account. However, depending on your plan, you will have to pay different FBA fees. There are two plans:

Individual
Professional

You must pay $0.99 for all units you sell for the Individual plan. Meanwhile, a monthly fee of $39.99 is needed when you sign up for the Professional plan.

Though this subscription model may seem pricey, the Professional plan is an outstanding option for businesses selling high product volumes. Namely, it’s designed for sellers with more than 40 orders each month. Sellers on the Professional plan can take advantage of different features, such as being the top placement on product detail pages.