Business with Fulfillment by Amazon: what, how and why
Research shows that 66% of the top 10,000 Amazon sellers use FBA.
FBA stands for Fulfillment by Amazon. This ultimate online sales and automation tool was first launched in 2006, and it has changed significantly the fulfillment and distribution process in e-commerce. Amazon revolutionized the pricing models for 3rd Party Logistics to have a simple catch-all rate. After that, shipping costs have become predictable, also, sellers have got an opportunity to store, pack and ship customers’ orders for a comfortable price.
In this article, we’ll take a closer look at FBA organization, its advantages and disadvantages, find out about product research and listing tools, and learn the story of an affiliate who decided to start an FBA business.
How does Amazon FBA work?
You gather inventory, send it to Amazon, and it handles most of the hard work for you. Let’s look at this process step-by-step.
The points below are what Amazon takes care of if you’re a seller.
1. You send products to Amazon. So once your product is sent, Amazon distributes it in one of its warehouses.
2. Amazon catalogs and stores your products. When your products arrive, Amazon catalogs it and adds it to its inventory. Then your product is safely stored. The reimbursement for the damage is guaranteed.
3. Customer orders your product. When a customer places an order on Amazon for your product, Amazon handles the transaction for you. The entire process is automated.
4. Amazon picks&packs your product. Your product is taken from the warehouse, packed and shipped to the customer on your behalf.
5. Amazon provides customer service to your clients. First of all, Amazon follows up with the customer after they received your product to make sure everything is fine. Secondly, Amazon handles any returns and manages customer inquiries. Thirdly, they have 24/7 support via phone, chat or email as well.
Advantages and disadvantages
As we mentioned in the previous chapter, most of the hard work as storing, packing and shipping is taken care of by Amazon. We want to stress several points.
1. FBA saves time and money if used wisely
2. Effortless logistics
Letting Amazon handle your shipping ensures that your products will get to the customers safely and on time. Also, shipping costs are predictable and Amazon has shipping discounts.
3. Amazon is trusted by customers.
When you back up your line with Amazon, you increase your chances of selling a product. For customers, Amazon means quick delivery and two-days shipping option at an affordable price.
1. Storage Fee
FBA includes two types of fees: fulfillment and storage. The fulfilment fee is a flat fee per unit, based on the product type, dimension and weight. The storage fee charged for cubic foot per month.
The fulfillment fee doesn’t bother sellers since it allows them to keep costs down by using a wide web of Amazon’s logistics partners. However, the storage fee can grow quite high if products tend to sell slowly. In this case, a seller needs concise inventory management to profit from FBA.
2. Co-mingled inventory
It means that the seller’s inventory is mixed in with other sellers and with Amazon’s own inventory as well. When a customer makes an order, Amazon may send the most convenient inventory instead of one sent by an original seller.
As a result, many sellers requested returns and their accounts were suspended. Therefore, a seller may get into trouble with Amazon even if it wasn’t technically their product.
3. Tracking can become more difficult
It is hard to track inventory changes since a seller doesn’t have access to the following information: what products are still available, what products they need to order additionally, and what products aren’t selling.
How can you start working with FBA?
The following steps will help you to start your Amazon business and predict your potential.
Do an Amazon product research
Your goal is to find products that you can get for cheap, sell for a good price and get profit. To find these products you need to look at statistics – sales, reviews and keywords searches.
To ensure the products’ demand, you should check if it is sold at least 10 items a day and its keywords have huge monthly searches on Amazon. In order to get this information, you should analyze best-sellers list by Amazon and other stores (eBay, AliExpress, Shopify), check the section “Customers Also Bought”, and search Amazon and Google keywords.
The good idea is to check “The most wished products” category. Thus you’ll get the idea of what customers themselves want. Just make sure that:
- Your product is not heavy and bulky
Otherwise, shipping and storage expenses may be huge
- No big brands associated with the product
Or customers will automatically buy a well-known branded product
- It is possible to improve and upgrade the product.
- Product is not fragile
- And it has recurring demand.
Create an Amazon seller account
In order to get your FBA business running, you need to create an account on Amazon. To register as an “Individual” seller is free in most countries.
You need an “Individual” account if you just start out and test waters because Amazon charges less for an “Individual” account that for a “Professional” one.
Run product tests
It is very difficult to guess what product will be a success. Tests help to try different listings and collect market data so you can find a winning product.
With some software, you can check what keywords, lead product images, product descriptions, and prices work better for your product.
Dojo. Is the most popular tool for split tests. It allows you to test each element of the listing to find out which options make you the most money.
Splitly. You need to run a test, and then come back some time later whilst Splitly does mathematical logic to predict which listing would work better for you.
From affiliate marketing to FBA business
We asked Ian Fernando, an affiliate who is transitioning to FBA to tell us about his personal experience of an FBA business.
How much time did it take to start at FBA?
It didn’t take much – since I had a lot of marketing books and I found out that they sold well on FBA I decided to let them go and sell them… so perhaps it was free? TO learn though I definitely took a lost on them as I wanted to learn fast. So I didn’t care about the margins as for me it was all about the experience and making mistakes and then making it profitable later.
How did you choose what products to sell? What criteria were the most important?
Honestly, I started out with books as a lot of youtubers suggested and then I went into other items that I found to be popular like toys and clothing. As of right now I am only doing arbitrage, so anything that has a low buy rate to a high sell rate is what I will sell.
What difficulties did you face in FBA?
Scaling is the biggest issue. Also right now FBA is getting so popular that products that you list in a category might get removed because Amazon says it isn’t fit for that category. So that is another learning curve all on its own. Another issue is being brand new, Amazon users depends on reviews and scores and since I am new without many scores I have to find a way to make sure I stay on top of Amazon while trying to get reviews and 5 stars on my profile.
What can one do to keep costs down? How to make FBA work for you?
First thing to do is understand basic metrics. That is the most important thing. Understand how Amazon costs work from shipping to them to buying to your time to the actual Amazon fees.
Is FBA sales activity any similar to affiliate marketing?
Very different. The reason is because there is really no marketing involved. Amazon has so many users you just need to understand the basics of PPC and you can easily get sales. There are just so many buyers and buyer intent users that inventory just moves. I literally send in inventory and while it is still in ‘transport’ it is already sold.
Do you think affiliates should turn to FBA?
IDK. I did this because AWA started talking about eCom and my buddy did a talk and basically sold an Amazon account for millions. So I was curious, these 2 platforms are 2 different beasts. One requires sourcing and negotiating skill while affiliate marketing is dependant on creativity skills. Yes both still need creativity for images descriptions and such but it is far easier to sell on Amazon with a horrible ad copy than an affiliate offer, even if you do get a .01% buy box percentage on Amazon. The craziest part is you pay when you sell, obviously the storage fees and such must be considered.
All in all, you need to do a lot of preparations to start working as a FBA seller. With good management, this system may become extremely profitable. If you feel a lack of creativity in your affiliate marketing activity, maybe FBA is your lucky chance.