Fulfillment by Amazon (FBA) is one of the two basic options for fulfilling orders that are available to Amazon sellers. If you're using FBA, you'll ship your products to Amazon, and they will handle picking, packing, and shipping orders for you. The other option is Fulfillment by Merchant (FBM), where you'll handle all your own fulfillment.
How Fulfillment by Amazon Works
When you use FBA, Amazon does all the difficult work for you. Here's an overview of how it works.
You ship your products to Amazon's warehouses There are around 100 Amazon warehouses all over the US, designed to allow for fast shipping across the country. Some of these warehouses are over a million square feet. All you must do is tell Amazon what you're selling, and they will give you shipping information so that you can get your products to them.
Amazon organizes and stores your products.When your items arrive at Amazon's warehouses, they'll sort them and add them to the warehouse inventory. They're safely stored there until needed for fulfillment. If anything is damaged once received, you'll be reimbursed by Amazon.
Customers make their purchase on Amazon.
The entire transaction is handled by Amazon's systems and personnel. Amazon will process the sale, accepting payment and updating your inventory.
Amazon ships to the customer. Your products are picked from the nearest warehouse, packed, and shipped to the customer.
Amazon handles the customer service as well. When a customer receives a product they've shipped, they'll follow up to make sure the customer is satisfied and will handle returns or other questions. You are still responsible for any feedback you receive through your product listings and reviews.
You're paid every two weeks. Amazon will total all your sales, deduct fees, and deposit your earnings into your designated bank account.
Pros and Cons of FBA
Overall, Fulfillment by Amazon comes with a lot of benefits. Here are some of the major reasons that many sellers prefer using Fulfillment by Amazon.
Advantage #1: Spend Your Time Building Your Business
If you're using FBM, you'll have to handle all the same tasks that you would if you were running a store completely on your own: inventory management, labeling, packing, shipping, tracking, and customer service. If you're a small business running out of your home or a small office space, it can be difficult to keep up with all these tasks.
With FBA, you hand off all those tasks to Amazon, freeing up your time to focus on building and improving your business. You'll be able to focus on product development and market research, online advertising, improving your product listings and SEO, building partnerships, and all the other things that you need to do to grow and thrive.
Advantage #2: Immediate Trust from Customers
Americans know and trust Amazon. People are confident ordering from Amazon knowing they will get their order in 48 hours. It might come in a comically oversized box, but it will arrive on time. If you're an FBA seller, you'll have “Fulfilled by Amazon” displayed prominently on your product listings. This has a huge effect on sales. Shoppers trust that they'll get the product they're ordering, and they'll get it promptly. They're much more likely to choose the FBA option.
Advantage #3: Automatic Prime Eligibility
Following the previous point, customers who use Amazon Prime won't buy products that don't have that Prime logo. No one will settle for waiting a week and paying additional shipping costs for any product that has a Prime eligible option. Almost 85 million people have a Prime account, making up close to two-thirds of U.S. households having Amazon Prime. By using FBA, you're gaining access to this huge customer base.
Advantage #4: The Buy Box
On the right side of a product listing page, you'll see the Amazon buy box: the all-important white box with the “Add to Cart” and “Buy Now” buttons. That's where the money comes from: 82% of purchases on Amazon via desktop are made with those buttons, and it's an even higher percentage on mobile. FBA lets you take advantage of these shopping behaviors.
Disadvantages of Being an FBA Seller
While the many advantages are clear, it comes with a few drawbacks as well that are important to consider. Here are the major disadvantages to consider.
Disadvantage #1: High Fees
We mentioned in the FBA overview that Amazon will deposit your profits every two weeks, after they deduct their fees, and those fees can run quite high. In most cases, the time and expense you save by not handling your own inventory storage, picking, packing, and shipping makes these fees worthwhile, but in some situations, you may not be in a position to afford those fees at a certain time.
Disadvantage #2: Giving Up Control
Signing up for Amazon FBA means forfeiting a significant amount of control. Many entrepreneurs are hesitant to give up any control over their business.
Your products will be delivered in Amazon boxes, without any options for customization. You can't use branded shipping boxes, or even include additional materials or a personal note in your shipments. This means you'll have less of an opportunity to build a relationship with your customers. Your products will simply look like everything else they receive from Amazon.
Disadvantage #3: Minimum Requirements and Strict Guidelines
To qualify for FBA, you need to be moving at least 40 items each month. If you're only just barely hitting that threshold, the work involved to prepare your inventory to meet Amazon's guidelines, and all the FBA fees, may not make it worthwhile. You may be better off handling your own fulfillment or working with a company that has better options for your current level of sales.
Conclusion
Fulfillment by Amazon has a lot of benefits, especially for sellers in competitive niches who are moving a lot of inventory. If your product has sizeable margins and you're consistently moving a lot of units, FBA can free up your time so you can move away from handling logistics and toward growing your business.
However, if your products have small margins and you're not making much per sale, FBA fees can bring your margins down to zero or even put you into the red. Handling your own fulfillment isn't free, in money or time, but if you're already working within slim margins or have low sales numbers, it's not a good idea to take on additional fees.