What is Amazon FBA and is it Right for Your E-Commerce Business?

As the world’s largest retailer ($232.9 billion in revenue in 2018), Amazon has incredible reach. It’s become synonymous with online shopping. One of the many reasons it has been so successful is its investment in a global marketplace that supports and helps 1.7 million sellers generate more than $118 billion in sales in 2018. The marketplace’s reach is extensive, but there are ways to stand out further from the crowd.

In particular, the Fulfillment by Amazon program (FBA). Designed to help merchants leverage the absolutely massive scope of Amazon’s logistics network, FBA allows them to take advantage of Prime shipping, ensuring faster fulfillment and often better visibility on the site. Of the top 10,000 sellers on Amazon’s marketplace, 66% use FBA in some form. But while FBA is often a good fit, that’s not always the case. Let’s take a closer look at when FBA makes sense for your e-commerce business, and what potential drawbacks you might face.

How Fulfillment by Amazon Works

FBA does exactly as it sounds. It removes one of the biggest headaches of eCommerce – fulfillment. Merchants send their goods to one or more of Amazon’s fulfillment centers where they are stored and, when someone orders from them, shipped. The process is relatively simple:

• Create Your Account – When creating your account, you must opt in to FBA, providing your tax information, business information, and bank information.
• List Products – Uploading your catalog to Amazon will largely depend on your goods and the process you choose to use, but there are ample guides on how to do this directly or via Amazon’s API.
• Send Products – Once you are enrolled in FBA, you’ll ship your products to Amazon’s fulfillment centers. Amazon will ship items exactly as they are received, so if you need to include documentation or anything else, now is the time to do it.
• Post to Amazon – Once your products are delivered, they will be listed on Amazon with the Amazon Prime badge to encourage buyers to purchase from you. From here forward, whenever a purchase is made, you do nothing to fulfill the order. They handle returns, customer service, and any logistics-related questions from buyers.

The Benefits of FBA

There are a considerable number of reasons to opt in to the FBA program with Amazon. In addition to Amazon’s massive fulfillment network, you gain:

• Inherent Trust – Amazon holds 49% of the US ecommerce market and 95 million people have Prime accounts in the US alone. By listing products in Amazon’s marketplace, vendors benefits from the inherent trust of such a large and widely. Used platform.
• Improved Rankings – For any given product, there may be dozens of merchants. Products in the FBA program are listed higher than those that are not because they are Prime eligible, helping to stand out against the competition.
• Special Offers – In addition to Prime Shipping for members, FBA products are eligible for free shipping in certain sized orders for normal, non-Prime accounts.

The Drawbacks of Amazon FBA

Often we focus too much on why FBA is a good fit, but for some merchants it is not. Based on your business needs, current goals and specific margins for individual products, you might find it makes more sense to continue managing fulfilment yourself when selling through Amazon. Some things to consider include:

• Fees – Amazon has a fairly reasonable fee schedule since they manage things at scale. They charge a combination of fulfillment fees for the shipping process and storage fees for holding your inventory. In addition, there are fees for correct labeling (if you don’t meet their requirements for barcodes), fees if your products don’t meet packaging guidelines, fees for stock removal and storage, and fees for returns processing.
• Large Items – Certain sized items make less sense selling via Amazon because of the additional fees involved. Not only must get those large, heavy items to Amazon’s warehouse, but they take up more room in storage and will cost more in fulfillment fees due to the higher cost of shipping. Often, this doesn’t make sense for certain companies.
• Strict Guidelines – Products must be specific labeled, packaged, and shipped to Amazon’s warehouses so they meet their very strict internal guidelines. Depending on what you are selling and how many you have to prepare for shipping, the additional effort to prepare those items may be too much.
• Co-mingling of Items – Amazon’s systems are designed to be as efficient as possible. If there is a like-item in their database closer to a customer’s address than yours, they may ship that instead. For some items like barcoded and new commodities, this may not matter. For others, it can undermine the quality of what someone receives, ostensibly shipped on your behalf.
• You’re at Amazon’s Mercy – There are horror stories of companies being banned from Amazon for any number of infractions. Some companies claim these things did not happen or that they were misunderstood, but the avenues to fight these issues are limited. Amazon will almost always side with the customer and it’s risky to ever be fully at the mercy of a third party company to keep yours afloat.

Is Fulfillment by Amazon Right For You?

There is no right answer to this question. For some businesses that have quality goods with decent margins, but minimal resources to manage logistics, Amazon FBA is a life changing option. For others, where margins are thin and the risks too great, it’s not always worth putting their business in Amazon’s hands.

It’s recommended that, if you are considering FBA, you perform extensive research and discuss the options with a third party who has ample experience working with the program. Make sure it’s a good fit for you and consider a pilot of a handful of products to see how the process goes. In the end, the decision of what works best for your company will be up to you.