Amazon FBA - The biggest pros and cons
FBA (Fulfillment by Amazon) is a program that allows goods to be stored in Amazon's distribution centres. The seller sends their goods to Amazon warehouses, and Amazon then picks, packs and fulfils the orders for them. FBA also takes care of customer service and possible returns.
What is FBA?
One of the biggest challenges of growing businesses is inventory storage. Renting warehouses and the necessary logistics costs companies a lot of time and money. For this reason, Amazon launched the FBA (Fulfillment by Amazon) program. With FBA, you can focus on growing your business and leave order fulfilment to Amazon. You store your products in Amazon fulfilment centres, where Amazon prepares, packages and ships the products to customers. Amazon also provides customer service, including solutions for any return of goods or money.
How does the order fulfilment process work with Amazon FBA?
1. Send your item to Amazon.
2. Amazon will store the goods in its warehouses.
3. The customer places an order on Amazon.
4. Amazon will prepare and pack the goods.
5. Amazon ships the shipment to the customer.
What Amazon FBA won't do for you:
Although Amazon will do most of the work for you, there are 3 main responsibilities that you need to take care of yourself:
1. Selection of products - you choose which products to offer. It is ideal to choose products that will sell quickly so that you do not pay for long storage.
2. Inventory Control – Amazon stocks your products but does not control inventory or replenishment.
3. Marketing and Advertising – Even though Amazon is a huge brand in its own right, it is still necessary to promote your products effectively.
Pros of the Amazon FBA
Amazon FBA offers many benefits for sellers to help increase sales and reach new customers:
Logistics and transport - you don't have to spend time on packaging and transport, you save time and costs.
Reputation – Amazon has a strong name that people trust. This plays a huge role in whether they buy from you.
Amazon Prime – FBA automatically qualifies for Amazon Prime.
Higher ranking and visibility – Your products will appear at the top of search results.
More time – you will have more time to develop your business and strengthen your brand.
Transport protocols - you don't have to deal with customs regulations and transport procedures.
Fast Shipping - Amazon's online ordering system includes faster processing and shipping.
Returns - Amazon handles the entire return process for you. They handle everything from customer requests to reverse logistics.
Cons of the Amazon FBA
Amazon FBA offers many advantages, but it also has its disadvantages:
Cost – FBA is a paid service whose fees can be very high if you are selling large, heavy or cheap products.
The intensity of sales - it can be difficult to know how often you will need to restock, especially during busy months.
Difficult Starts – It takes time to increase profitability with FBA and the increase in profit may not be immediate.
Sending Amazon products - when sending goods, you must follow the exact rules set by Amazon, for example, to individually label the sent products.
Profitability – FBA is not worthwhile for occasional sellers due to high costs that can reduce sales too much.
As mentioned above, Amazon FBA is a paid service. Every seller using this program in Europe is subject to 3 main types of fees:
Storage fee - charged according to the occupied space in FBA warehouses. The fee varies according to the size category of the item, seasonality and storage time of the product.
Amazon Fulfillment Fees – charged for services related to the fulfilment of your orders (handling, shipping, packaging and returns)
Referral Fee: a fee for goods sold - every time your goods are sold, you must pay Amazon a percentage fee of the total sale price.
The advantages of Amazon FBA outweigh the disadvantages, which can be confirmed by a number of satisfied sellers. Over 78% of FBA sellers confirmed that their sales increased by more than 20%. FBA is not for everyone, but it is worthwhile for those who want to grow their business and reach more customers.