Fulfillment by Amazon (FBA) Guide for Merchants

fulfillment-by-amazon

The introduction of Fulfillment by Amazon in 2006 has made selling items online easier (and more profitable) than anyone thought possible.  Look at these numbers as a sort-of case-in-point. A successful merchant at startupnation.com indicates on his site that he sold 169,013 units in a span of a few months.  (He also has a few vendor cautions which serve as words-to-the-wise; we’ll touch on a few caveats shortly.) And, yes, rating proved important. This particular merchant has this to say about customer service:

“I should also point out that we maintained an almost spotless seller record on Amazon – 97% or better feedback and [were] rated [“]Excellent[”] by them, which is very tough to achieve.”

So, yes, price-points are important, but here an already-good vendor excelled by stepping up the client relations bit…and, as a result, sold over 150,000 units in a little under a year-and-a-half.

What does Fulfillment By Amazon (FBA) entitle you to, again?

FBA is a system implemented by Amazon.com which allows merchants to store products in their shipping centers until orders are placed.  And the “assist” doesn’t stop there. When orders are received, Amazon will professionally package and ship the product directly to your customer. This innovative system is designed to aid merchants in selling more products while eliminating the front-lines work like customer service and shipping.  (It also lets vendors focus on pitching their products and on acquiring said items.)

In this section:

  1. What is Amazon Prime and How Does it Tie In?
  2. Amazing Amazon Opportunities With FBA
  3. Step-by-Step Amazon FBA Process
  4. FBA: The Cost
  5. Q&A’s About Amazon’s FBA

What is Amazon Prime and How Does it Tie In?

To understand how well FBA works, you have to understand one of the largest benefits to customers: Amazon Prime. According to Linda Warwick’s What is Amazon Prime: The Complete Guide to the Amazon Prime Membership, “at its core, it offers unlimited free two-day shipping to its  members. This is especially appealing to folks who need product several times a month or week”…and need them fairly quickly; for instance, folks who need toiletries or cleaning items or even groceries on a regular basis.

amazon-primeAnd if you are really in a time crunch, Amazon will provide discounted expedited delivery.  (Consumers just need to check to see if the product is listed as Amazon Prime Eligible.)

So for a program where an Amazon customer gets totally free 2-day shipping for ANYTHING they order from Amazon, is the price sky-high?  Not at all. It’s $99 a year. The buyer can try it for free for 30 days.  This saves customers a bundle if they order regularly.

How does Prime tie in with FBA? After all, you’re not a buyer…you’re a seller!  Understood.  Here’s the deal: All items you, as a seller, send into the FBA program become automatically eligible for Prime free 2-day shipping!

This is a bonanza of an advantage over “Merchant Fulfilled” (MFN) sellers who ship items to their customers from their place of business or home address. You’re looking to sell merchandise on the Amazon platform because it can provide a lucrative, steady stream of income.  Indeed, using the FBA system to sell on Amazon brings you to a whole another level.

Take a look at these interesting tidbits:

  • FBA is nine years old as of 2016;
  • Prime is growing at over 20% year-to-date;
  • FBA has latched onto a healthy 38% (and growing) share of Amazon’s revenues
  • Amazon Prime, launched in 2005, has as many as 50 million members worldwide;
  • On average, Prime customers spend 130% more than non-Prime Amazon Customers;
  • Approximately 40 % – 50 % of Amazon customers have never even bought an item from a third party merchant. In other words, they want to buy from FBA merchants like you.

That fifth bullet point is quite an eye-opener, isn’t it? It’s worth repeating: Prime program customers purchase over 100% MORE than non-Prime Amazon customers.

Amazing Amazon Opportunities With FBA

Now let’s discuss the opportunities which FBA brings your way. This program can literally take a one-man or one-woman shop and turn it into a flourishing million-dollar-a-year business. How is this possible? Scalability! According to Wikipedia, scalability is the ability of a system, network, or process to handle a growing amount of work in a capable manner, or its ability to be enlarged to accommodate that growth.

Let’s imagine you were able to take all the time you now spend on marketing, customer service, and fulfillment tasks: to wit, photography and writing up listings, dealing with customer service issues, buying and organizing, packaging and shipping supplies, organizing and finding inventory when items sell; sending out newsletters; posting your listings on advertising and social media sites and related chores, and channel ALL that time into sourcing products.  What amazing opportunities might you discover? What deals might you make? What incredible bargains might you discover? What volume could your business do?

I’ve heard it said that there are two reasons that small sellers feel encumbered: time and space.  Most sellers who are starting to build their businesses have only so much space to store products and only so much time to process orders. “You bet I’d find a way to handle it, if things got busy,” you might be saying. “No problem there!”

Do you really mean that?  What if you were suddenly inundated with 200 orders PER DAY? Are you set up to handle that volume? Didn’t think so. Well, with FBA, the space constraint goes away, because you are paying extremely low rates to store your items in one of Amazon’s warehouses. Amazon has recently added new fulfillment centers and as of 2012 the total is at 89.

The time constraint goes away as you have “hired” (at pennies per order) a staff to handle your order processing, shipping and customer service.

Why do I recommend the FBA program so much? Easy: The FBA seller has only to source product; then spend, at the most, a couple of hours processing those items and shipping them to Amazon. Note:  Amazon’s low-rate negotiation with UPS is a savings that’s passed on to its customers.  Before you know it, your sales faucet will have been turned on full tilt! Amazon handles all shipping, customer support, and returns. Selling with Amazon is fundamentally easier with this program.

Regarding Your Inventory – You Are Not In The Dark!

With FBA, sellers can list and sell items 24 hours a day, 7 days a week without having to expend time or money on shipping and handling, customer support or return issues. Now here’s an important caveat:  although Amazon handles these “front lines” tasks, you, as a seller, are not exactly left in the dark!  Amazon has configured this program so you, the vendor, can monitor inventory levels and adjust prices as needed from ANYWHERE on the planet!  And isn’t it a good feeling to know that the packaging will arrive looking as if it were packed by an ultra-professional packing outfit? As can be expected, Amazon gives high marks to aesthetics!

As for you, well, I’m hoping you didn’t particularly like packaging boxes, licking envelopes or printing shipping labels, as you will no longer be concerned with, or doing, any of this.

And let Amazon use its brand muscle to help price-wise.  Since Fulfillment by Amazon is the most extensive and efficient shipping center in the world,  they offer some of the lowest shipping rates in the world. When sellers use FBA, they are entitled to  benefits which “regular” sellers are not privy to. The advantages include FREE Super Saver Shipping and Prime shipping eligibility, as well as up-to-the-minute countdown for one-day shipping. (This is a reminder service for your customers if they are intent on utilizing the one-day shipping feature.  You can only select this shipping option by a certain date, and Amazon will give clear instructions regarding that cut-off point.)

These very visible and specially marked offers help entice customer and display prominently throughout the Amazon site. Amazon.com processes millions of orders a year AND it manages to rank as one of the most trusted and highest customer satisfaction rated e-commerce companies. FBA orders are processed using the same pick, pack, and ship system used by Amazon for its own orders, with automated inventory tracking and order processing. This completely circumvents the issues of missing or lost merchandise.

Step-by-Step Amazon FBA Process

Some readers might need to visualize the steps in the FBA program to understand what it’s all about.  Or, you might be ready to launch your maiden FBA voyage.  Either way, here’s the process:

ONE

Whether you have new or used products, you send your items directly to Amazon’s fulfillment centers by:

  • Uploading your listings to Seller Central;
  • Decide whether you want Amazon to fulfill all or part of your orders/carry all or part of your inventory;
  • Either print PDF labels which Amazon provides or you can opt to select FBA’s Label Service (where they do it);
  • Use the discounted shipping service Amazon provides or you can choose to use your own carrier.

TWO

Now it’s time for Amazon to store your products.

Amazon will prepare a ready-to-ship inventory by cataloging and warehousing your items.

Amazon scans your deliverables and keeps a record of your unit dimensions. You can now start monitoring the tracking system.

THREE

Next—and here’s the good part, right?–customers will see your product and start the buying process. This is when Amazon fulfills products ordered on Amazon.com. And hear this: Amazon will fulfill orders you’ve listed on your fulfillment request which have NOT resulted from sales on Amazon. (Yes, they’ll fulfill those, too!)

When being fulfilled, your orders will be ranked by price, as there ARE no shipping costs for orders over $35.  (This excludes Multi-Channel Fulfillment orders from other websites and services including Amazon Webstore and Checkout by Amazon.)

As mentioned earlier, you, as an FBA member, will also have access to accelerated or expedited shipping options for eligible FBA listings.

FOUR

Amazon will now pick and pack your orders. “How can Amazon handle such a multitude of orders?” you might be wondering.  Here’s how: They’ve developed a state-of-the-art web-to-warehouse and high-speed picking and sorting system which greatly facilitates the process.  Customers would also, if they desire, be able to combine your orders with other products fulfilled by Amazon.

FIVE

At this point, Amazon can ship the product to your customer from their network of fulfillment centers.   They honor the order method your customer has chosen and also provide the necessary tracking information.  If the product was ordered on Amazon.com, they will provide customer service, as well.

And that’s that!  End of FBA process.   You’ll notice that it was developed so that nothing falls through the cracks.  Again, this should provide peace of mind for you and free you up to do what you need to do: obtain products and strike good deals!

Ready to get started? The company has something called a Quickstart Guide where you can add the FBA program right to your Amazon seller account.  One click takes you right to the Inventory à Manage Inventory section of your account.)   Go here for the link:

http://www.amazon.com/gp/help/customer/display.html?nodeId=200229160

The best part of Fulfillment by Amazon is you can be as BIG as you feel capable of becoming! The playing fields and limitations have leveled. Amazon sellers can have more access to products and shipping and more scalability if they so choose.  In the “old days” pre-FBA, when one needed to provide additional storage as their business grew, this sort of scalability may have proven prohibitively costly. Now, even without brick-and-mortar warehouses, sellers can sell more products than they ever thought possible…and they can do it under the auspices of a reputable and profitable company.

FBA: The Cost

FBA is not a free service, of course.  (Amazon is in the business of making money…and I’m hoping the practice rubs off on you!) There are several fees associated with using the Amazon FBA service. To begin with, sellers on Amazon need to join either an Individual selling plan (for .99 per listed product  which sells; it’s a pay-as-you-go account ) or a Pro Merchant selling plan (for $39.95).

Individual FBA Plan

The Individual plan is for small sellers who have only a few items to sell. The setup includes a single listing creation; an online listing; an order management service and access to tools on Seller Central to perform necessary account functions.

Pro Merchant FBA plan

The Pro Merchant plan is for higher-volume sellers and includes multiple listings, with spreadsheets and uploads, and inventory and order management– using reports and feeds. You also have access to the Amazon Marketplace Web Service where you can upload feeds, receive reports and perform other Application Programming Interface (API) functions—which are a set of routines, protocols, and tools, according to Wikipedia.

Amazon FBA Storage Fees

Amazon FBA charges storage fees for all unsold items in Amazon’s shipping centers. In other words, when items don’t sell, FBA customers are charged a fee for it. The rates vary from $0.45/cubic foot per month to $0.60/cubic foot per month.

Although some of the fees associated with the FBA program charge according to your product’s size and weight, the pick-and-pack handling fees are fixed. What this means is that if your items tend to be small(ish), not too heavy, and sell at higher prices, the FBA fees will slide down a bit. For example, a $10 item that is large and heavy will represent a large percentage of your expense margin, whereas the fees for a small and light item that sells at $30 will represent a much smaller percentage.

Legendary Amazon seller and selling guru Skip McGrath gives the following examples: a bracelet, gun holster, and a Bluetooth speaker, as small, lightweight, high-priced items that win the Buy Box nearly every time. Popular items that sell quickly are also given the thumbs up by Amazon for its FBA program.   In a nutshell, it doesn’t make sense (or cents) to send something to Amazon that isn’t likely to sell and may languish in storage. This will rack up storage fees–however modest they are.

Other sellers dispute this, claiming that low sales rank items—stuff you just can’t move no matter how hard you try—are just the ticket to send to FBA; they’ll sell, all right; or at least their chances of selling usually go up quite a bit, primarily due to  Amazon’s Prime “teaser”, aimed at purchasers.  We’ll touch on Low Rank items in the next chapter.

Are you a single-person-operation?

This is right up your alley. With Amazon FBA, even a one-person outfit can now affordably AND profitably outsource the order fulfillment process. By utilizing the services and fulfillment infrastructure provided by FBA, online sellers can now focus on revenue generating activities like sourcing and marketing. This beats spending eight hours a day packing and shipping orders!  You’ll find you’ve got better things to do with your time.

Want to hear about an approach that further reduces fulfillment costs for you?  I’m sure you deal with wholesale distributors. So do I.  Well, believe it or not, many wholesale suppliers are now willing to ship DIRECTLY to FBA on behalf of the merchant.  How cool is that?

When all is said and done, the FBA program depends on Amazon’s reputation. Folks know that Amazon has mastered the distribution process and will send the item quickly.  They also rest in the knowledge that, If anything throughout the entire ordering process goes wrong, Amazon will make it right.

Here’s a merchant who decided to take blow-by-blow screenshots of an FBA shipment for his Amazon business. You might find it a helpful addition to what you’ve read so far.

http://www.onlinesellingexperiment.com/guide-to-creating-your-first-amazon-fba-shipment/

Have you learned what you need to know about Amazon’s FBA service?

Q&A’s About Amazon’s FBA

Before we end the section, I thought you’d like to read a few short Q&A’s about Amazon’s FBA, courtesy of a helpful e-commerce site, which follows. I’ve changed the words around a bit for clarity’s sake.

Q: Is Amazon’s FBA only for those who sell on Amazon?

A: No. As we mentioned, orders can be fulfilled from other channels. Amazon’s FBA can fulfill orders from other sites and marketplaces and even catalog call centers

Q: How do I know if this will save me money…or cost me more in the long run?

A: Click on this link to calculate what it would cost you to ship with FBA: https://sellercentral.amazon.com/gp/fba/revenue-calculator/index.html/ref=xx_xx_cont_xx?ie=UTF8&lang=en_US

Q: Does it really go over big with customers that Prime is tied into FBA?

A: Absolutely. These are the perks for Prime customers: free super-saver shipping, prime shipping eligibility, gift wrapping and 24/7 access to customer service!

Q: I’ve got business ventures which appeal to the European market. Can FBA help with that?

A: Absolutely! Not only is FBA available in the U.S., but if you’ve got items going to the U.K. Japan, Germany or France, you can use Amazon’s FBA. Note that you’ll have to create a separate seller account for each of these countries, and manage their accounts separately as their terms may differ.

Q: Do I have to manually enter inventory data?

A: If your images and descriptions, and other inventory data are already on Amazon, and have been assigned an ASIN or UPC, you don’t need to create a new listing. If it’s not already available for sale on Amazon, yes, you must provide this content.

Q: I’ve heard about co-mingled inventory and don’t want that. How do I avoid this?

A: If your products meet certain specifications, you may opt for “stickerless, co-mingled inventory” which lets you ship and list separate stickerless products. If you don’t want co-mingling, print your own labels and affix them before shipping. They can still be fulfilled through Amazon’s FBA.

Q: I would like to include phone orders in my business. Does Amazon’s FBA handle orders by phone?

A: Currently, FBA handles orders placed electronically or via its site (Amazon.com). It’s suggested that you hire a call center, or employ people to take your orders. You may then have these orders transcribed and submitted to Amazon as part of their Multi-Channel Fulfillment program. Author’s note: see this link for more information: http://www.amazon.com/gp/help/customer/display.html/?nodeId=200240460