In e-commerce, it is better to prioritize your business’s entrepreneurial position instead of focusing on your everyday operations. If you are interested in the idea, you might want to try the Fulfillment By Amazon (FBA) program.
The FBA program lowers online sellers’ burden through Amazon’s assistance on fulfilling the storage and delivery of the products to its buyers. It starts when the seller creates an account with Amazon and joins the FBA program. Once product listings are to be posted in the marketplace, the seller must pack the items and ship them to the warehouse. From there, Amazon completes all the fulfillment tasks for the seller, including product returns and customer service.
So, if you wish to pursue your e-commerce dream by utilizing Amazon’s FBA, here are seven things that you must take note before diving into it.
#1 You need to spend.
Let’s not go around loops here: gaining access to Amazon’s fulfillment service will cost you money. Amazon, the largest online marketplace worldwide, offers its service for a fee to store, deliver, and handle customer services for FBA sellers. Technically, it is like renting out space at their warehouse.
However, Amazon will not ask for payment upfront. Why? Shipping is part of the program’s responsibilities. And as the shipping costs are altered depending on several factors, such as location and weight of the product, it will be difficult to ask for payment before a buyer closes the transaction and verifies the delivery address and the number of products to buy.
Additionally, FBA sellers are entitled to avail of a free two-day shipping promo to Prime account holders. It means that these customers can purchase a product online and have their items delivered within two days without putting an additional fee for you or the buyer for the shipment.
#2 FBA is not compulsory.
Start-up and small businesses have different product ranges and profit targets than medium and large organizations. What’s best with Amazon is that the FBA program is not compulsory.
If some sellers prefer to prepare their items for shipment to the buyers themselves, Amazon allows it through a different program, FBM (Fulfillment by Merchant). If the seller chooses this option, the items’ storage and delivery, plus handling product returns and customer complaints, will all be managed directly by the seller.
#3 You may use the FBA program to complete transactions on other e-commerce channels.
Did you know that you can utilize Amazon’s FBA program to help you fulfill your customer’s orders, even from other e-commerce channels? Yes! Amazon can do it for you.
When you expand your e-commerce business, you may try to explore other business channels other than through a marketplace, such as Amazon. Fortunately, your registration in FBA does more than you expect it to be. It can be your centralized warehouse and delivery partner, plus a customer service response center.
#4 There is a fee in shipping your products to the Fulfillment Centers.
Shipment fees to the customers are incorporated in the FBA cost, but take note that you need to spend a specific amount on shipping your products to Amazon’s fulfillment center or warehouse. Fortunately, Amazon has a preferred carrier that has a lowered cost compared to other providers.
#5 You need to pay a significant amount for long-term storage.
If your conversion rate is low, you might be surprised that Amazon charges a long-term storage fee on top of other FBA charges. If your products are stored in the warehouse for more than six months, you will receive a notification that you need to pay for a long-term storage fee to keep your items where they are.
If you have items that are in low demand at the time being, you need to include this fee in your forecast cost-benefit analysis in the future.
#6 You have to wait to get your sales money.
Congratulations! You sold some items from your Amazon listing. If you are under the FBA program, you must understand that you won’t automatically get the payment for the item you sold when a buyer orders the item.
Why? It is because, under the FBA program, the buyer pays for the price placed on the marketplace plus all other fees along with it. However, the payment comes first to Amazon. Amazon then obtains its cut and all additional fees then places the rest of the amount in escrow for several days to weeks.
Cases of return, exchange, and refund are the reason for keeping the money in escrow. Therefore, be very considerate in waiting for the profit actually to reach your palms.
#7 Personalized shipping plan is best to cut expenses.
Once your products are in the fulfillment center, Amazon will recommend your products’ best shipment option. When needed, the company might suggest the transfer of your goods to another warehouse. However, if so, the seller must pay for the transfer fees. However, there is a way to lower your expenses. It is through formulating your shipping plan, which you can request from Amazon.
To make it your shipping plan effective, you must understand your financial probability and your target buyers’ geographical location.
What are the typical fees under the Fulfillment By Amazon (FBA) Program?
Once you are subscribed under the FBA program, all the costs you have to pay will be broken down to understand what fees are applied to the transaction and what did not. Here are some of the standard fees that apply to FBA.
- Storage fees, including additional fee for long-term storage of six months and above
- Inventory services
- Removal order charge
- Fulfillment fees
- Unplanned service charge
- Return processing fee
Remember that fees differ depending on the product type, weight, length of storage, etc. To ensure that you understand where the costs come from, having an Amazon FBA calculator is a must. You can find this tool in your Seller Central portal.
Are you a beginner in e-commerce and would like to jumpstart your career with Amazon? Here are the four necessary steps that you need to take to go under the Fulfillment by Amazon program.
- Create a seller account and get into the Seller Central page.
- Start your product listing by putting up the items one by one into the catalog. You need to identify the category of your products through a drop-down list in the system.
- Pack your goods and prepare them for sending it to the Amazon warehouse nearest you. Use Amazon’s guidelines for packing, shipping, and routing to ensure that your goods reach their destination.
- Prepare the shipping ID labels, and you are good to go. Now, you can send your goods to Amazon, and they will do the rest for you.
The FBA program is an excellent approach to turn over the bulk of work related to e-commerce to a reputable and well-established company like Amazon. While it comes with a certain price to get access, the fees associated with it are worth it once you know all the tasks that they can do on your behalf. What you need to do is to monitor your orders and profit. Create a good marketing strategy, and don’t let your guard down with pricing.