Amazon FBA in 2019: How It Works (Benefits + Disadvantages)

Amazon FBA has become one of the most popular ways to earn income online. In fact, there are over 2 million people selling on Amazon worldwide.

Almost anyone can list an item for sale on Amazon, whether it’s something you’ve purchased wholesale, made yourself or simply a product you no longer want.

If you enroll in the FBA program, you can automate order fulfillment by taking advantage of Amazon’s advanced shipping and fulfillment services and earn more sales from Amazon’s coveted Prime customers.

About half of all sales on Amazon come from third-party sellers.

And out of the top 10,000 sellers, 66% of them use FBA.

What is Amazon FBA?

FBA stands for Fulfillment by Amazon.

What that boils down to is: you sell it, Amazon ships it.

The way it work is:

  1. You send your products to Amazon.
  2. They store them in their warehouses.
  3. When a customer orders one of your products, Amazon picks, packs, ships and tracks the order for you.
  4. They also handle returns and refunds.

All this does come at a price. Amazon charges both storage fees and fulfillment fees.

However, those fees include Amazon’s stellar 24/7 customer service, the cost of shipping goods to customers and access to one of the largest and most advanced fulfillment networks in the world.

Why Amazon FBA Matters: Stats to Know

Amazon has more than 300 million active customers, with 90 million Prime subscribers in the U.S. alone. Brands available specifically to Prime buyers are those that utilize FBA.

And, Prime customers spend more money with Amazon.

The average customer spends $700 per year on Amazon, while Prime customers spend roughly $1,300 per year.

This means that if you use Amazon FBA and are therefore more visible to Prime buyers, you can make more money.

How Amazon FBA Works

Amazon handles all the hard work for you within FBA, so the way it works is pretty simple.

1. Send your products to Amazon.

Amazon has about 100 warehouses across the U.S., some of which are over a million square feet.

You tell them what products you’re sending, and they tell you which warehouses to ship your products to.

2. Amazon sorts and stores your products.

Once Amazon receives your products, they’ll sort and add them to their inventory.

Your products are then stored safely in their warehouses.

On the off chance that anything gets damaged in the warehouse, Amazon will reimburse you.

3. A customer buys your product.

Amazon takes care of the entire transaction for you.

They accept payment and update your inventory automatically.

4. Amazon ships your product.

One of Amazon’s warehouse workers (or robots) grabs your product from storage, packs it into a box and ships it to the customer.

5. Amazon handles customer service – well, a lot of it.

Once the customer receives your product, Amazon follows up to make sure they’re satisfied with the shipment.

They also handle any returns or questions from the customer.

As for any feedback you receive on your product listing, it’s up to you to respond and take action.

6. You get paid.

Every two weeks, Amazon totals up all your sales, deducts your seller fees and deposits your profits directly into your bank account.

That’s it! Sound pretty easy? There are a few things you need to do to make sure you’re successful.

What You Are Responsible For When Using Amazon FBA

Here’s what you’re responsible for:

1. Choosing which products to sell.

You can sell just about anything you like, but if you want to avoid storage fees, make sure you choose products that will sell quickly.

2. Keeping your inventory in stock.

You’ll need to check your inventory levels on Amazon regularly to make sure your products stay in stock.

3. Marketing and advertising your products.

If you’re selling highly-ranked brand name products, you may not have to do this.

But if you’re selling your own custom products, you’ll need to make sure people can find them.

There are over 350 million products in Amazon’s catalog, so marketing is vital if you want yours to be found.

Benefits of Using Fulfillment by Amazon (FBA)

The FBA program is one of the top ways to grow your business and get your products in front of more people.

Amazon has an army of loyal customers, which can mean increased sales for you.

Some of the biggest benefits of FBA are:

1. Effortless logistics and shipping.

If you’ve ever managed your own fulfillment, you know it can be quite time-consuming.

Higher sales mean more time spent packing and shipping, or more money spent hiring someone to handle it.

FBA allows you to outsource the entire process, taking advantage of their expertise and experience.

2. Discounted shipping rates.

Amazon’s contracts with the major shipping carriers give them steep discounts on shipping costs.

They pass those discounts on to sellers in the form of reduced shipping prices when sending your inventory to Amazon.

Customers also benefit because many orders on Amazon are eligible for free shipping.

And Prime members get free two-day shipping on all FBA products – a huge incentive that leads to higher sales.

3. Management of returns.

Processing returns is a pain.

From dealing with upset customers to inspecting returns and handling all of the administrative aspects, Amazon takes care of all of that for you.

They manage customer inquiries, return shipping labels and reverse logistics.

They do charge a returns processing fee, but it’s worth it for the amount of work they take off your shoulders.

4. Customer service management.

Amazon has a reputation for providing excellent customer service.

They offer 24/7 support via phone, chat and email.

That eases customer’s minds, and takes a huge load off your plate.

5. Potentially unlimited storage space.

Using FBA means you don’t have to worry about how much or how little storage space you need for your products.

You don’t have to pay for a warehouse or worry about what size warehouse you need.

There are no inventory minimums, so you can send in as little as just one product.

Plus, sellers with high inventory performance scores (meaning your products sell quickly) get unlimited storage.

6. Quick delivery.

Amazon has hundreds of fulfillment centers all over the world.

So no matter where your customers are, they can reliably get products delivered to them within just a couple of days.

Once an order is placed, Amazon automatically figures out which fulfillment center is closest to the…

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