Fulfillment By Amazon (FBA) is a service provided by Amazon that provides storage, packaging, and shipping assistance to sellers. This takes the burden off of sellers and grants them more flexibility in their selling practices. The program allows sellers to ship their merchandise to an Amazon fulfillment center, where items are stored in warehouses until they are sold. When an order is placed, Amazon employees physically prepare, package, and ship the product(s).
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The Benefits of Using Fulfillment by Amazon Services
Sellers can take advantage of all of the resources and benefits associated with Amazon when they sign up for Fulfillment By Amazon. These include:
- Having Amazon’s Name Associated With Their Products: This is a quality guarantee that most buyers will appreciate, making them more prone to patronize a seller because of it. Having the Amazon name associated with their products will help sellers gain the trust of consumers, who expect excellent customer service and rapid delivery with FBA.
- Subsidized Shipping Fees: Because Amazon has a relationship with the shipping companies, sellers using this service will be able to pay less in shipping than if the items were being delivered from an individual’s account. Also, sellers can offer free shipping over a certain amount since products sold through FBA are eligible for Amazon Prime and FREE Super Saver Shipping.
- Multi-Channel Fulfillment: Amazon can ship and handle inventory that is being sold on multiple channels, and not just through the Amazon marketplace.
- Shipping Standardization: All FBA orders are processed in exactly the same way Amazon handles its own merchandise. This means that when someone purchases an item, Amazon picks the item from their inventory, packs the item, and ships it to the buyer. A seller can feature an item on his own website, and, through the Fulfillment By Amazon service, still have Amazon take care of all of the heavy lifting.
- Access to the Prime Audience: Qualified FBA listings are Prime-eligible and displayed with the Prime logo. This enables the seller to reach new and existing customers who seek out free one- or two-day shipping, filter specifically for Prime-eligible products, and only convert if the Prime badge is visible.
Drawbacks to Fulfillment by Amazon
- Costly Fees: Fulfillment and storage fees, including long-term storage fees, can pile up quickly, especially with slow-moving or oversized products. Sellers are also charged removal fees for defective, damaged, and unsellable products as well as disposal fees to get rid of unsellable inventory.
- Product Handling Issues by Amazon: Sometimes inventory can get lost or damaged in the fulfillment process. Oftentimes, the error is on Amazon’s end, not the seller’s. In these cases, Amazon will reimburse the seller proactively. However, some cases might go unnoticed, during which inventory is damaged and sellers’ money is lost. Sellers should keep records of their shipments in case Amazon short receives inventory.
- Precise Product Guidelines: Amazon has specific requirements for certain products (i.e. poly bagging and bubble wrapping) to ensure they arrive at Amazon fulfillment centers in optimal condition. Sellers can also choose to have Amazon do the prep for a per-item fee.
- Stickerless Commingling: Amazon’s default inventory setting is to commingle the same products together from a manufacturer. That means if a seller is selling the exact same product as other retailers or sellers, their inventory will be mixed together. Sellers should be wary of commingling, as low-quality products from less reputable sellers may be pooled together with their own products, which can lead to fraud and account suspensions.
- More Returns: Given that Amazon handles returns with FBA, sellers may experience higher return rates once customers understand how easy it is to return a product on Amazon.
Fulfillment by Amazon Fees
Amazon charges several kinds of fees to FBA members.
- Standard Seller Fees: Amazon takes approximately 15-18% of the product price as a seller’s fee when an item is sold. How much will vary depending on the product. Amazon says they charge 15%, but there are some hidden costs such as refunds that are not fully charged back, which increases the overall charge to the seller.
- Fulfillment Fees: These fees are per unit, vary depending on if the product is standard size or oversized, and include picking and packing, shipping and handling, customer service, and product returns.
- Inventory Storage Fees: Based on the calendar month and daily average volume, sellers are charged a monthly storage fee per cubic foot of inventory. These fees also vary by the product size tier. Long-term storage fees apply to units that have been stored in an Amazon fulfillment center for longer than 365 days and are in addition to any monthly inventory storage fees.
- International Shipping: Amazon now offers Global Export, which allows sellers to send their inventory all over the world.
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Fulfillment By Merchant (FBM)
Sellers are encouraged to compare the FBA service to manually storing, packaging, and shipping inventory to see if this is the right choice for them. There are many differences in practice between the Fulfillment By Amazon and the Fulfillment By Merchant (FBM) services. For a comprehensive discussion on the topic, see the FBM or FBA page.
Today many other service providers are entering joint ventures with Amazon. These online retailers want to be able to take advantage of the convenience provided by this fulfillment service. By entering into an agreement with Amazon, these third party retails can have Amazon automatically ship their products that they have sold through multiple marketplaces rather than dealing with the entire process themselves. Since FBA launched its Beta in 2004, the most noticeable trend is its consistent and steady gain in popularity. Now, rather than giving a business a competitive advantage, most businesses will agree they must have FBA to stay competitive. Promoting FBA has become a business in and of itself.
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