What is Amazon FBA? And is it right for your business?

Fulfilling orders can be a time-consuming and frustrating task for small business owners. You probably didn’t start your business to be packing orders and sorting deliveries.

On the surface, Fulfilled by Amazon (FBA) offers small business owners the chance to hand over the fulfilment of their orders to Amazon. This, in theory, should free you up to spend more time doing what you love.

But is it too good to be true? And how easy is it to work with Amazon? And what will it cost? Keep reading to find out if Amazon FBA could work for your business.

In this guide, we’ll break down the following:

• How does Amazon FBA work?
• What’s the difference between Amazon FBA and FBM?
• Is Amazon FBA right for my business?
• How to get started with Amazon FBA
• How do Amazon FBA fees work?
• Can you make money from Amazon fulfilment?

How does Amazon FBA work?

The concept itself is quite simple – you sell your products on Amazon and they’ll fulfil the order for you. This means they’ll take care of:

• picking, packing, and shipping your order
• managing returns and refunds
• storing your product
• customer service

All you need to do is arrange for your products to be sent to one of Amazon’s fulfilment centres, then they’ll handle the rest.

You pay fees depending on the size, weight, and category of your product as well as monthly storage fees. We’ll go into more details on how the fees work later on.

You can choose to ship your products directly from the manufacturer to a fulfilment centre or have them sent to you first. That will depend on whether you’d like to check your products before they’re sent to your customers.

What’s the difference between Amazon FBA and FBM?

Fulfilment by Merchant (FBM) is the other way for small businesses to sell on Amazon but there are key differences.

The main difference between Amazon FBA and FBM is who handles the fulfilment side of the process. With FBM, you would need to handle the storage, delivery, and customer service yourself – and you'd just use Amazon to sell your product.

With FBA, you’re handing over the fulfilment to Amazon which means you’ll pay higher fees than you would with FBM.

There are positives to both ways of selling, so it’s important to understand which is right for you.

Is Amazon FBA right for my business?

Having orders fulfilled by Amazon doesn’t suit every business. As a small business owner, you may want to have control over the logistics of shipping and delivery yourself.

But fulfilment is a time-consuming and sometimes complex process to manage. Amazon FBA can take some of the weight off your shoulders.

The positives of Amazon FBA

• access to additional storage space – because you’re using Amazon’s warehouses, you don't have to store items yourself
• saves you time – because you won't have to pack and ship orders yourself
• your items can be sent through Prime – which could help boost your sales because fast deliveries are popular with buyers
• 24/7 customer service – Amazon will handle the returns and customer service so you don’t have to

Things to consider before signing up to Amazon FBA

• less personalised – because Amazon deal with the customer service you won’t be able to have a personal approach with your customers
• returns – Amazon’s site makes it simple to return products, so there’s a chance you’d experience more returns than with other marketplaces
• high fees – the fees with FBA are much higher than with FBM because Amazon take on more responsibility
• competitive – selling on Amazon is very competitive and it’s difficult to stand out
• higher fees for bigger items – if you sell large or heavy products, you’ll pay higher storage fees for each item because of the amount of storage space they use

How to get started with Amazon FBA

If you decide FBA is right for you, there are a few steps you need to take to get set up. It’s worth keeping in mind that Amazon FBA is complex and these are the main steps to get you ready to sell.

Make a shipping plan in Amazon Seller Central

Amazon Seller Central is the hub where you monitor all of your sales activity. You need to have a registered Amazon seller account to access it.

The shipping plan provides Amazon with the details of your order, such as:

• the amount of products you’re sending
• where you’re sending them
• if you’re sending more than one type of product

The video below breaks down how to navigate each step on Seller Central.

Follow Amazon’s packaging and prep requirements

Amazon has packaging requirements that you need to follow so everything runs smoothly. Here are some things to check before you send your order:

• that the boxes are rigid and fully intact
• each item is wrapped individually
• that you've used strong shipping tape (string or packing film isn't suitable)
• items have a single address label with delivery and return information
• that there’s at least two inches of protection between each of your items and the box

Send to the fulfilment centre

There are a few routes you can take to get your products to one of Amazon’s fulfilment centres.

Depending on the number of products you’re sending and the size and weight of them, you can use the Amazon Partnered Carrier Programme. This is a service for FBA sellers where you can arrange for someone to pick up your products and deliver them to a fulfilment centre.

You then need to choose whether you need a small parcel delivery or a palletised shipment for a large order. The benefit of doing this through the Partnered Carrier Programme is that you can organise the whole process through the Seller Central page.

You can also get your products sent directly from a manufacturer to a fulfilment centre. But there are two potential issues to be aware of:

• you won’t be able to do a quality check on the products before they’re sent to customers
• you need to make sure that the manufacturer follows Amazon’s packaging and prep requirements

How do Amazon FBA fees work?

There are set fees that apply to all sellers on Amazon, regardless of how you fulfil the order.

For each sale, you’ll pay a referral fee to Amazon. The referral fee is Amazon’s commission and it sits between eight and 15 per cent of your sale.

Then there are costs that only apply to sellers using Amazon FBA. Because you let Amazon handle the fulfilment of your orders, the fees are higher than if you’d shipped the products yourself.

And although you'll spend more on fees with Amazon FBA, that doesn’t necessarily mean it’s cheaper to fulfil the orders yourself. Particularly with large orders, Amazon offers discounted rates with their couriers through the Partnered Carrier Programme.

There’s a revenue calculator in Seller Central that estimates the fees of your order. These are called fulfilment fees and they vary depending on a few details of your order like:

• the size and weight of your product
• the category of the product
• monthly storage fees

The calculator will let you compare the fees between FBA and FBM and you can decide which option is best for you.

Something to bear in mind is that during busy festive periods like Christmas, Amazon’s FBA fees will be higher due to increased demand.

Can you make money from Amazon fulfilment?

Because of the higher fees involved with Amazon FBA, it’s natural to think about the impact on your profit margins. But there are ways to give yourself a better chance of being successful when selling with Amazon FBA.

Selling on Amazon FBA could be considered more of a passive income to begin with. This is mainly because the fees are high, so your margins will inevitably be impacted.

But if you have a relatively established product already, Amazon FBA will give you access to one of the biggest selling platforms in the world.

And if you can build credibility as a seller, you'll get more customer reviews and make more sales, so your presence on Amazon will grow.

Once you start making more sales, Amazon FBA could become your sole selling platform.

Are you planning to sell with Amazon FBA? Let us know in the comments below.

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• A simple guide to selling on Etsy
• How to write a business plan
• What’s the best business bank account?
• How much is business insurance?