If you are an entrepreneur and thinking of getting into the e-commerce world, you need to learn about Fulfillment by Amazon (FBA). Typically, the first thought that comes to your mind is what does it mean to be “fulfilled by Amazon”?
FBA basically means that your inventory will be fulfilled by Amazon. This way, you can better focus on the entrepreneurial aspect of your business. Once a customer selects an item from your site and purchases the product, Amazon manages all the other aspects, from selecting the products from their inventory to packing and shipping the products out to the customer.
Working of Amazon FBA
More and more people around the world are taking advantage of this outsourced shipping and handling offered by FBA. It works on simple principles that are easier to understand. First and Amazon seller signs up with Amazon’s FBA program. After that, they can create their own product listings on Amazon.
After creating a listing, all they need to do is prepare their products and send them to an Amazon warehouse. Moving forward, Amazon takes care of everything that has to do with the fulfillment of the order.
If you need to come to a decision on whether to use the Fulfillment by Amazon service, you need to keep the following points in mind:
- Expenses
FBA can be expensive for new businesses. Amazon charges the business owners for the storage and fulfillment of their products and orders. These charges are incurred on a monthly basis. The amount is determined by the space occupied by your inventory in Amazon warehouses. Amazon does not charge its sellers for shipping, which is covered in the FBA fees charge.
Despite the fact that FBA is expensive, it comes with its own set of benefits. FBA offers the sellers to ship out their products for free and in two days to their Amazon Prime customers.
- Sales Quota
Amazon does not set a quota for sellers that they need to sell on a monthly basis to be part of the Fulfillment by Amazon program. Amazon offers FBA service to all kinds of sellers, even those who have a low number of sales.
Most of the sellers enrolled in the FBA program make $1,000 to $25,000 per month in sales. How much you earn mainly depends on the products that you are selling and the number of sales that you generate in a month.
- Shipping Charges
FBA fees cover the shipping cost that is incurred when items are shipped to customers. However, you do incur expenses when you need to send your products to the fulfillment centers. Amazon has partnerships with courier services that you can use to ship your items to the fulfillment center at low costs.
If you use the Amazon-partnered carrier, they will ship your products to the fulfillment centers. The cost of which will be billed to the FBA account you have as an ‘inbound transportation charge.’ The partial and full truckload options offered by Amazon through its partnered carriers help the sellers send out a large number of items to the fulfillment centers more easily and cost-effectively.
- Storage Charges
Amazon charges the sellers for the storage of their products, and as we already know, the amount is determined by the size of the products. Amazon uses the First In, First Out (FIFO) method, which basically means that the product that arrived first at the warehouse will be the first to be shipped out when someone places an order for it. Once the product has been shipped out, the seller does not have to pay its storage fee. Once new products are stored at the warehouse, then the seller has to pay the storage fee until its sold.
- Long-Term Partnership
If you are unable to sell your products for a long period of time, then you can be subjected to the long-term storage fee along with FBA fulfillment fees. For example, if products are left in the warehouse for six months or a longer period of time, then you have to pay the long-term storage fee. If you have products in your inventory that have a low number of sales, you need to consider it into your cost-benefit analysis. To make the analysis easier for you, Amazon offers Amazon’s Inventory Age reports to look through the products that have the lowest number of sales.
Conclusion
These are some of the most important factors that you should know about how does Amazon FBA works. The bottom line is that Amazon FBA can give a significant boost to your business by providing you with a wider base of potential customers at an affordable rate.
