Save Time and Increase Profits with Fulfillment By Amazon
By: Chris Green, CEO FBA Power
1. FBA (Fulfillment By Amazon) Explained
If you sell online, then you have likely already heard of Amazon’s fulfillment program called FBA. If you haven’t heard of FBA, well then the cat’s out of the bag now. Sellers have been leveraging FBA program for several years and the sellers who have embraced this new service and taken advantages of its capabilities have enjoyed a nice margin and truly transformed their businesses. Entering its’ fourth year, FBA stands for Fulfillment By Amazon and it is Amazon’s version of a fulfillment company. Now fulfillment companies have been around for a long time providing storage and shipping services for their clients’ products, but what makes FBA different is that Amazon is also the marketplace for those items so they have an active interest in seeing the items sell. Additionally, FBA items are eligible for Amazon’s shipping promotions including Free Super Saver Shipping and Amazon Prime. This is what makes FBA incredibly powerful.
Even if you don’t currently use FBA and even if you don’t ever want to use FBA, it is important to understand how FBA works and how your competition is using FBA in their business.
2. The Triple Win
FBA can be described as a Triple Win.
Win #1. Higher prices, higher margins, higher payouts
Since items sold through FBA are eligible for Free Super Saver Shipping and Amazon Prime, FBA sellers actually raise their prices to match their competitor’s total price (price+shipping). So even with the addition of FBA fees, the FBA seller still receives a higher net payout from their Amazon sale because of the higher sales price. For example, a seller who ships their own orders who sells an item for $20 with $5 shipping will show the same as an FBA seller selling the exact same item for $25. Actually, the FBA seller will show first because FBA is the tie breaker.
Win #2. Less work
FBA sellers sell items 24 hours a day. 7 days a week. Items ship all hours of the day or night including weekends. They ship whether the seller is at home or on vacation. Once an FBA seller prepares their items for the FBA warehouse and sends them to Amazon, they don’t have to do anything else. They can monitor inventory levels and adjust prices as needed from anywhere with an internet connection. They don’t have to stock boxes, envelopes, packing materials, or shipping labels anymore. They also don’t wait around for their UPS driver or go to the post office every day.
Win #3. Happier Customers
It is estimated that 40-50% of Amazon buyers have never bought from a third party merchant. Amazon customers want to buy from FBA sellers. They trust Amazon and they know that their items will ship quickly and if there is ever a problem, Amazon will help (including an extended return policy). When your items are shipped through FBA (either for Amazon orders or Basic Fulfillment orders) they will attract these types of Amazon buyers who are willing to pay more to get their items shipped by Amazon. This is an important point to grasp: Amazon customers are willing to pay more for the exact same item if it comes from Amazon or an FBA seller. They do this because they know they will get their item fast and that customer service will be top notch.
3. Scalability Helps Small Sellers
The competitive advantages that the big sellers have enjoyed for years have vanished overnight with the introduction of FBA. A new seller on Amazon may make some good money by selling items out of their garage in their spare time, but if they wanted to make a real income they would have to scale up and get more space to handle more inventory and hire employees to help with all of the orders. Now they may make more money but they have additional overhead. There are two things that have kept small sellers small and those are space and time limitations.
As a small seller, you only have so much space in which to store products and you only have so much time to list, sell, and ship your orders. Ten orders a day can be fun. Twenty may get you excited. But can you fulfill 300 orders in a day? --Day after day? And shut down your entire business if you ever wanted to go on vacation?
With FBA, you can grow as big as you want. FBA removes the space and time limitations and allows you to compete on the same playing field as the big, established sellers on day one. There are no scalability restrictions with FBA. If you have access to products, you could sign up with FBA and ship them fifty thousand products in one day and be selling 500 items a day within the week. Manage your inventory properly and you could run an FBA empire from a studio apartment.
4. How Amazon Describes FBA
Amazon describes FBA this way:
With this innovative service, you send inventory directly to Amazon where it is stored and managed in a secure, climate-controlled facility. When orders are received, Amazon will professionally pick, pack and ship the product directly to your customer.
Amazon.com processes millions of orders a year while consistently ranking as one of the most trusted and highest customer satisfaction rated e-commerce companies. To maintain this unique combination, we have developed one of the most advanced online order processing and fulfillment operations in the world. From the advanced web-to-warehouse, high-speed picking and sorting system to our complete shipping carrier integration, Amazon's technology results in your customers getting what they ordered, when they ordered it.
Whether you're considering just a few items and shipments a week or millions of products and orders per year, you can put Amazon's expertise and experience to work for your business with Fulfillment by Amazon.
Put Amazon's Fulfillment Technology to Work for You.
You sell it, we ship it. Amazon has created one of the most advanced fulfillment networks in the world, and your business can now benefit from our expertise. With Fulfillment by Amazon (FBA) you store your products in Amazon's fulfillment centers, and we directly pack, ship, and provide customer service for these products.
Enjoy these benefits when you use Fulfillment by Amazon.
5. FBA Fees
There are fees that are associated with FBA. These fees include:
Inbound Shipping Fee
This is the cost of getting your items to the FBA warehouse. Amazon lets you use UPS partnered shipping so you get Amazon UPS rates which you can probably imagine are the best in the world. A 50 pound box typically ships for around $9-$15 depending on how close you are to your nearest fulfillment center. You can also arrange LTL shipments or choose your own shipper.
The varies depending on the categories that you sell in.
Handling Fee (for non-media items) – See chart
Pick & Pack Fee – See chart
Weight Based Fee – See chart
Storage fees are very low and the first 30 days are free. You can manage your FBA inventory levels and replenish your inventory as needed to keep 30 days worth of sales in stock to prevent paying any FBA storage fees. Even if you do end up paying storage fees, you’ll find that they are very reasonable.
6. Creating a Shipment:
Amazon has a great five page PDF outlining the entire process:
7. Pricing Your FBA Items
There are additional fees associate with FBA, but you will also sell your items for a higher price so in most cases you will actually receive a higher net payout per transaction even though you have additional transaction fees. This would seem impossible considering the fact that by using FBA you are also doing less work and a keeping your customers happier by providing faster shipping services than you could provide yourself.
8. Downside to FBA
Even with all the positive things that FBA allows sellers to do, there are some things to keep in mind when deciding if you are going to send all or some of your inventory to an FBA warehouse.
Amazon handles customer service for all FBA orders. Amazon is very conscientious about keeping their customers happy. They will allow a customer to return an item for any reason. This opens the door for abuse sometimes and there are instances where a customer takes advantage of this policy at the expense of your inventory.
If you find that you are receiving a higher rate of return on an item that is affecting your target margins, you will have to evaluate the item compatibility with FBA. You can raise your price to compensate or you can try to sell the item on other channels and ship your orders from your FBA inventory using Basic Fulfillment. You may even decide that the product is no longer a good match for FBA and you can request that Amazon return the products to you.
Currently, Amazon will ship your books and media items internationally for you at no extra charge (customer pays shipping). If you sell items from other categories on Amazon, they will not be eligible for international shipping (through Amazon direct sales or Basic Fulfillment). I would expect that Amazon will offer this service in the future.
Amazon as a Competitor
When selling on Amazon using FBA, you may enjoy a time of being the only FBA seller for an item. This is an ideal situation but it doesn’t always last. Other sellers can list their FBA inventory and start to drive the price down. Sometimes you may be selling an item that Amazon does not currently carry and have a type of exclusivity. In the event that Amazon starts to carry these products directly, they may be able to sell them at lower margins that you are comfortable with. In cases like this, you can try to sell your items on other channels and use Basic Fulfillment until you are out of inventory, or even request to have your inventory removed. Then re-evaluate the item considering your costs and profit margin goals.
If a customer returns an item, Amazon will determine if the item can be resold or not. If it can be resold, it will be added to your existing FBA inventory. If not, it will be marked as ‘unfulfillable’ and you will have to request that it be returned to you or destroyed. Best Practice is to remove your entire unfulfillable inventory once a month or so. You may find that items were damaged or that there was nothing wrong with your items. Just reprocess them to your FBA account if they are still in sellable condition.
Occasionally you may find that some of your inventory is missing. Sometimes they do lose it, and sometimes it just takes a long time to receive it. If Amazon loses or damages your inventory, they will compensate you for the items.
9. FBA Vendor Feature: FBAPower
As more and more sellers begin to utilize FBA for all or part of their business, third party providers will surely enter the market with dedicated FBA applications. One of the first of these companies to provide sellers with a one-stop FBA solution is FBAPower. They provide direct FBA listing as well as re-pricing and mobile price scanning. Originally designed to process and submit books and media items efficiently to FBA, they have recently added the ability to replenish inventory, upload and batch convert merchant fulfilled listings into FBA listings, and create original listings from within the FBAPower program.
FBAPower also offer a mobile scouting tool that allows users to quickly see all of the competitive pricing information for any product in the Amazon catalog. Billed as ‘The Ultimate Arbitrage Tool’, the scout allows the user to easily identify any item that represents an opportunity for profit on Amazon.
Fulfillment Center Identification
Bulk Inventory Upload and FBA Conversion
Instant and Individual FBA Label Printing
FBA labels are printed on demand as items are processed for shipping to
Pricing Data Provided
5 lowest offers in New Condition.
Built-in Error Catching
When multiple results are returned for UPC or ISBN searches, FBAPower will alert the user to verify the item that the user wants to list. Incorrect items can be deleted. Eliminates the possibility of sending mismatched items to FBA. Catches CD vs DVD, Import vs. Domestic, DVD vs. VHS, DVD vs. Blu-Ray and more. Example below.
New features coming soon including:
Re-Pricer designed for FBA Sellers
International alerts and integration
Multi-Channel Listing with Automated Basic Fulfillment
UPDATE: Since this article was written FBAPower has changed their name to ScanPower. You can find more information on their website: http://www.scanpower.com
Amazon – Fulfillment By Amazon
FBA Fees (PDF Download)
FBA Warehouse Tour (video)
Amazon FBA FAQ
Amazon Seller Community Forums
Amazon Seller Community Forums – FBA
Yahoo Groups – BooksellersFBA
Using FBA eBook
FBAPower (now called ScanPower)– FBA Focused Seller Services
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