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    Amazon FBA: Explained

    “Fulfillment by Amazon” or Simply “Amazon FBA” must be a term floating around you a lot nowadays. Many sellers have successfully used the opportunity provided by the same marketplace to enhance their business and reach out to a different and vast group of buyers. Different Social Influencers on Instagram, Facebook and Twitter have been sharing their secret of success on how they used Amazon FBA to earn huge profits and since the same has been marketed heavily, many people seem to overcomplicate the whole idea behind the simple Amazon FBA.

    Introduction

    Before diving deep, let’s understand what actually Amazon FBA is and what the main idea behind it is. To put it into simpler terms, Amazon FBA is another store for sellers to market their products. One might ask, if it simply is nothing more than a different store to market your products than why is it such a big deal, well because it is. So basically, the Amazon FBA is much more than the other store for the rest, with the extended facilities of Warehousing, Shipping and their unique customer service, they are in a separate league of wholesome business solutions. 

    Why does Amazon FBA stand out?

    Almost anyone can list any item for sale on the Amazon FBA, whether it be something you have purchased in large quantities, produced your own self, or simply a product you have used and now wish to sell. This combined with the fact that around 54% of units sold in Quarter 2 of 2019 by all the marketplaces was accounted for by Amazon really tells us a story of how influential and prominent it is in today’s market. Out of the top 10,000 sellers, 66% of them use FBA.

    With almost 2 million Sellers Amazon FBA is one of the world’s biggest marketplace and again with above 300 million active customers, you know your products with the right strategy and marketing are going to be a hit. 

    How does Amazon FBA work?

    Amazon FBA does offer you warehousing, shipping, and customer sales assistance but these features are totally optional, with Amazon FBA you are not restricted to anything but in contrast, are provided with options that suit your business style.

    1. First-Party Seller – 1P
    • Generally is a brand manufacturer that sells inventory directly to Amazon
    • Products Labeled as “Ships from and sold by Amazon.com”
    • Once the products are sold, you have little to no control over the storing and shipping of the products.
    • Amazon becomes the legal owner of the inventory and is free to control the final price in case of bulk orders.
    • The first party seller needs to be a highly credible brand associate as well as a trusted retail giant in order to collaborate as a first-party seller with Amazon FBA.
    1. Third-Party Seller – 3P
    • Sells products directly to the consumers
    • As no change of ownership is involved, is legally the owner of the record
    • Products labeled as “Fulfilled by Amazon” or “Ships from and sold by the retailer”
    • Full control over the pricing and shipping of the products.
    • Options to ship the products directly from his/her warehouse, through third party companies or through Amazon FBA
    • Third-party sellers acquire their inventory either by purchasing it directly from the manufacturers or by other retailers.
    • Third-party sellers are generally not a credible brand and hence the products sold can be stolen or counterfeit.
    • In order to make huge sales as a third party seller, you need to have a good seller score.
    1. Hybrid Seller
    • As the name suggests, a hybrid seller markets the goods both through first-party and third-party techniques.
    • The seller can be both the manufacturer as well as a retailer.
    • The hybrid seller might choose to sell some of his products directly to Amazon and the other products directly to consumers as he deems profitable.

    Everything, in the end, boils down to the correct strategy of marketing and the product you choose to sell for your business, with the right product and appropriate marketing, your brand is going to be a success.

    Note: Amazon FBA is not just for orders placed through Amazon.com but can be used to fulfill orders from your E-Commerce site as well.

    Necessary Costs

    Amazon FBA does provide you a whole range of features but it comes with a price, which again is divided into different and separate fees you pay to access these features, most notably:

    1. Inventory Storage Fees – Amazon handles the storage fees by size (standard & oversize), the weight of the product, the platform, and time of the year you are storing your product. For example, a small item that is 0.5 lbs (like a pen drive) will cost less storage fee, similarly, products sold through other marketplaces (such as BigCommerce) will cost you extra. 

    Amazon FBA has different provisions regarding different factors that affect the storing of the inventories, some of them include:

    • Products to be delivered using special delivery options.
    • Storage fees are generally higher during the month from October to December
    • Different product categories might have different handling fees.

    Note: Please refer to this guide provided by Amazon FBA for a more accurate estimation of your storage costs.

    1. Long Term Storage Fees – One major factor that an individual should keep in mind while storing their products with Amazon FBA is the duration of the storage. You will need to understand how quickly your product moves. Maintaining a sound and efficient inventory management system can help you minimize this cost. 
    1. Fulfillment Fees – Is charged per unit or per multiple units as the case may be. The fees include picking and packing of orders, shipping and handling, customer services, and product returns.
    1. Unplanned services fees – Generally can be avoided, as the name suggests and is charged when the products are not properly labeled or prepared according to the instructions provided by Amazon when they arrive at the Amazon fulfillment center. Hence, the inventory must be correctly entered into Amazon’s database, properly labeled, and then shipped to the right warehouses.
    1. Removal order fees – Charged when Amazon returns or disposes of your inventory in their fulfillment center. Is charged on a per-item basis.
    1. Returns processing fee  – Charged whenever you provide your customer with free return shipping facility. 

    What’s your responsibility

    Being a seller at Amazon FBA can be a boon and a curse at the same time. With access to limitless possibilities, there are some measures of success you need to count as you progress. 

    1. Choose the right Product: The foremost and the most important part is to decide what product you are going to sell. Are you going to manufacture these products or either procure them from the manufacturer and then sell them? Whatever the case may be, it is very necessary you understand the demands of the market, with the right product, you along with Amazon FBA are set for a smooth sail.
    1. Inventory Management: Although Amazon FBA does provide warehousing, the inflow, and outflow of inventory depends on you. You need to make sure you understand the basic mechanisms of how your inventory moves so that you can control the amount of manufacturing and keep your product in stock whenever required.
    1. Marketing and advertising: One thing that Amazon can not do is advertise your products. When it comes to traditional advertising, running campaigns, and basically building your brand, you need to do it either manually or outsource it. Marketing is one of the most fundamental basics and hence your approach towards the same will be the key to the success of your project.

    Notes: 

    1. Amazon Marketing Services (AMS) is another option but is different from building your own brand step-wise step
    2. Amazon does provide paid promotions through featuring your products in their “related products sections”

    Advantages

    • Discounted Shipping Rates
    • Safe and Secure Transactions
    • Unlimited Storage
    • Fast Delivery of products
    • With most of the necessary work being handled you can focus on production and marketing better
    • Access to their 5-Star customer service assistance
    • Managed returns processing
    • Integration with your own website
    • Amazon Prime Members get goods delivered within two days free of cost – hence leading to higher sales.
    • The turnover is deposited to your account hassle-free with every fixed time interval
    • Access to a store with a potential of million buyers.
    • Trustworthy and Credible
    • A great and easy way for sellers to grow their market

    Disadvantages

    • Easier returns processing system amounts to users who order products only for trials.
    • Sometimes, Amazon in case a buyer is situated far from the warehouse where sellers product is stored, sends the same product from a different seller from a nearby warehouse. This can lead to reduction in the quality of your genuine products.
    • Difficulty in manual management of inventory which if isn’t efficient can lead to higher long term storage fees
    • The products need to be prepared the Amazon way before they are sent to the Amazon fulfillment center, the labels and packaging need to be in compliance with the Amazon standards, hence extra efforts are required. Failing to fulfill the instructions provided by Amazon might lead to an Unplanned service fee being charged.

    Conclusion

    Well, in the end, about 54% of brands are now already present on the E-Commerce site, and with the uncertain future ahead it seems, online shopping is the way to go for now. The average customer does spend $700 per year on Amazon, while Prime customers spend roughly $1,300 per year indicating a huge potential if the process is carried out thoughtfully. Finally, it all depends on how you market your product and make the most out of it. Different businesses have different criteria and a path that may lead to success for one company does not mean the other will necessarily benefit walking the same path. Hence, you need to evaluate your options and choose the style that benefits your brand the most. The possibilities are limitless and so is your brain. 

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