What does FBA mean?
Amazon is considered one of the largest online marketplaces in the world. It works with thousands of sellers as an online real estate agent and attracts buyers from all over the world.
To realise fast and efficient global delivery, Amazon decided to expand.
This has led to Amazon fulfilment centres around the world: in Germany, the UK, Scotland, Poland, Canada and many other countries.
Amazon is now the top ranked online retailer and is very attractive to sellers.
Selling on an online marketplace can raise questions for entrepreneurs:
What are the terms of trade?
How do you ship goods from one country to another?
Where are Amazon fulfilment centres located?
How does this affect a seller’s rating and how do you make a quick profit?
The online marketplace Amazon has its own answer to this: the Amazon FBA programme (abbreviated from Fulfillment by Amazon).
It is a unique form of sales processing that includes a range of fulfilment services, from goods storage to information support for customers.
FBA enables sales automation because Amazon handles all activities related to storing goods, processing orders and shipping packages to customers.
If you choose FBA, you can expect to pay monthly storage fees at the Amazon fulfilment centre of between €12.50 and €18 per cubic metre and Amazon shipping fees.
How does Amazon FBA work?
The Fulfillment by Amazon (FBA) programme is versatile and makes business operations much easier. The online marketplace takes care of logistics, delivery, warehousing and more.
The Amazon FBA system works according to a well-regulated scheme and consists of several steps:
The seller sends the goods to the Amazon fulfilment centre.
Amazon employees inform you exactly where to send your products. For a slightly higher fee, you can also choose the warehouse of your choice.
Amazon’s fulfilment centre sorts the goods and stores them in its warehouses.
The company stores the products in strategically located warehouses in the USA or in other countries. In case of damage, Amazon will refund the value of the goods .
Customers place their orders on Amazon’s online marketplace.
The transaction happens without your intervention; they update inventory automatically.
Shipping your order.
No need to confirm or change anything, etc. Amazon online marketplace also takes care of the packaging.
Serving customers .
After the buyer receives the package, Amazon contacts you. Amazon online marketplace staff will take care of customer objections and returns and answer questions.
Every 14 days, after deducting all necessary costs (packaging, courier service, etc.), you make a profit in the currency of the country where you sell the goods.
The seller pays the fees and gets the guarantee of perfect 24/7 customer service.
Amazon fulfilment centres also offer sellers a wide range of additional services:
- Possibility of long-term storage if the goods are not sold out for more than 6 or 12 months;
- Inspection of items for completeness and quality upon delivery from the manufacturer to reduce the number of returns from customers;
- Individual packaging of goods;
- Photo services, etc.
Advantages of Amazon FBA
Amazon FBA focuses on customer-centric service. This gives you loyal customers and at the same time the opportunity to increase your profits in online retail.
Let’s take a look at the key benefits of the Amazon FBA programme.
- Excellent fulfilment logistics
By taking care of goods delivery yourself, you constantly have to deal with organisational issues. Errors and financial losses are not uncommon in logistics processes in online retail.
In the case of Amazon FBA, the online marketplace is responsible for all logistics.
- Discounted shipping rates
The online marketplace Amazon works with major shipping companies to ensure that customers receive their orders from the Amazon fulfilment centre within a few days of placing the order.
If you have access to Amazon Prime customers, shipping is even within 1-2 days and completely free.
- Processing returns
Returns are a part of online commerce. However, Amazon FBA relieves you of this. Employees of the online marketplace deal with objections from dissatisfied customers and returns in the first month.
The elimination of returns logistics in online retail makes life much easier for sellers.
- Customer Service
Amazon FBA provides 24/7 customer support via phone, chat and email. This increases the loyalty of your customers. You can compare it to a call centre working for you around the clock.
Remember that online marketplace Amazon only resolves a limited number of complaints within the first month. After that, the seller takes over customer communication themselves.
- Unlimited storage space
With Amazon FBA, there is basically no limit to the amount of goods you can store.
The average Amazon fulfilment centre covers 50-60,000 sq ft of space. And sellers who sell their products as fast as they can get unlimited storage space for their goods.
That’s great motivation to speed up your online retail sales and increase revenue.
- Fast delivery
As soon as an order is placed, the online marketplace automatically determines which fulfilment centre is closest to Amazon for the buyer. From there, they ship the package, which optimises delivery.
You can’t worry about the storage quality of your goods in the Amazon fulfilment centre. The online marketplace’s warehouses are fully automated.
And if you decide to expand your product range, you will feel virtually no additional workload: Amazon FBA also partially takes care of warehousing worries.
Does FBA also have disadvantages?
Of course, FBA can also bring some challenges for online retailers. Among the disadvantages of the programme one could mention:
- Brand power from the online marketplace Amazon is quite strong.
The own brand of the seller who opts for FBA can suffer from this.
- Storage costs and other commission fees.
The better you sell, the less you have to pay to the online marketplace Amazon.
- Payment for long-term storage of goods in the Amazon fulfilment centre.
Long-term is defined as a period of six months or more.
Long-term storage costs are sometimes not flexible and high and can thus be disadvantageous for merchants.
However, if you consider all search criteria and apply a product selection methodology, the likelihood of long-term storage is reduced.
- Refunds and objections.
FBA relieves you of indirect communication with customers.
However, the financial responsibility for returns remains with the seller. Buyers may make impulse purchases and then want to return the goods to get their money back.
- Complex preparation of goods for shipment to the Amazon fulfilment centre.
Before you can hand over your products to Amazon, you have to label them correctly and enter them into the database.
- Difficulty tracking inventory.
The sale takes place without your intervention, but you still need to know what the online marketplace Amazon and how it sells, which goods are out of stock in the Amazon fulfilment centre.
If you use multiple channels in your online trade, it is important to synchronise all information.
- Problems caused by mixing goods.
Sometimes sellers on Amazon’s online marketplace have the option of merging to make it easier to prepare and label products.
However, if you mix your goods with inferior items, you may receive negative reviews on your page.
FBA is a very attractive programme, but it has both its advantages and disadvantages. Every online retailer should first evaluate whether it is worthwhile to use the services of an Amazon fulfilment centre. It depends on the product, sales volume and many other factors.