All about Fulfillment by Amazon: FBA Pros and Cons

When you think of online marketplaces, the first thing that comes to mind is Amazon. Indeed, Amazon is the most important online retail platform. Amazon FBA allows any online retail business to utilize this successful platform. Read on to learn how Amazon FBA works and what advantages and disadvantages are to expect.

1. What precisely is Fulfillment by Amazon?

Those who want to trade via Amazon have two options:

• Fulfillment by Merchant aka FBM: This option provides for a merchant to take care of shipping and storage himself and offer his goods on the platform.
• Fulfillment by Amazon aka FBA: Amazon takes over a large part of the logistical processes such as storage, parcel tracking, hotline, delivery and reverse logistics. For a certain fee, of course. The seller only has to prepare the goods and send them to the Amazon fulfillment center. Or alternatively, goods can be first sent to the prep center, where they will be arranged according to Amazon requirements and then transported to Amazon fulfillment center. Find out more about the benefits of using a prep center here.

FBA simplifies commerce by delivering goods to Amazon and shipping them from there to buyers, even worldwide if the merchant wishes. This allows a merchant to conveniently operate his business from anywhere in the world.

2. How does FBA work?

• First, a trader must register as a retailer with Amazon to obtain a professional account. This allows the trader to trade as many products per month as they wish. Alternatively, there is also a basic account, which is more suitable for those who only sell less than 40 items per month.h.
• After acquiring an account, a merchant can list items in Seller Central by specifying quantity, price and terms.
• When putting listings online, the option "Shipping by Amazon" should be chosen.
• Amazon will provide a merchant with instructions on how to dispatch articles to Amazon's logistics center.
• After the goods have arrived at the Amazon warehouse, they are scanned and stored there. They are then placed on the marketplace and marked as "shipped by Amazon". Eligible items are marked as Prime.
• When one of the items is ordered, it is packed by Amazon and delivered to the buyer. The customer receives a tracking number.
• Amazon also operates a hotline in the local language and has engaged logistics instead of a merchant.

3. Requirements for using FBA

A merchant must meet certain strict Amazon requirements to trade with FBA:

• The merchant must ship 5 or more parcels per day.
• 99% of all orders must be sent to buyers on time.
• The order cancellation rate must be below 1%.

4. How much does FBA costs?

The professional account costs 39 euros per month and allows the merchant to sell an unlimited number of items. However, you have to expect percentage fees for each sale.

The basic account does not incorporate a monthly fee. As a FBA merchant, you pay 0.99 EUR per sale plus percentage fees.

If a refund is required, Amazon will refund the referral fee. They charge a handling fee or the referral fee, whichever is cheaper.

Percentage costs include shipping and storage costs. Shipping charges depend on the storage location, type, size and weight of the goods. Storage charges are levied per month and calculated by volume or cubic metres. Winter costs also differ from summer costs. Storage is slightly more expensive in winter than in summer because most Amazon sellers want to replenish their stock.

Also remember that at a certain point, Amazon will start charging for long-term storage in addition to monthly storage fees.

5. Pros and cons of Amazon FBA

A merchant has many factors to consider while analyzing whether FBA can be useful for their enterprise. To help you make a decision, we have put together a list of Amazon FBA pros and cons.

5.1. Amazon FBA - Advantages

• Streamlined operations
  Amazon FBA takes care of warehousing and delivery, making it easier for merchants to focus on other areas of their business. This saves them time and reduces the stress of managing these processes themselves.
• Prime benefits
  Items delivered by Amazon are eligible for the Amazon Prime programme, which includes perks such as free delivery within two days and exclusive offers. By participating in Amazon Prime, retailers can increase their visibility and the number of sales they make on the platform.
• Improved search visibility
  In addition to the benefits of Amazon Prime, FBA products can also gain higher visibility in Amazon's search algorithms. This can help merchants' items stand out from the millions of listings on the platform.
• Improved customer experience
  By using Amazon FBA, merchants can improve the customer experience by offering fast and reliable shipping and hassle-free returns. This can drive customer loyalty and encourage repeat purchases.
• Access to the Amazon delivery network
  Amazon FBA provides access to its extensive delivery network, including multiple fulfillment centers and delivery services. This gives merchants an advantage over their competitors in terms of speed and options.
• Secure storage
  Merchants minimize the risk of damage or loss to their goods when they store them in Amazon's fulfillment centers. The centers are equipped with the latest security measures to ensure the safe storage and handling of goods.

5.2. Amazon FBA - Disadvantages

Although the service offers many benefits, merchants should weigh the potential drawbacks before deciding to use the service. These are the main Amazon FBA cons:

• Costs
  One of the major downsides of Amazon FBA are the fees that accompany the service. These fees cover various aspects such as storage, picking, packing and dispatch. They can add up quickly, reducing a seller's profit.
• Limited influence
  By outsourcing the fulfillment process to Amazon FBA, merchants can face challenges in maintaining control over the business operations, such as the warehousing and dispatch of goods. This may impact the quality of the customer experience and the merchant's brand image.
• Inventory management issues
  When utilizing Amazon FBA, merchants must prepare their inventory according to specific rules, which can pose challenges for some businesses.
• Heightened competition
  With a vast number of products available on Amazon, merchants that use FBA have a lot of competitors. This competition can make it difficult for merchants to stand out and attract potential buyers to their products.
• Returns and refund management
  Amazon FBA handles all returns and refunds for products fulfilled through the service, taking control away from the seller. This can affect the customer experience and the merchant's reputation.
• Strict regulations
  If a merchant wants to use Amazon FBA, he must comply with strict rules, such as those related to labeling and packaging. Failing at keeping up with these guidelines can result in penalties, fines, or even suspension from the program.

Conclusion

The choice to use Amazon FBA hangs on the specific needs of each merchant and their business. While the service offers convenience and entry to a large audience, it also involves costs and a loss of control. By carefully weighing the Amazon FBA pros and cons, merchants can make an informed decision about whether Amazon FBA is the right choice.