How Does Amazon FBA Work?
Fulfillment by Amazon (FBA) helps entrepreneurs build and scale their e-commerce businesses to meet the rising demand of online consumers. E-commerce has been trending upwards for the past several years and has experienced a significant jump in 2020 with a growth of 32.4 percent year-over-year, according to eMarketer data. Seeing this kind of data may leave you asking, how does Amazon FBA work?
Through the Amazon FBA Program, Amazon uses its fulfillment centers to store, pack, and ship your products to your customers. FBA also maintains customer service interaction regarding delayed shipments, damaged packages, and other incidents that may occur during delivery. To get started with creating an FBA business, there are three basic steps.
Set up an Account
First, to get your Amazon business off the ground, create an Amazon seller account. You can easily track sales and forecast business growth through Seller Central, which is your main portal for managing your account. Here is where you add product information, update inventory, manage payments, review customer metrics, and download business reports to gain insights regarding how well certain products are selling.
Create Product Listings
Once you’ve established your FBA business account, create product listings. Keep in mind, specific pieces of information will be needed for each product. These include:
- Product Identifier (e.g., SKU, UPC)
- Product title
- Product description and bullet points
- Product images
- Relevant keywords and search terms
It’s essential to optimize your product listings to make your business discoverable for potential customers. Be specific about details that will make it stand out.
This step is where you highlight what makes your product unique, what separates you from other competitors, and emphasize the value it provides. Although you can go back and edit your listings and descriptions, they do serve as your business’ first impression, which means you’ll want to take time to proofread and edit before publishing for the first time.
Prepare and Ship Products for Transport
Now it’s time to prepare products for transport to an Amazon fulfillment center. Establish a shipping plan, print shipment ID labels, and send your products to Amazon following its packaging guidelines and requirements. As an Amazon FBA business, you delegate to Amazon the responsibility of storing your inventory and shipping products directly to customers.Once Amazon’s fulfillment network receives your shipments, they’re ready for customers to buy.
Any entrepreneur or small business with a product to sell can use Amazon FBA to grow and scale their business. Of course, not all online businesses thrive. Those who have high-demand products and an engaged, built-in network tend to grow more quickly as a third-party seller. It takes time, consistency, and a positive site reputation to reach fulfillment goals to reach a profitable level.
Managing Your Own Fulfillment vs. Using FBA
A common question is: how does FBA work if you want to manage your own fulfillment? When considering whether to manage your own fulfillment or use FBA, consider if you can price items that will still turn a profit after shipping rates are applied. The amount of inventory and space you have, the variety of products, and the weight and shipping rates for your products all play a role in whether merchant fulfillment or FBA works best for you.
Amazon applies shipping rates based on the category your products fall under and the type of shipping service the customer selects. When starting with a smaller inventory, merchant fulfillment allows you to assess costs first-hand and deal directly with customers, which may be beneficial as you build your brand. However, as you begin to grow, FBA helps you expand your business and meet fulfillment orders in a timely, efficient way.
Fulfillment fees are one of the main determining factors of managing fulfillment on your own versus using FBA. Merchant fulfillment means you’re in charge of determining storage rates for inventory and packaging and shipping costs. The amount of inventory you have and your projected average monthly selling rate will help determine the option that makes more sense for your business. In addition to fulfillment fees, there are three other Amazon cost categories for sellers to consider.
- First, sellers can choose from an individual plan that costs $0.99 per unit sold or a Professional cost plan, which results in an Amazon FBA fee of $39.99 per month, regardless of how many units you sell.
- Second, referral fees are a type of Amazon FBA fee that is charged for each item sold. The amount is based on the product category and ranges between 6 and 20 percent.
- Third, Amazon fulfillment fees are attached when you use FBA and are calculated based on your product's weight and dimensions.
- Finally, other fees like sponsored content, long-term storage fees for unsold products, and other premium services are applied as implemented.
Why use FBA?
E-commerce entrepreneurs use FBA primarily because Amazon has the storage space to house their inventory. It’s also beneficial that Amazon offers customer service for returns, exchanges, and other shipping needs as you continue to create products and grow your business.
Plus, your products are eligible for Amazon Prime free one-day or two-day shipping and other advantages. With most U.S. households having a Prime membereship, having it as an option for your goods already creates consumer confidence in what you’re selling. According to Statista, Amazon Prime users grew to an estimated 112 million in the U.S., an increase from 95 million in June 2018.
How does FBA work once the fulfillment process is established? When you have the basics in place, Amazon provides advertising opportunities. These options include sponsored products, sponsored brands, and Amazon stores. This boosts your products to receive top placement in customer searches for your product or products similar to yours. Sellers are able to reach global audiences and ship to all corners of the world through FBA.
Additionally, Seller Central offers tools and resources that allow you to create deals and coupons, expand your selection, deliver enhanced brand content to consumers, and automate pricing to simplify the process. Brands that want to reach a massive audience more quickly rely on FBA to market, sell, and ship their products.
Getting Started As an E-Commerce Seller
As with any business, there are several steps to prepare as you get started as an e-commerce or FBA seller. These include organizing inventory, labeling products, tracking stock, and marketing your brand, among others. Regardless of whether you’re using FBA or fulfilling your own orders, you want to have your inventory organized in your physical storage as well as online. Determine how many of each item you have in stock, how many have been shipped to fulfillment centers and/or customers, and when you anticipate more inventory.
The larger your company grows, the more challenging it will be to track the exact amount of what you have to sell and what has already been sold. When set up with an FBA business account, you have the option of saving time by creating bulk listings and managing inventory through spreadsheets and reports. Either way, streamline the process by staying organized.
The next step is merchandising your products. How you describe your products is important when catching a consumer's eye and showing up on search results. Perform search engine optimization research to ensure your products meet the demand created by the majority of potential buyers. Make your product listings appear uniform in how they’re formatted to establish a user-friendly listing that’s easy to digest and gives all the pertinent information needed for a buying decision. Also, familiarize yourself with Amazon’s character count requirements for each section of your product listing. There are certain parameters you must stay within to meet Amazon’s layout and product listing rules.
Through Amazon FBA, you can easily track the number of units in stock and sold through the Seller Central Portal. This tool gives you insight into when to acquire more products to sell. Having a steady stream of available products ensures you’re able to meet demand for your customers. The reports provide data to show you which items are selling more frequently. It prompts you to plan ahead and forecast for ebbs and flows of the buying cycle and seasons. For example, if you’re an Amazon seller producing face masks, it’ll show you if a particular pattern or color is purchased more often than others. This information is valuable as you expand your brand and create new products.
Finally, Amazon FBA puts your brand name in front of a large audience immediately, and automatically instills a sense of trust from consumers, since they’re buying from a platform they already recognize and rely on.
To set your brand apart from others, employ a marketing plan that includes social media campaigns, customer newsletters, and other ways to differentiate yourself and create a loyal following. It gives you another opportuni
ty to highlight what makes your product unique and reasons why consumers should choose yours over a competitor or other similar products.
Rewarding E-Commerce Entrepreneurs Selling Through FBA
How does Amazon FBA work when you're ready to try something new? Once you’ve established the inner workings of creating a profitable business selling through Amazon FBA, you can duplicate the process and apply it to other ventures and product lines.
Forum Brands was created to reward e-commerce entrepreneurs that have created a profitable business and wish to sell for an immediate cash out. We buy Amazon businesses with the most efficient turnaround in the industry, and want to make sure you are fairly compensated for your hard work. This money can then go toward future business ideas, investments, and build upon the success you’ve already achieved online.
Whether you’re just getting started in the world of Amazon FBA or you’re an experienced business that wants to expand your options, e-commerce is here to stay and will only continue to grow with time. How you decide to use it to your advantage is up to you.