First things first. What is FBA or Fulfillment by Amazon?
It may be defined by simply saying you sell your goods and let Amazon handle the shipping. But there’s a lot more to know for you to ensure you are getting enough profits on your Amazon business. Because fees are costs. And costs are a reduction to your margins. So you should be able to properly account the costs that you incur if you are utilizing FBA or planning to do so.
Let’s dive in! How do FBA work?
- You will have to ship your items to Amazon’s warehouses or what they call fulfillment centers for storage.
- You can track the status of your shipment through your Seller Central Account, Manage Shipments Module.
- Once order/s for your product/s are received, Amazon will pick and pack them accordingly.
- Amazon will then ship the ordered items to the customer by their chosen shipping method and duration.
- Order details/ Customer information will be available to you on Manage Orders module as soon as the items are shipped.
- Amazon then provides tracking information to the customer.
- Customer concerns and returns of items sold via FBA are all handled by Amazon
Please note that FBA can also be utilized by non-Amazon sellers. You can sell via your own website and let Amazon handle the shipping. But based on actual figures, fulfillment fees being charged by Amazon for orders they fulfill for other platforms are higher.
Before we start working on numbers, let’s get to know the benefits of using the renowned Fulfillment by Amazon.
FAST AND DISCOUNTED SHIPPING RATES
All FBA items are eligible for free shipping. This puts FBA items on top of the search results page for products with no shipping costs. As we all know, shipping speed and price are two of the most important things that customers consider before buying a product. Amazon is well-known for their Prime Free Two-day and even their Standard shipping, so rest assured that your customers would be happy receiving their orders on time.
Using FBA saves you from the burden of customer concerns as Amazon will take care of it for you as part of their fulfillment process, therefore, you can focus on managing the rest of your business operations. But you are still able to provide customer service for customer concerns if ever needed.
As we know, Amazon had been providing exceptional customer service making them one of the largest online selling platforms worldwide. Using FBA lets you ride on their reputation.
Returns management is also solely taken cared of Amazon for products under FBA, making it easy for customers to return products if needed. However, you will be charged for returns processing fee for every returns processed.
FULFILL FROM OTHER SALES CHANNELS
As mentioned earlier, non-Amazon sellers can also utilize FBA. In case you are selling in other platforms such as eBay, where they don’t handle fulfillment, you can opt to send your inventories to Amazon and let them ship your eBay orders. This way, you can manage order processing all at one place.
Alright! Let’s get to it! From benefits, let’s get to know the costs of using Fulfillment by Amazon (FBA).
- Fulfillment Fees – This is your entire pick-through-shipment fee and includes order picking and packing, shipping cost, packing boxes, and inner packaging. It even covers returns processing, though not for items in categories with free customer returns.
- Amazon Referral Fees (applicable only to products sold on Amazon) – this is a fee that Amazon sellers need to pay in listing their items on Amazon. Ranges from 6-20% of the product’s selling price with most sellers paying 15%.
- Monthly Storage Fees – This is the cost of storing your products in Amazon’s warehouse. Inventory storage fees are based on the space occupied by your products in Amazon’s warehouses, measured in cubic feet.
To assign fulfillment and storage fees, FBA breaks products into 2 overall size categories, and sizing includes packaging such as shoe boxes, blister packs, or retail packaging.
- Standard-size products – Standard-size products are items that weigh less than 20 lbs. and measure less 18″x 14″x 8″ or less, fully packaged. Within the standard-size category, there are also 4 size subcategories that affect fees.
- Oversize products – Oversize products include items that weigh over 20 pounds or are larger than 18″x 14″x 8” including packaging. Within the oversize category, there are also 4 size subcategories that affect fees.
The table below shows the most recent fulfillment and monthly inventory Storage that you should take into consideration when using FBA.
You may also be able to get a rough estimate of the FBA fees your product would incur through Amazon FBA Fee and Revenue Calculator on the links below:
Managing FBA Tips and Maximizing your FBA Profits
- Take note of any product that is sitting too long on Amazon’s warehouse as Amazon will start charging long-term storage fees on that specific product. So basically, long-term storage fees kick in when your product has been on the fulfillment center for more than 6 months.
These fees are issued on August 15th and February 15th of each year and are charged $11.25 per cubic foot of space that they take up. If after a year your products remain on the shelves, Amazon doubles your fees and charges $22.50.
These fees can be pricey and result in a loss in potential revenue. It’s important to practice good inventory management and only ship enough inventory to meet forecasted sales demand.
- Weight handling fees. Heavier and bulkier items are charged higher. So if you’re selling or planning to sell a large or heavy product, you should ensure that you have enough margin to cover the fulfillment fees it will incur.
- Constantly monitor your stock levels. There may be no fees with failing to restock your inventory timely but of course, there is opportunity cost involved.