Selling on Amazon FBA | So you’ve heard a lot about selling on Amazon FBA and you’re looking for a blog post to lay out the pros and cons in simple English? Well, you’ve come to the right place! 🙂
That being said, I know we get a bunch of readers who do not yet sell on Amazon, preferring other online selling sites like Etsy and eBay instead. For those of you who are unconverted to the church of Amazon, let me tell you why it’s high time you give the platform a try.
First off, Amazon has unparalleled reach in the western world. According to this awesome Infographic, the platform has 304 million active customer accounts, counting an incredible one out of every ten US citizens among it’s Prime members. And Prime Members spend a lot of money, around $1,500 per year on average.
You can see therefore that Amazon is absolutely nailing it and should be included in the business strategy of all sellers regardless of size. But Amazon’s incredible reach and large GMV aren’t the only thing that make the platform attractive to sellers.
Selling on Amazon’s FBA program is just as big a draw as anything mentioned previously. So let’s dive into what Amazon FBA is, how you can profit from it, and how you can start selling.
What is Amazon FBA?
So before we get stuck into the good, bad and the ugly, we should take a minute to explain exactly what Amazon FBA is. I recommend you watch the video provided above first, but we will get into a little more detail here.
Amazon FBA is designed to literally and metaphorically do the heavy lifting for you. By opening up their warehouses to sellers from around the world, Amazon take’s on a major part of the inventory management process, making life easier for sellers.
By selling on Amazon FBA, you ship your products to Amazon and they take over the distribution to the customer, and handle some of the subsequent customer service. An attractive feature here, is that Amazon take care of returns and refunds which typically suck up a disproportionate amount of time.
An aspect of the fulfilment by Amazon program is called commingling. This means that Amazon will priorities the location of the seller in relation to the location of the desired product. Thus, if you sell a common product sold by hundreds of sellers around the world, Amazon may ship another sellers’ product for your sale.
To illustrate this point, let’s look at an example:
What are the Pros and Cons of selling on Amazon FBA?
By taking advantage of the marketplaces’ excellent logistical set-up, sellers of all sizes stand to improve their profit-margins and total sales revenue. That’s the idea anyway, so let’s now look at the benefits of joining Amazon’s Fulfilment program:
- FBA sellers are eligible for free shipping for all Amazon Prime members. Research by KISSmetrics shows that eCommerce sellers offering free shipping see a massive 15-30% increase in sales. By becoming an FBA seller, your products become eligible for free shipping to all Amazon Prime members and some qualified orders. This feature alone makes selling on Amazon FBA a no-brainer.
- Achieve better rankings for searches on Amazon. We’ve published a whole article on Amazon SEO, but it needs to be touched on here. By taking advantage of free shipping, your products will appear higher up the search results due to their more competitive prices. The higher up the search results your product shows up, the higher the likelihood of making a sale. So not only does free shipping increase the chances of a customer buying your product, it also increases the chances of customers seeing and clicking on your product in the first place.
- Increase your sales with the “Fulfilment by Amazon” logo on your product page. Trust plays a huge part in determining the purchasing decision of your customer. Visitors will simply not buy unless they believe the products are coming from a trustworthy seller. By selling on Amazon FBA, your products will appear with a “Fulfilment by Amazon” logo. This in turn increases your customers trust and improves your chances of making a sale.
- Don’t limit yourself to Amazon. The FBA program is essentially an opportunity to tap into Amazon’s logistical operations. As a result you are not limited to the platform alone, but can use fulfilment centers for your website as well. For more information about Multi-Channel-Fulfilment check out this Forum conversation.
With the pros firmly under out belt, let’s now look at some of the negatives associated with Amazon FBA:
- It’s not always as easy as it looks: Although the process seems easy on the surface, you need to be aware of factor’s outside of Amazon’s control. Your tax and licencing status are two important aspects to look into before signing up. Amazon does not require you to have a business licence, but the state you live in might. This complicates things, so make sure to do your research before investing time and resources.
- Complying with sales tax can be a headache: We’ve already briefly touched on taxes but they need to be discussed in more detail here. The problem arises from Amazon not telling you where your products are stored. Instead you only know where your items are stored or where your customers are located until after the transaction is complete. As a result, you may find yourself exposed to liability issues.
- Start selling on Amazon first before joining the FBA program: Etsy and eBay sellers may well be licking their lips at the benefits of selling on Amazon FBA. A word of caution is appropriate therefore, as Amazon is a marketplace which often defies the playbook of other major eCommerce platforms. It is a good idea then, to gain experience on Amazon, selling as an individual, before going all out with FBA.
- If you’re selling rare products, Amazon FBA can be very cumbersome: Many smaller sellers make their money by finding and reselling rare or unique niche products. In this case, the process can be quite cumbersome, involving having to find a unique UPC code, printing out labels, personally sticking them on each unit, paying more postage and sending them to Amazon’s fulfilment centers.
- It doesn’t come cheap: I have a whole section dedicated to the costs of selling on Amazon FBA later on. It’s worth noting here however, that Amazon will take a fair chunk of the revenue.
- Commingling may damage your profile: One of Amazon’s top priorities is to get bought products to the customer as quickly as possible. To achieve this, they may ship someone else’s product to fulfil the sale you made. What may happen as a result, is that customers are unhappy with the product received, and you pay the price…although it was another sellers’ product that didn’t meet the standard.
How to start selling on Amazon FBA
Getting started selling on Amazon FBA is a simple process but important to get right. That is why I’ve broken it down into 6 easily digestible steps. These steps assume that you’re already selling on Amazon. If this is not yet the case, you can get started here.
- Add FBA to your account in your Seller Central here
- Create your product listings: You can list your Amazon products one by one, in bulk or by using your preferred inventory management system.
- Prepare your products: Selling on Amazon FBA requires you to prepare your products by labelling and packing them. They call this ‘eCommerce ready’ and you can read more about it here and here. The best guideline is that your product should now be ready to be delivered to the paying customer.
- Ship your products to Amazon: This step is the major difference between selling on Amazon FBA and just selling regularly. Instead of shipping your products to your customers, you send them to warehouses owned by Amazon.
- Customers order your products: Here they will be stored until they are ordered by one of your customers. Amazon then ships your product to the customer and essentially takes care of the customer relations side of things for you.
- Amazon provides customer support: This is the second killer advantage of selling on Amazon FBA. Amazon simply offers world-class customer-service and is available 24 hours a day, seven days a week. By signing up for the Fulfilment by Amazon program, you outsource the heavy lifting and concentrate on growing sales.
What are the costs of selling on Amazon FBA?
Pricing information is always best understood in a table format, so I’ve included screenshots from Amazon’s fees page. Importantly, the fees which apply when selling on Amazon FBA very by size and time of year. Fee periods are split up into January-September and October to December.
Naturally, smaller products incur fewer fees and typically make better products to start off with.
Conclusion | Selling on Amazon FBA
For experienced sellers on Amazon, the fulfilment program is a no-brainer. The ability to hand over the headache of customer service alone, makes it very attractive. That being said, this blog post has laid out the potential downsides of joining FBA as well. The dangers of commingling and FBA fees should not be ignored, but the upside here is so big, that it more than makes up for it.
Thanks for reading 🙂
PS: So you’ve found the most profitable things to sell on eBay and Amazon, and are now looking for a way to finance your growth? Then check out our excellent Amazon loans, which are designed to provide sellers like you with the capital they need to make bulk purchases, hire new staff or try new products. Want to talk about it? Book an appointment with me here.
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