Lesson 3

A beginners guide to Amazon FBA (Fulfillment by Amazon)

Fulfillment by Amazon, or FBA, is one of the most interesting and intriguing online retail experiments going on today. If you can participate, FBA can be a tremendous resource for lowering your workload and increasing your sales volume.

Taking advantage of this service could be the most important step you take to becoming more competitive and effective as a seller. It could mean the difference between operating a small business and launching a large-scale online sales operation capable of generating some serious income.

Fulfillment By Amazon can also act as an important learning tool that will greatly increase your knowledge of selling and help you build important new skills. Those skills include working with resellers and dropshippers, which are critical to eCommerce success.

So What is Fulfillment by Amazon?

Basically, there are two methods of selling on Amazon.com: direct sales and indirect sales. A direct seller lists items on Amazon.com and handles all of the shipping and customer service chores. When you sell directly, you ship the item and handle returns, customs, packing, and anything else required.

But indirect sellers store their items at a fulfillment center — a large warehouse owned and operated by Amazon. When a customer orders one of those items, Amazon.com employees pack it and ship it from the center.

The advantage to this process is that Amazon.com handles the shipping and customer service chores for you. That includes returns.

Fulfillment by Amazon allows small sellers in certain countries, including the United States and the United Kingdom, to take advantage of this incredible service. Sellers of all sizes can ship items to these centers and turn the customer service over to Amazon.

How Can Fulfillment by Amazon Help Me?

The potential advantages to this arrangement are enormous. A small business or an individual seller can now utilize the customer service department of a large corporation. You won’t have to deal with the frustration that comes with customer service!

Sellers will be spared the hassle of shipping, packing, returns, runs to the post office, and other distractions. Another hassle that will be eliminated is the need to rent or purchase warehouse and storage space.

Are There Any Disadvantages to Using FBA?

The big disadvantage to Fulfillment By Amazon is the cost, which can be considerable. Currently Amazon charges around $1.48 a pound to pack an item and an additional 60¢ to store it. Costs for larger items are higher, and there are additional fees, such as labeling, which costs around 20¢.

Another disadvantage to Fulfillment By Amazon is that Amazon.com will hold money from sales in escrow for about 14 days to cover the cost of potential returns. Basically, this means you will not receive the cash from the sale for about two weeks.

As with other Amazon services, any fees or charges with FBA are taken out of the final sale price before you are paid. This will considerably reduce your profits, or eliminate them entirely if you don't choose a product with high enough margins!

Shipping can be another problem because Amazon.com charges you to ship to the center, and they can add shipping charges to the final products. However, FBA users can qualify for a certain number of free shipping credits, which can cut the costs.

But There Are Some Advantages to Using FBA…

Products sold through FBA become eligible for other Amazon services, including Prime, which offers customers free 2-day shipping, and promotions through Amazon Associates. This in turn can lead to additional sales.

Another interesting advantage to using FBA is that items shipped through the service will have packaging with the Amazon label on it, which associates your products with one of the most popular and trusted brands in the world.

How to Take Advantage of Fulfillment By Amazon

Even though it is very convenient, FBA is not for everybody. Many sellers will lose money if they take advantage of it. Fortunately, there are ways that the average seller can utilize Fulfillment by Amazon to maximize profits.

These strategies include:

  • Only use FBA for high-volume products: in other words, when you know that you will sell a lot of units. You will need to maintain a high volume of sales to generate the kind of revenue necessary to justify the fees.
  • Use FBA when you do not have the resources to handle orders yourself; for example, when you don’t have the time to ship all the orders or handle all the customer contacts.
  • Carefully monitor the fees and expenses from FBA. When you sell on Amazon, it is easy for expenses to quickly exceed the profits you are generating.
  • Understand that Amazon.com is in the driver’s seat with FBA and it makes the decisions. You will sacrifice a certain level of control when you start using the program.
  • Use resources like the SaleHoo Market Research Lab to find products that are most likely to sell through FBA. The lab provides information on success rates and average sales prices, so you know what you will be able to charge for a certain product. Subtracting the wholesale price and the FBA expenses from the average final price of a product listed in the lab can show you what the potential profit for it could be.

Alternatives to Fulfillment by Amazon (FBA)

There are alternatives to FBA that can provide some of the same benefits at a lower cost, such as Amazon FBM (Fulfilled by Merchant) - wherein Amazon sellers can provide shipping of products by themselves.

However, the most effective of these alternatives can be found in dropshippers, which every seller needs to know about.

A dropshipper is a company that ships products directly to customers on your behalf. You set up an online store and promote the products. When a customer places an order, you pay for the product and place the order with the dropshipper. The dropshipper then ships the product directly to the customer.

The dropshipper handles the storage and the shipping, but not the customer service.

Utilizing reputable dropshippers can give you access to a vast inventory of products without having to store any merchandise or spend any money on inventory.

Our directory lists over 8,000 security-screened wholesalers and dropshippers. Every one of these suppliers has been verified by SaleHoo. Reviews are included so you will know the reputation of the dropshippers you are dealing with. There are now more than 1.5 million products available in 150 categories.

Sellers who want to dropship can select a dropshipper, while those who want to take advantage of Fulfillment By Amazon can locate the large volumes of items and low prices needed for that service. This can eliminate the time and expense of searching for a reputable supplier.

Fulfillment by Amazon is only the latest of many services available from the world’s largest online retailer. Like other Amazon tools, it can help increase your revenue. But only if you understand how it works. 


Next Lesson


SaleHoo helps over 137,216 online business owners
find reliable low cost suppliers

Find out how