Amazon is the largest online retailer in the world; with domains in 15 countries (as of August 2018), it covers more than half of the world’s population. Valued at more than $700 billion, Amazon ranks fourth among the world’s most valuable companies.
Understandably, Amazon’s presence has completely changed the way online shoppers look at fulfillment. By constantly pushing and promising the most rapid delivery times possible, most notably its free two-day shipping for Amazon Prime members, Amazon has forced online retailers to re-think the traditional “speedy” fulfillment models of yesteryear. What was once considered rapid fulfillment a few years ago is far too slow to meet the expectations of today’s demanding e-commerce customers.
Luckily, Amazon sellers, and there are a lot of them (nearly 1.1 million new sellers in 2017 alone!), have the option to use a handy service called Fulfillment by Amazon. Though the option may not fit within all sellers’ business plans, it does ensure that fulfillment can be executed using the same standards to which Amazon dictates it.
Definition of Fulfillment by Amazon (FBA)
Screenshot via Amazon Services
Fulfillment by Amazon, most commonly known as FBA, is a service that allows sellers to store products in Amazon fulfillment centers. Amazon then handles all the necessary movement of individual sellers’ inventory, including picking, packing, shipping, returns, and even customer service. Amazon brands the service as a “scale up” option for sellers looking to focus on strategy, innovation, and growth rather than time-consuming and pricey fulfillment tasks. And given that 50% of sales on the Amazon marketplace are through third-party sellers, it only makes sense for Amazon to make it easier for sellers to operate on their platform.
Sellers who join the FBA program are eligible to list their products with free two-day shipping (for Prime members) and even completely free shipping for eligible orders. On these eligible orders, FBA sellers can also enjoy the benefit of displaying the Prime logo beside their products. This is a powerful symbol that lets customers know that fulfillment is handled by Amazon – and that it will be both fast and reliable.
How to Activate Fulfillment by Amazon
Screenshot via Amazon Services
FBA signup is a fully-remote process. It is done entirely without the seller ever setting foot in an Amazon fulfillment center. Here are the steps to get started with FBA, from registration to activation:
- Established Selling on Amazon account holders can add the FBA option to their existing account. Prospective sellers must first open a Selling on Amazon account, then add FBA following approval.
- Next, it’s time for the seller to add their products to the catalog. This can be done one at a time, in bulk, or in conjunction with their inventory management software.
- Once the products have been added to the catalog, the seller must then pack them for shipping. This step calls for expert packing so that all items are received in pristine condition. Amazon has created a handy product guide for sellers in this phase.
- Sellers can use their Amazon Seller tools to ship their products to Amazon fulfillment centers at a discount.
- When the seller’s products arrive at the fulfillment center, Amazon will handle the rest. Each time a customer orders a product, Amazon will pick, pack, send tracking information. They also will deliver, process returns, and handle all customer service queries.
Fulfillment by Amazon Fees Breakdown and Tips for Sellers
Screenshot via Amazon Services
FBA is a unique service in the sense that it only demands payment from sellers that make use of it. To meet its promise, Amazon has devised a flexible rate structure that charges sellers based upon the actual items fulfilled, not received.
In terms of costs, Amazon’s FBA fulfillment fees correspond with the weights and dimensions of the products. For instance, the smallest products within the breakdown are ones that weigh in at 10 ounces or less – these are considered to be ‘Small’ within the ‘Standard Size’ category and will cost the seller $2.41 per unit. This fee goes all the way up to $137.32 for any item weighing more than 151 pounds.
Amazon also charges monthly storage fees that are based on the month and the seller’s daily average volume. This fee is lowest in January to September, but then quadruples in price between October through December for the peak shopping season.
Because Amazon uses a flexible rate structure to determine each individual seller’s FBA rate, the fee will likely never be the same from month to month. Additionally, some slow-moving oversize products may end up costing the seller more in the long run, especially if that inventory is sitting in Amazon storage for months on end.
To get a better idea of the FBA fees as they relate to each item, sellers are urged to use the Fulfillment By Amazon Revenue Calculator, a free tool that provides estimated FBA fees. Seasoned sellers generally use the Amazon-branded FBA Calculator first, but many will use other Amazon FBA calculators to double-check their figures. Additionally, keep an eye on your FBA fees. Mistakes happen, but you can submit Amazon FBA reimbursement claims to recoup those costs.
Clearly, the FBA program is designed to ensure that as many Amazon customers as possible can experience its ultra-speedy delivery times and cutting-edge customer support. While the process listed above might not fit into all sellers’ strategies, the ones who choose not to participate should understand the high benchmarks that Amazon is setting so that they, too, can meet them.
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