FBA, or Fulfillment by Amazon, is a program designed by Amazon to take charge of other businesses’ storage, packaging, and shipping of their products. This program allows businesses to let Amazon control these operations on behalf of them, as well as customer inquiries, returns, exchanges, and shipping issues.
How does Amazon FBA Work?
The FBA process is fairly simple. It involves the seller preparing the items, shipping them to Amazon, then letting amazon take over. Amazon will prepare the package according to your instructions and ship the package. Of course, there are both pros and cons for both Amazon and your business to begin this type of relationship. In this article, we’ll explore some of these pros and cons in-depth, so you can determine if Amazon FBA is worth it for your business.
Advantages of Amazon FBA
- Prime Shipping: For businesses using FBA to fulfill their orders, your customers will benefit from the Prime shipping arrangement. This means that customers will receive their order faster, and you’ll be marketing to a subset of customers who only order from Prime sellers. Amazon has over 200 million Prime subscribers, which means having this badge could really help increase your sales. Many customers are more likely to trust a seller that has a Prime badge as opposed to others. Especially in light of studies that found Prime members spent $1,968 per year on Amazon on average. That’s roughly four times as much as the non-Prime shoppers surveyed. The spending gap between Prime and non-Prime shoppers has grown substantially, suggesting Covid-19 ramped up Prime spending.
- Logistics: One advantage to using Amazon FBA is you can save a lot of time. Amazon will take care of your customer service problems like customer returns and shipping process times. With this added time, you can focus on making your business grow and let Amazon handle day-to-day operations. Amazon will handle storage and fulfillment for you through the Amazon FBA program.
- Increased Visibility: Amazon operates its platform through a series of algorithms, which determines which seller gets placement in their buy box. This is the box that is located on the lower right corner of the page, which highlights a particular seller. With than 80% of Amazon sales made through this buy box, businesses want to be in this highlighted spot. Being an FBA associated business increases your likelihood of your company getting the spotlight in the buy box.
- Ship Orders to Other Merchants: You might feel like your products are held captive at Amazon’s warehouses. However, Amazon now allows the ability for merchants to ship orders from Amazon to Shopify, eBay, and other marketplaces and customers, leveraging their very low freight rates.
Disadvantages of Amazon FBA
- Loss of Control: When you send your product to Amazon, they take it from there. This means you will have to accept losing some sense of control when it comes to your business operations. This can be both a disadvantage and an advantage, depending on what you’re looking for from the arrangement. Inventory reconciliation also becomes the merchant’s burden. Amazon moves product from warehouse to warehouse and in many cases items become misplaced or lost. Merchants need to make sure that they keep track of this and open cases with Amazon to find of pay for this inventory within Amazon’s allowable window. By not managing this, it could destroy any profitability for the merchant.
- Higher Return Rates: We have also found that FBA products usually have higher return rates as Amazon provides a generous return policy and is much more lenient on return requests.
Is it Worth it for My Business?
Determining if FBA is worth it for your business will depend on a variety of factors. Though there are significant start-up costs and time, it can be extremely successful for many businesses. You need to understand how navigate the program and potentials issues of your company to leverage the advantages of FBA.
For help growing your Amazon sales channel and navigating through your eCommerce challenges, Contact Phelps UNITED.