Amazon FBA: How It Works and Why You Need It

Do you sell products on Amazon or are you just planning to enter this promising online sales market? Then it’s worth learning more about Amazon FBA and how it works. This is a truly convenient service that will free you from the routine tasks of a seller.

What is Amazon FBA

Amazon FBA, or Fulfillment by Amazon, is a service provided by the company for organizing, storing, packaging, and delivering products listed on their platform. By choosing this service, you entrust the company to become your logistics partner at all stages of the sales process. They also provide hotline services and handle customer objections. 

How Amazon FBA (Fulfillment by Amazon) Works

If briefly, the service operates as follows:

• Delivery to Amazon FBA. The seller ships products to one of Amazon's warehouses. The goods must strictly comply with the platform's requirements.
• Storage. The warehouse accepts the goods and stores them, ensuring their safety and preservation.
• Order processing. When a buyer places an order for the seller's product on the Amazon platform, managers prepare it for shipment.
• Delivery. Amazon delivers the order to the buyer, providing tracking information to both the buyer and the seller.
• Payment. When Amazon receives payment from the customer, it transfers the funds to the seller.

Additionally, the platform handles returns and exchanges, answers customer inquiries, and provides a full range of services that require no time or effort from the seller. 

Advantages and Disadvantages of Amazon FBA

Anyone who has ever used Amazon's fulfillment service knows its advantages and disadvantages. Among the advantages:

• Fast order processing due to the large team of managers and extensive infrastructure.
• Lots become available to Prime subscribers, significantly increasing sales. In addition, the platform offers Prime members fast, free shipping.
• The faster the order is processed and shipped, the higher the seller's rating and better the reviews.
• Delegating part of the business responsibilities frees up time for more important tasks. 

The disadvantages include:

• Costs for FBA services, as they are paid and include fees for storage, packaging, and shipping.
• Restrictions on the types of products that can be stored in Amazon's warehouses.
• Payment for long-term storage if the product stays in the warehouse for too long. 
• Compliance with all platform rules and the loss of control over the products. 
• A high percentage of returns due to the platform's lenient policy on returns within 30 days and full reimbursement of the cost. 

What to Sell with Amazon FBA

Today, there are more than 400 million different listings on the platform. If you want to make money, it's important to know what is in the highest demand. The average product that is most commonly bought on Amazon: 

• Small, durable, and lightweight.
• Costing between $10 and $50.
• No-name or unbranded products at a low price but with a higher profit margin.
• A product with low competition and a large market entry potential.

Examples of successfully selected products: cosmetics, pet products, toys, games, health products, sports and outdoor goods. If these are inexpensive yet quality products in their niche, they will sell well on the platform. 

How Much Does Participation in FBA Cost

Sellers pay the company two types of fees:

1. For order fulfillment, which includes various service fees from the moment of order picking to delivery to the customer. 

Regarding the order fulfillment fee, it primarily depends on the type and size of the product. All products on the platform are divided into: Small and Light, Standard, Oversize, and Special Oversize. More details can be found on the official website of the company. The fee includes:

• A monthly or per-unit fee for each sold item, depending on the type described above.
• Referral fee. The fee amount depends on the total cost of the product and its type. On average, it ranges from 6% to 45% of the retail price.
• Packaging and shipping of orders.

For example, for a small gadget weighing around 200 grams, the order fulfillment fee may range from 3 to 5 dollars per unit.

2. For the storage of goods in the warehouse. Monthly, the company charges a storage fee for goods. It depends on their size and the time of year, and is calculated per cubic foot. Keep in mind that if the goods are stored in the warehouse longer than the designated time, an additional long-term storage fee will be charged. On average, storing a small box with goods for a month may cost around 1-2 dollars.

Let's break down the costs of FBA using a $10 dog clothing example.

Main FBA cost categories:

• Order fulfillment fee. For clothing, this is usually higher than for smaller items and can be about $4 per unit.
• Storage fee. This depends on the volume of the product and the duration of storage. Seasonal clothing (e.g., winter wear) may incur additional costs during off-season periods. The average monthly fee will be around $0.5.
• Referral fees. The standard percentage for clothing is typically 15%. In our case, this will be $1.5.
• Additional fees. This may include charges for removing unsold items, special services (e.g., gift wrapping), and others. On average, these will be about $0.2 per unit.

So, with a product cost of $10, the FBA costs will total $6.2. However, this is only an approximate calculation.

How to Deliver Goods to Amazon FBA Without Problems

If you are interested in shipping goods from Ukraine to the USA with further placement in Amazon warehouses, contact us at DiFFreight Company. We will take care of all the logistics so you can spend more time focusing on the effective growth of your business.