What is Fulfillment by Amazon (FBA)?: The Ultimate Guide

As an e-commerce seller, Amazon FBA is a great way to grow your business internationally. It helps you reach a global audience, so more people can get access to your products.

In this guide, you’ll learn more about Amazon FBA, how it works, and its benefits and disadvantages. By the end, you’ll have an overview of the topic and a better understanding of whether it’s the right move for you to transform from a local to a global business.

What is Amazon FBA?: Definition and Meaning

Fulfillment by Amazon (or FBA) is where Amazon looks after your items’ storage, packing, and shipping. They take care of a lot of the heavy lifting, as Amazon team members will package and ship the products themselves, and your goods will be stored in Amazon warehouses until they’re sold.

This is one of three options when selling a product on Amazon. You can either ship the product yourself or use FBA and get Amazon to ship it for you.

The service automates order fulfillment, and Amazon also deals with returns and refunds. Essentially, it takes a lot of the hard work of selling on Amazon and eases your workload while helping you scale and grow.

How Does Amazon FBA Work

The Amazon FBA process is simple and effective. Like any outsourced process, you’re paying another company to handle part of your business. The benefit is that outsourced work can be more efficient, thanks to your partners’ expertise.

Unless you have a background in shipping, warehousing, and customer service, along with the resources or connections to run those processes internationally, you should probably consider using Amazon’s FBA model.

The model puts the work of packaging, shipping, returns, and customer service in Amazon’s hands and allows you to grow your business to international customers.

Here’s everything you need to know about how it works.

1. Sellers either make the products themselves or acquire them elsewhere.
2. They then send their products to an Amazon warehouse.
3. The products are stored there until a customer makes a purchase.
4. Once a purchase has been made, Amazon team members pack and ship the items to the customer’s address.
5. If the customer returns the item or wants a refund, Amazon deals with this too.
6. Amazon updates your inventory.
7. Profits are transferred into your account every two weeks (minus fees).

While Amazon takes care of many stages in the process, you’re still responsible for other areas. For example, sellers must:

• Source the products – Amazon FBA can help you get your products to your customers, but sourcing the products is still your specialty. It’s your job to make or choose the products you want to sell.
• Manage product listings and marketing – You know your wares best, which means you’re best equipped to create the product listing and advertise your product to maximize your profit strategically.
• Maintain inventory – When it comes to inventory, Amazon will keep you in the loop, so it’s even easier for you to know when to replenish your products when stores get low. However, Amazon will not help you get your goods to their warehouse.
• Pay fees to Amazon – This service takes a lot off your plate, but it does come at a cost. While the warehouse-to-customer shipment is covered, you must cover the shipment to Amazon, and the FBA plans. Plans range from the Individual plan, which will cost $0.99 per unit sold, to the Professional plan, which costs $39.99 per month.

How to Get Started with Amazon FBA: Step By Step

Step 1: Set Up Your Amazon Seller Account For FBA

Recently, Amazon has made it simple to use its FBA service. If you already have an Amazon Seller account, all you need to do is go to your dashboard and select “Register for FBA.” 

If you’re getting started as a seller, you’ll need to set up an Amazon Seller account first. Go to https://services.amazon.com, scroll down, click “Become an Amazon Seller,” and fill out the necessary information about your business. 

Step 2: Create Your FBA Listings

Amazon listings allow your potential customers to discover your products. But before your customers can see the listing, you have to make sure Amazon has your products ready to ship. 

First, make sure Amazon has your products ready to ship. Next, using your Amazon Seller portal, create a product listing. Next, upload images, fill in item descriptions, and add details to each listing to entice your customers.

Then, convert this listing to FBA within the portal so that Amazon knows a shipment is on the way to an Amazon fulfillment center. Once a listing is created and Amazon has your items in stock, the listing can be converted to the buyer’s database (aka be visible to customers). Once this listing is created and the first shipment is received, you can restock as necessary. 

Step 3: Send Your Products To Amazon’s Fulfillment Center

Once you’ve created a listing that shines, it’s time to send your FBA shipment to Amazon for handling. Here’s how to do it:  

• Label – For your products to be properly received and stored, you’ll need to label the item with an Amazon product label. Each label has a unique barcode, helping fulfillment center workers identify and store each item. You can print these labels right from your home before shipment.
• Package – Amazon recommends that your products be “e-commerce ready.” Essentially, this means your products should be packed as if you were shipping directly to the customer. Amazon provides its FBA sellers with a handy guide to help ensure their items are ready for shipment. 
• Ship – Print out a shipment label using your Amazon seller portal and apply it to your package before shipment. You will then have to arrange to get your goods to the warehouse. If you are shipping internationally, this will include organizing compliance documentation and an IOR.

Once Amazon receives your shipment, it’ll update you through your FBA seller account. 

The good news? Every step from here on out is on Amazon’s to-do list. 

Step 4: Transaction and Shipment Management

When a customer adds your item to their cart and selects “Proceed to check out,” the entire transaction is in Amazon’s court. Amazon warehouse staff selects, packs, and ships your product to its soon-to-be-satisfied customer. Meanwhile, you’re free to source more inventory.

Step 5: Get Paid

Every two weeks, Amazon will deposit your profits into your preferred bank account. It’s as simple as that.

Bonus: Refunds, Returns, and Customer Service

Not only does Amazon simplify the shipment process for sellers, but the company offers some extensive customer service and inventory management that can go a long way in helping you focus on your business. 

Amazon FBA shipping provides: 

• Inventory warehousing before the sale.
• Individual product packaging and shipping plans to the end customer.
• Ownership of the customer service process, including lost or damaged shipments.
• Management of product returns.

What is the Difference Between FBA and Seller Fulfilled Prime?

Compared to Amazon FBA, where Amazon stores, packs, and ships your products, Seller Fulfilled Prime involves sellers taking on this responsibility themselves. You can take advantage of the Amazon Prime brand, but everything else is up to you. This includes handling your returns and refunds.

Not all e-commerce sellers can opt-in to this service, however. You have to prove that you can adhere to strict Prime shipping guidelines. For example, you need an order cancellation rate of under 0.5 per cent.

Choosing Seller Fulfilled Prime over Amazon FBA does require a lot more work. But it can be an advantageous option for some businesses. It works best for companies with low-cost or oversized items. These items have hefty storage fees through Amazon FBA, which can help reduce some of these costs.

Benefits of Amazon FBA

Eligible for Amazon Prime

Amazon Prime has set new expectations for how quickly customers expect their products to arrive at their doorstep. If your products are eligible for Prime delivery, that’s an added incentive for people to choose you over your competitors. This, in turn, can positively impact the number of items you sell.

As an Amazon FBA seller, you automatically qualify for Prime delivery. This is a bonus and means your customers can get their items within mere days of ordering them.

Amazon Customer Service Team

When you become an Amazon FBA seller, Amazon becomes the point of contact for your customers. That means they’ll deal with all inquiries 24/7 and process returns and refunds, for example. This is a significant benefit if you don’t have the resources or time for your customer support.

Reduced Shipping Costs

Amazon has established relationships with major shipping companies. As a result of these contracts, this often means that your shipping costs will be reduced. Even though you have to pay a fee for Amazon FBA, it often works out as a worthwhile investment overall.

Grow Your Business

Since Amazon takes care of your storage, packing, and shipping, it becomes easier to expand your business internationally. Amazon ships products worldwide, so becoming an Amazon FBA seller means you can take your first steps into international expansion without worrying about fulfillment.

Fulfilment is Taken Care Of

With Amazon FBA, Amazon takes care of a lot of the workload involved with selling your products on their platform. This can allow more time to focus on other areas, such as developing and marketing your products. Although a fee is involved, a lot of the heavy lifting is taken off your shoulders.

Pay-as-You-Go Pricing

If you choose an Individual selling plan, this is a pay-as-you-go service, which is very cost-effective. It means that you’ll only pay fees to Amazon if you sell items. That’s less money wasted on a monthly fee, as you only pay for what you use. However, if you’d rather pay a monthly fee, a Professional selling plan is available, which is perfect for million-dollar sellers.

Types of Amazon Seller Services

FBA Subscribe and Save

If customers use your products frequently, with FBA Subscribe and Save, they can sign up for regular deliveries. They get a discount on their deliveries, which is an effective way to retain customers in the long term.

FBA Pan European

Have you got customers in Europe? If so, Amazon’s FBA Pan European service will likely be an attractive option for your business. Your products will be stored in fulfillment centers in a range of European countries. Then, when your customers nearby order from you, it’ll take less time for their package to arrive.

FBA Export

FBA Export is perfect for businesses looking to expand internationally. Consumers can buy products from Amazon and deliver them to over 80 countries worldwide. There’s no additional charge, and you can bypass the usual complexities of selling internationally as everything is sorted for you.

Considerations for Amazon FBA

Amazon FBA is a worthwhile option for many businesses, but there are some important considerations to think about first.

Low-Cost Items

If you sell low-cost items, Amazon FBA may not be worth it. The costs of Amazon’s services may not make you a good enough profit margin. If you’re not doubling your money after expenses, it may be worth considering different options.

Restock Delays

Restock delays can have a significant impact on your inventory levels and sales. However, if you choose a service like Zee, you can avoid any issues. We partner with global air carriers, as air freight is the fastest way to get your supply to Amazon fulfilment centres. Learn more about our FBA air freight solutions.

Returns

Amazon’s customer service and returns policy are great for consumers, as they can return items quickly and efficiently. But this can mean you get more returns if they aren’t happy with your products. Make sure your product has been tested and is ready for sale before using Amazon FBA.

Stuck Shipments

Sometimes, your FBA shipment might get stuck in customs. This can be for several reasons, but often it’s because you don’t have an IOR. With a service like Zee, we act as your IOR. We have a proven track record of getting shipments unstuck with a quick turnaround. Learn more about our stuck shipment solutions to avoid Amazon FBA delays.

Storage Fees

If your products sell well, then storage fees from Amazon make perfect sense. But storage fees can rack up over time if you’re struggling to get items out of the warehouse. However, you can always send products back to your warehouse or facility in the worst-case scenario.

Product Requirements

Amazon expects that your products are properly packaged before they store, pack and ship them from their warehouse. For example, they need appropriate labeling. Ensure you can meet these requirements before paying for this service.

Sales Tax

Amazon has warehouses all over the world. This can make sorting out your taxes complex. With a service like Zee, you can be confident that import duties and taxes are taken care of for you. Learn more about our FBA compliance solutions.

Fees

Even if you aren’t making profits, you’ll still have to pay fees for storage. It’s important to consider this possibility before taking out these services. You need to be confident that you have enough funds to pay the fees no matter what.

Frequently Asked Questions About Amazon FBA

At this point, Amazon FBA is probably starting to sound like a pretty enticing option for your business. But you might still have some questions—and we have answers. 

How Much Does Amazon FBA Cost? 

Luckily, Amazon has several resources to help you figure out whether FBA makes sense for your burgeoning empire. Whatever you sell, working out how selling methods will affect your product cost is crucial.

Here are a few of the fees you can expect when considering FBA:

• Storage fees based on how long your stock is held – This fee covers picking, packaging, and shipping orders from the warehouse to the buyer and can be predetermined from pricing tables available on Amazon seller pages. You’ll need item details, including product type, dimensions, and weight. This order fulfillment fee starts as low as $2.16 per unit for small and light items.

• Storage fees based on the season – Similar to the fulfillment fee, you can determine the pricing based on your inventory details: product type, dimensions, and weight.
• Storage fees are charged by their daily average volume in the Amazon warehouse plus the time of year. In an Amazon FBA warehouse, this cost is higher from October to December, at $2.40 per cubic foot of space, versus $0.75 from January to September.
• Specialty product fees – There are additional charges if your products include lithium batteries or are classified as dangerous goods. 

The FBA calculator on Amazon Seller Central is helpful  estimating FBA costs and comparing them to Fulfillment by Merchant (FBM).

Does Amazon FBA Pay For Shipping?

There are two shipping stages involved with Amazon FBA. 

1. The first is shipping inventory from its source (your business or your supplier) to Amazon warehouses. You will have to arrange everything here and pay this charge. 

If you’re shipping inside a single country, arrangements will be under Amazon’s courier accounts and thus at their lower-than-retail shipping rates. If you’re shipping to an Amazon warehouse in another country, the import costs and logistics of getting your inventory to its destination are entirely your responsibility.

2. The second and final shipping stage is from the Amazon warehouse to the customer. Who pays for this step is a little trickier. While Amazon will pay the actual cost at the time of shipment, you will have paid a preset fulfillment fee.

How Do I Ship Inventory To An Amazon Warehouse Within The United States?

For this process, the Amazon seller interface walks you through identifying products as FBA inventory and sending it to them by creating a shipping plan for your goods. Once you’ve provided the details they need, you’ll move on to the “work on shipment” stage that includes:

• Selecting either UPS or FedEx as the courier,
• Weighing and measuring your case(s),
• Calculating shipping charges that you’ll pay,
• And printing out labels.

And finally, you’ll need to drop your case or cases off at a local FedEx or UPS depot. 

How Do I Ship Inventory To An Amazon Warehouse In Another Country?

A commonly asked question is, “How does Amazon FBA shipping work internationally?” If you are using the FBA model, you can store your stock in any warehouse around the world, and sales will be managed locally in the usual way. However, Amazon will not assist in getting your products to the facility.

A particular point of consideration is your import compliance. Import compliance is a specialty area, dealing with laws and regulations of multiple jurisdictions, all while depending on relationships with international freight and local courier services. You (or your import logistics partner) will need to provide:

• An Importer Of Record (IOR) in the destination country,
• A correct and detailed commercial invoice,
• Offloading/loading of products between carriers and ports,
• A carrier for transport to the exit port,
• Clearing of products through customs for export,
• A carrier for transport to the destination port,
• Clearing of products through customs for import,
• Payment of taxes, duties, and fees,
• And a carrier for transport to the Amazon warehouse.

Amazon will not act as either the EOR or the IOR in this process, leaving you responsible for getting your stock to their warehouse door. This is where the need for an Amazon Importer Of Record arises.

Just as Amazon FBA is a partner that connects you to the biggest marketplace in the world, a trusted Import and Compliance partner like Zee can help you scale up your business and reach new countries no matter your business size.

How Do I Avoid Extra Storage Costs Through Amazon FBA?

Balancing the timing of sourcing your inventory and getting it into the hands of Amazon is an integral part of making Amazon FBA work for you.

Amazon wants its warehousing and shipping process to run smoothly, with products in and out of the door. If your stock is sitting on the shelf after 365 days, you may be assessed a monthly charge of $6.90 per cubic foot or $0.15 per unit, whichever is greater, in addition to regular storage fees.

Avoiding long-term storage fees is a must for successful sellers. You can do this by: 

• Managing your stock – Keep an eye on your Amazon seller inventory performance dashboard and pay attention to the advice on restocking and what to do with older inventory. Review your Inventory Health and Recommended Removal reports, and look out for emails notifying you of aging stock.
• Selling more aggressively – Lower prices and special offers are a good way to get your inventory to move. Remember, if worse comes to worst, the cost to store old stock could be more than you can recoup in sales, so figure out when to cut your losses.
• Use Amazon advertising or sponsorship – Boost your product’s visibility with a “sponsored product” banner and use Amazon advertising resources to achieve a higher rank in product search results. 

As a last resort, you can choose to return the product to your location or to have 

the warehouse dispose of it. Both options incur fees, so do the math to decide if one of these routes benefits you in the big picture.

Is Fulfillment By Amazon Worth It?

There is no one answer here. The best method depends heavily on you and your strengths and weaknesses. However, for many, it is a lifesaver, especially when operating in a different country. Nearly half of 2020 sales on Amazon were from third-party sellers, and almost 70% of those sellers are using FBA shipping. That’s more than 2 million sellers!

Unless you’re looking to reinvent the wheel and introduce a whole new way of managing storage and shipping, it makes sense to take advantage of the opportunities FBA offers you.

Final Thoughts

Amazon FBA is an effective way for many large e-commerce businesses to save time and money on fulfillment and reach new international audiences. When done right, you can optimize fulfillment and scale your revenue. 

But there are complications involved with this too. If you partner with a service like Zee, we can help with customs compliance, VAT registration, and product compliance – ensuring your goods arrive at their destination without hassle. 

Contact us today to inquire.