What is FBA? What are the pros and cons?
What is FBA?FBA is a service provided by Amazon that handles inventory storage, order fulfillment, returns, and even customer service for Amazon sellers. FBA allows sellers to focus on other aspects of their business while letting Amazon handle the picking, packing, and shipping of orders. It’s a popular business model: 91% of third-party sellers use FBA.
By leveraging its own logistics and consumer trust, Amazon has enabled thousands of eCommerce sellers to grow and expand their businesses through its FBA program.
It's unbelievable that someone with little to no e-commerce experience can sell their products on the world's largest marketplace and have them delivered to customers in just two days.
While FBA is a powerful fulfillment service with many advantages, there are also some disadvantages.
(1) Prime Shipping. If you're an Amazon customer, you're familiar with Amazon Prime. The Prime badge means you're entitled to one or two days of free shipping when you buy a product. It also allows you to easily return it when needed. When a seller uses FBA, the listing will come with a Prime badge and access to Amazon’s nearly 200 million Prime members.
(2) Ship your inventory to Amazon's fulfillment center. To sell your products using FBA, all you need to do is create a shipping plan in Seller Central and ship your products to Amazon’s fulfillment centers. Amazon will receive and store your inventory until a customer purchases it.
(3) Customers trust Amazon. When customers see the Prime logo, they know they're entitled to fast shipping and easy access to Amazon's customer service if something goes wrong. Your products will also typically arrive at your customer's address in Amazon-branded packaging, increasing the perceived value of your product.
(4) Amazon ships all your orders. Manually packing and shipping orders every day is a time-consuming and tedious process. Using FBA is like having your own warehouse staff that handles everything for you.
(5) Amazon handles customer service. Amazon will handle any customer service issues related to orders shipped via FBA. On the other hand, if the order is shipped via FBM (fulfilled by merchant), the seller must handle their own customer service.
(6) Amazon handles returns. Not only will Amazon pack and ship the order for you, but it will also handle returns. If the item is still in brand new condition, Amazon will return the item to your inventory.
(7) Multi-channel distribution. Did you know you can use Amazon FBA to fulfill orders from other marketplaces or eCommerce stores? Sellers can create fulfillment orders and ship products to non-Amazon customers.
(1) FBA Fees: One downside of using FBA is that the fees can be very expensive. Depending on the size and weight of your product, the cost of completing an order is approximately 30-40% of the product price. You need to calculate expenses to determine profitability before selling your product.
(2) FBA storage fees: In addition to FBA fees, Amazon will also charge you to store your products in its fulfillment centers. There are two types of storage fees - monthly and long-term. Properly managing your inventory will help you avoid long-term storage fees, which can get very expensive.
(3) Replenishment and inventory restrictions. Amazon has implemented restocking limits to prevent sellers from overstocking inventory, although it has proven to be more of a headache for many sellers who cannot send in enough products. Keep in mind that you may not have enough allowed storage space to accommodate all of your inventory.
(4) Amazon makes returns easy for customers. While this is very convenient for customers, the ease of returns on Amazon may allow you to experience higher return rates compared to other marketplaces.
Remarks: The above content is only an internal opinion and is for reference only.
