Why there are such innumerable costs on Amazon FBA

What is Amazon FBA?

FBA stands for Fulfilment by Amazon. In simple terms: you sell it, and Amazon ships it. Here is how it works.

1. You send your products to Amazon.
2. Amazon stores them in their fulfilment centres.
3. When a customer orders one of your products, Amazon picks, packs, ships, and tracks the order for you.
4. Amazon also handles returns and refunds.

This comes at a cost. Amazon charges both storage fees and fulfilment fees. However, those charges cover Amazon's 24/7 customer support, the expense of shipping products to customers, and access to one of the largest and most advanced fulfilment networks on the planet.

Why Amazon FBA Matters

Amazon has over 300 million active customers, with 90 million Prime members in India alone. Brands openly visible to Prime buyers are those that use FBA. Prime customers also spend more on Amazon. The typical Amazon customer spends around INR 58,000 annually, while Prime customers spend around INR 109,000 annually. This means that if you use Amazon FBA and are more visible to Prime buyers, you can earn more revenue.

How Amazon FBA Works

Amazon handles all the heavy lifting for you inside FBA, so the process is straightforward.

1. Send your items to Amazon. Amazon has many warehouses across India, some over a million square feet. You tell them what items you are sending, and they tell you which warehouses to ship them to.
2. Amazon sorts and stores your items. Once Amazon receives your items, they sort them and add them to inventory. Your items are stored safely. If anything gets damaged in the warehouse, Amazon reimburses you.
3. A customer purchases your item. Amazon handles the whole transaction. They accept payment and update your inventory automatically.
4. Amazon ships your item. A warehouse worker (or robot) picks your item from storage, packs it, and ships it to the customer.
5. Amazon handles customer service. When the customer receives your item, Amazon follows up to ensure they are happy. They also handle any returns or questions. For feedback on your listing, it is up to you to respond and act.
6. You get paid. Every two weeks, Amazon totals your sales, deducts seller fees, and deposits your profits directly into your bank account.

What You Are Responsible For

1. Choosing which items to sell. You can sell almost anything, but if you want to avoid storage fees, choose items that sell quickly.
2. Keeping your inventory in stock. Check your inventory levels on Amazon regularly so your products stay available.
3. Marketing and advertising your products. If you are selling well-known branded products, you may not need to do much. But if you are selling your own products, you must ensure people can find them. With over 350 million products in Amazon's catalogue, marketing is essential.

Benefits of Using Fulfilment by Amazon

The FBA programme is one of the top ways to grow your business and get your products in front of more people. Some of the biggest benefits of FBA are:

1. Easy operations and shipping. Handling your own fulfilment is time-consuming. Higher sales mean more time spent packing and shipping, or more money spent hiring help. FBA lets you outsource the entire process.
2. Discounted shipping rates. Amazon's contracts with major shipping carriers give them steep discounts. They pass those discounts on to sellers as reduced shipping costs when sending inventory in. Customers also benefit because many orders qualify for free shipping. Prime members get free two-day shipping on all FBA items, a huge incentive that drives higher sales.
3. Returns management. Processing returns is a pain. Amazon manages customer requests, return shipping labels, and reverse logistics. They charge a returns processing fee, but it is worth it for the workload it removes.
4. Customer service management. Amazon has a strong reputation for great customer service, with 24/7 support via phone, chat, and email.
5. Potentially unlimited storage. You do not have to worry about how much storage you need. There are no inventory minimums, so you can send in as little as one item. Sellers with high inventory performance scores get unlimited storage.
6. Fast delivery. Amazon has many fulfilment centres, so customers can reliably get items within a few days.
7. Multi-Channel Fulfilment (MCF). Amazon's MCF service lets you sell products on other channels (like BigCommerce) while still having Amazon fulfil those orders. The FBA Shipping app can automate this for free.

Strategies to Sell on Amazon FBA Effectively

1. Research competitors to find profitable products. Start by looking at Amazon's best sellers. As a beginner, do not clash with the top sellers, but learn what types of products are popular. Plug products into tools like Unicorn Smasher or AMZScout for estimated monthly sales, competitor data, and fee calculators.
2. Be smart about what items you sell. Always consider the sales rank. High-ranking items sell fast but face more competition. Low-ranking or non-existent items can be slow sellers that lead to long-term storage fees. Knowing the sales rank tells you what you are up against.
3. Consider bundling products. If many sellers are on the same listing, it can be hard to win the buy box. Create a new bundled listing instead. For example, pair a popular board game with an extra dice bag. That gives you a unique listing that still appears in searches.
4. Start small. You do not need many products to get started. Learn the ropes with just a few products first. Once the process is set up, it is easier to scale up.
5. Build a brand. To stand out in the sea of Amazon sellers, you need your own unique brand. That means deep understanding of your target buyer, knowing how to position your brand, and creating consistently styled product images, titles, and descriptions. Creating your own online store to complement Amazon sales is the best way to do this. Use unique packaging and inserts to make your brand identity stand out on delivery.
6. Use good SEO practices. Amazon is a huge, competitive marketplace, so it can be hard to get found. Just like Google, Amazon is a search engine with ranking factors. Research which keywords people use when searching for your products and use those keywords throughout your listings.
7. Get great product photos. Amazon requires the main product image to show only the product against a white background. You can add up to eight more photos (depending on the category). Show the product from multiple angles, in action, close-ups of features, and someone holding it for scale. Consider 360-degree images and videos for richer product pages.
8. Optimise your product titles. Many Amazon items have very long, detailed titles where sellers stuff keywords. Amazon allows up to 250 characters for titles, but using all 250 is rarely a good idea. Be descriptive and concise while still getting your main keyword in. Try this format: Brand name, product name, key features like colour or size.
9. Optimise your bullet points. Once a customer clicks through to your product, the bullet points are one of the first things they look at. Provide all the information needed to make a purchase decision. Address common questions, focus on benefits, and include key product details. Get those keywords in without overdoing it.

Other Charges to Consider Before You Start

If you decide to opt for Fulfilment by Amazon, consider the charges below in addition to those mentioned above. Watch out for these or they can take a bite out of your profits.

• Monthly Selling Fees. The fee you pay Amazon monthly for using its platform. Think of it as rent for selling on Amazon.
• Referral Fees and Variable Closing Fees. The commission Amazon takes on every product you sell.
• Returns Processing Fees. Free for many products, but some categories incur a fee for returns processing. A repackaging fee may also apply if needed for resale.
• Stock Removal Fees. If you want to dispose of unsold stock from Amazon's inventory, or have Amazon return products to you, a removal fee applies.
• Inventory Placement Service. You can sign up for FBA Inventory Placement Service to send all eligible inventory to a single fulfilment centre, instead of splitting shipments across multiple centres. This service has its own fee.
• Amazon FBA Export Fees. FBA lets you export products to multiple countries where the service is available. An export fee may apply depending on the channel. More info is available in your Amazon Seller Central dashboard.

Conclusion

Fulfilment by Amazon is an excellent programme that can help you tremendously in lifting sales and expanding your market share. The fulfilment rates are highly competitive and in many cases cheaper than third-party logistics partners. Whether you sell on Amazon or another channel, FBA is worth considering. To ensure your profits are not impacted, run your calculations carefully and re-check them. You can also reach out to Amazon's representatives to understand the pricing better.