Understanding the Amazon Program
Anyone who has ever tried to sell anything online, whether it is through their own personal website, or by making use of major e-commerce platforms such as eBay or Shopify, can attest to the fact that often the most frustrating and generally unpleasant component of any transaction is the packing, shipping, and fulfillment of the orders. Quite honestly, this is the most labor-intensive portion of any online selling operation; with the time it can require limiting the amount of orders that can be filled, and ultimately eating into potential profits.
So what if you could completely remove this time-consuming step from the process, freeing up more opportunities to focus on actually increasing sales and accumulating greater cash flow? Well, Amazon may just have found a way to make that happen for you. In the past few years, this e-commerce giant has introduced a great little program that allows you to sell any number of items including: media, books, and household products, among other in demand consumer goods, without all the hassle of fulfilling the orders yourself.
In this book, we’ll explore how this program, referred to as Amazon’s “Fulfillment by Amazon” program (FBA), can get you one step closer to making your home-based or small business goals a reality. Explore the following chapters to gain a greater understanding of the Amazon business model, and how it can offer you the flexibility and freedom to achieve your goals.
A Brief History of Amazon
Founded by Jeff Bezos in 1994, Amazon is an American e-commerce company based in Seattle, Washington. Currently the largest internet-based retailer in the United States, Amazon possesses some truly humble beginnings. With its very first headquarters located in Bezos’ garage, it soon began to expand when Bezos realized that his books were selling to buyers all across the United States. He knew then that there was an opportunity to expand his market. Inspired by the potential, Bezos created a website that offered a wider range of items and accessibility than a bricks and mortar bookstore could. Once book selling was well established, he soon diversified, adding CD’s, computer software, DVDs, toys, household items, and other goods into the mix. Within a relatively small span of time, large retailers such as Old Navy, Target, and Toys R Us were signing on to sell their merchandise using the Amazon platform. This allowed an even greater opportunity for Amazon to expand its offerings, and open up even more product categories. With over thirty different product categories, and over thirty-six million products listed (not even counting the books), there is an absolutely tremendous opportunity to reach buyers and start making sales on Amazon. So how can you tap into this?
Quite easily actually! More and more home-based and small business owners are focusing an increasing amount of both their time and resources tapping into the expanding FBA market. Whether you are considering producing your own items, or simply purchasing items to re-sell, there is a significant amount of potential waiting to be developed. Regardless of your financial goals, background, and experience, this book can help you make Amazon’s FBA system work for you!
So, What Exactly is Fulfillment By Amazon (FBA)?
Put quite simply, the Fulfillment by Amazon model revolves around the production or acquisition of a product that can then be sold using Amazon’s online sales website. While you narrow down which products you’d like to sell and set your pricing, Amazon will take care of the storage and distribution of your product, as well as the customer service component. This leaves you with more free time to focus on achieving your actual goals – increasing sales and making more money!
Keep in mind that FBA is not a brand new program, and it boasts an impressive track record of success. Amazon has been building warehouses and distribution centers throughout the United States to ensure that all customers receive orders quickly and inexpensively, and in some cases even for free. As a result of this expansion and efficiency, many sellers, both small and large, have been making use of the FBA program for years, embracing its capabilities and enjoying a steady stream of profit.
With FBA, you as the seller have the opportunity to take advantage of the extensive Amazon facilities, effectively outsourcing the packing, shipping, and fulfillment part of your business. Touted as the future of online retail for home-based and small business sellers, FBA is a fantastic way to lessen or even eliminate your headaches and hassles as a reseller, allowing you to focus on improving and ultimately growing your business.
Within the following chapters, we’ll explore the ins and outs of Amazon’s FBA program, allowing you to decide if it’s the right choice for your business model. With a little motivation, some newly acquired knowledge, and the tools in this book, you’ll be that much closer to having the business you’ve always wanted.
Laying the Groundwork
Researching Potential Items
One of the fundamental things you should explore before you begin to delve into the FBA program, is understanding which products will successfully sell on Amazon. You need to be able to identify the products that consumers want, so that you can compare and contrast with your potential items, seeing how they measure up, and evaluating if you’re able to achieve that level of success for yourself.
One way to explore this is by checking the top-selling Amazon product listing. Things to establish a potentially well-selling product include:
A high volume of consistent sales
A price that is acceptable to both sellers and buyers
A solid number of satisfied reviews
While you do want to identify the items that people are purchasing frequently, you also want to establish that a solid profit can be made from the sales, and that people overall are satisfied with the purchase. Once you’ve balanced these criteria, you’ve found your selling sweet spot.
After you’ve established a potential item, search the product type to see what you can glean about the pricing of the items. You want to have a realistic idea of what each product can fetch, and this will assist you when it’s time to set your own pricing. Check out the starting price listed by other vendors. Does it make sense to enter this market? Can you get what you need for the item? You don’t always have to offer the lowest price, remember that there are other factors in play, but learning how to keep items affordable will help you to succeed in a competitive market.
While top-selling items will act as a great starting point, there are other factors which can help you to make informed decisions about the type of products you will be able to successfully sell. You want to look not only at how many sold, but also the number available from other vendors (competition), as well as the competitors’ price. It is these factors, in conjunction with an understanding of sales rankings that will ensure you’re informed and educated before you begin to sell using the FBA program.
Keep in mind that the quantity available of any one item can be a key factor in the viability of selling that item. The lower the number available, the better it ultimately is for your business. You don’t want to try to compete in a market that’s flooded with choice.
Understanding Sales Rank
Another tool that can help you establish which products will sell on Amazon is through the use of sales ranking information. This information is key in providing you with a true reflection of any one product’s general popularity. Knowing where certain products fall can give you a leg up in determining whether or not you should explore selling an item on Amazon.
Sales rankings function in much the same way as a bestsellers list. The higher the item number gets on the list, the less popular an item is. Accordingly number 1 is the absolute best ranking, with everything flowing down from there. Exploring a particular item’s sales rank is fairly straightforward on Amazon. A number is clearly listed and shown by scrolling down to the product description. Almost all items will have a sales rank, with a few exceptions. If no sales rank is displayed, or is listed as zero this could mean:
A significant amount of time has passed since this item was last purchased. This could be months or even years. This in itself is a good indication that this may not be the hot item that you’re looking for.
This item could also be brand new and not currently possess a sales history. This also may be an item you might want to avoid, as it isn’t tried and tested like other items on Amazon.
Keep in mind, however, that sales rank is like the stock market in that it can potentially change from moment to moment. It will not indicate exactly how quickly an item will sell, so avoid making any generalizations about whether an item will be purchased within a specific timeframe. While sales rank is a solid indication of the general popularity of an of item, it doesn’t necessarily take into account other factors such as general availability of a product, the time of year, and the amount of competitors, among other things.
The best way to get a solid indication of not only how the product ranks, but also how well it maintains that rank, can be achieved by watching an item over time to see how it moves. Understanding the movement of an item can be very important if you’re doing product sourcing locally (like at Costco or other big box stores) for items that you’d like to sell on a regular basis. Watching the movement will give you a general indication of how popular the item is, and how often a purchase is made. It is important that you avoid grouping items into bad and good based solely on sales rank. All the sales rank will tell you is how the item is faring currently, but understanding the range will offer more perspective.
While the sales rank of an item is not the only defining factor, it will ultimately help you make decisions about what to buy, the quantity to purchase, and how many should be shipped to Amazon at any one time.
Establish the Cost of your Goods
Many sellers who start with the FBA program already have a product that they want to sell, and would therefore know the cost of the goods beforehand. If the product that your company already sells is one that fits in well with what you’ve learned about top selling Amazon items, than you have a leg-up on other sellers. At this point, you’ve probably undertaken a cost analysis, and understand what you’d need to sell an item for to make the desired profit.
If this isn’t the case, and you’re looking to explore other products that might work well with the Amazon FBA program, it is important to do your research and figure out which products have the profit margin that you need. You can explore this by costing out your items at the source. For some sellers, the products they select are purchased at big box stores, while others rely on a wholesaler for their goods. Regardless of the source, put the work in to really understand if an item will be profitable. You absolutely should not be making any selling decisions without a clear and accurate cost of goods first being established.
Understanding the Amazon Customer
With over 250 million users, Amazon boasts an impressive assortment of potential buyers for you to access – but you have to understand who they are in order to connect with them and make that sale. One of the great things about using Amazon FBA is that you’re already tapping into a huge population of loyal Amazon buyers who you wouldn’t have access to through your normal business channels. Understanding what motivates these buyers, and how you can offer them the products they want will go a long way to translating into sales for you and your business. A few things to keep in mind about the Amazon consumer are:
Amazon customers will pay more for a product than other e-commerce site customers (such as eBay shoppers).
Amazon customers will not hesitate to pay for extras such as fast shipping, a quick and easy purchasing experience, or a money back guarantee.
Amazon customers can easily qualify for free shipping if they choose items that have the “Free Super Saver Shipping” logo and meet a minimum of $25 worth of merchandise. This acts as an incentive for purchasers to order more, often leading to impulse buying.
Amazon also offers a membership program in which “Prime Customers” pay $99 a year. These customers receive anything with the Prime logo within two business days, shipped free of charge.
With a plethora of customers waiting to buy your products, you should be making money in no time! It’s important however that you really understand the buying trends, the purchase history, and the motivation of the Amazon customer. Unlike other buyers out to save a dollar, Amazon buyers can be tempted by an excellent product, a quick return, or free shipping.
Crunching the Numbers
Before you jump on board with the Amazon FBA program, it is important to gain a clear understanding of the fees and charges that will be incurred from the use of this service. For some sellers, FBA does seem like a more expensive option that other services. It’s important to keep in mind, however, that FBA encompasses fees for all levels of fulfillment, including warehousing and shipping (costs that can quickly add up if a business is left to incur them solely on their own). For many people, the costs are not prohibitive, but it is really important in any business venture that you fully understand the financial ramifications of the relationship. Any fee or charge is going to impact your profits, but keep in mind that the FBA program may also increase your total sales volume, as well as exposure to your product. Ultimately, it’s up to you to decide whether you can make the product work within the margins available to you.
Fees associated with FBA include:
Inbound Shipping Fee: This is the general cost of getting your items to the FBA warehouse. Through Amazon, you will be able to make use of UPS partnered shipping which offers you the Amazon UPS rates (which are some of the most competitive around). You can also opt for your own shipper if you feel you can find a better deal elsewhere.
Amazon Commission: This is the cut that Amazon takes for having your items listed and fulfilled by them. This amount will vary, depending on the category that you opt to sell in.
Handling Fee: varies by item.
Pick & Pack Fee: varies by item.
Weight Based Fee : varies by item.
Storage Fees: Storage fees are very reasonable, and in many cases the first 30 days are free.
Can FBA Work for You?
Now that you have a little background on how the Amazon FBA program works, you may be evaluating whether or not this is a program that can assist you with your business goals. While understanding how Amazon functions, researching the ranking systems, and educating yourself on the fee structure can leave you feeling a little overwhelmed, know that at the very core, the Amazon FBA system is really quite simple. Essentially it works in a few key steps:
First you input the goods you want to sell into your Amazon FBA merchant online inventory (we’ll discuss this in a later chapter).
Generate and print out a shipping label which will be provided by Amazon, and then ship the box to one of the Amazon warehouses.
Once the box arrives, Amazon employees will check and verify the contents, which will then go live on the website until it sells.
Amazon takes care of all the outgoing shipping, as well as customer service.
You do not pay a cent until the item is sold.
Money from your sales will be sent directly to your bank account every few weeks.
While acting as a seller with Amazon, you’ll have the choice of one of their two types of seller accounts: individual or professional. The individual account is free, but you can only sell a maximum of 40 items or $600 a month. This may be fine for small-scale sellers, but if you’re really looking to expand your business and bring in some significant income, you may want to look into a professional membership. The professional membership costs $40 a month but there are benefits to subscribing. The most significant one is no maximums, so your earning potential is endless. Also, this fee gives you access to Amazon’s sales rank feeds.
One of the most important factors when deciding if this program is right for you is comparing the price you think you can get for an item with the cost of selling it through Amazon. If you’ve hit on a product with which you can achieve a comfortable margin, and the sales it will receive can counteract the FBA fees you’ll accrue, than you can definitely make the program work for you. Some people argue that you can make more money if you ship yourself, and honestly, they may be right. For many people, though, looking to expand their business, paying the fees is worth it for the effort saved – which can then be channeled elsewhere. Also, you may not even have the physical room for the sizable inventory that you require to turn the profit you desire. Amazon makes housing and shipping a significant amount of a product possible for home-based or smaller businesses where this previously was just not a possibility.
Keep in mind too that if you’re new to the market or just beginning in e-commerce, your business can take advantage of piggybacking on the success and consumer trust of the Amazon name. Many Amazon customers don’t differentiate between items that are Amazon-direct, and those that come from third party sellers. This could be a result of the combined shipping, allowing them free and fast delivery of their items. Many businesses struggle to get name recognition, or to establish themselves in a competitive market. When you’re listing your items with Amazon, you’re coasting on the name, and this can lead to increased sales if you play your cards right.
Making it Work for Small Sellers
One of the really great things about Amazon’s FBA program is that it has managed to cut into the competitive advantage that big sellers have enjoyed for years. In the past, if you wanted to scale up your business, you would need a serious influx of time, cash, and space, making serious growth prohibitive for many smaller operations. As a smaller seller, you usually have limited staff, as well as limited space to store items. This usually means that the fulfillment and shipping of orders takes more time than the bigger operations, leading to reduced potential for increased income. While a small operation can maybe fill 20 orders in a day, a large one with space and employees may be able to fill 300. Think of what a significant difference that could make to your business!
When you use the FBA program, your potential for growth is no longer limited. Essentially, this program removes the space and time limitations and puts you on par with established sellers as of day one. As long as you have the products, and can get them to Amazon, you could be selling items immediately and consistently, with no need to monitor, ship, or follow up on the orders yourself.
Getting Started Selling on Amazon
Now that you’ve gained a greater understanding of the ins and outs of the program, and established that Amazon FBA can work for you, it’s time to delve into the actual set-up and creation of your own successful online business.
It’s important to keep in mind throughout this process that you’ll always be learning. Amazon FBA, and your interaction with it, is always changing and growing, and you’ll need to be vigilant about tracking item trends and movements in order to stay on top of your business. Try to have the right mindset about what this platform can do for you professionally, and know that there will be times when you’re first getting up and running where you will be frustrated. Just keep focused, stay on top of inventory, make sure that items continue to flow to Amazon, and know that you’re on the right track. If you stay diligent, you will begin to see the financial results that you want.
One of the great things about getting started with FBA is that there are relatively few supplies or tools that you need to get up and running. A few things that are recommended to make your life slightly easier are:
Scanning Application – This will provide pertinent information about the items you are scanning and potentially considering sending to Amazon. These apps can provide you with information that will assist you in making sourcing and purchasing decisions, and quite often they come at a very low cost themselves.
Computer with Internet and a Thermal Printer – This is a no-brainer. You need to be able to research items, set up your listings, and print out shipping labels. While an inkjet printer is fine for shipping labels, as per Amazon’s rules only a thermal printer is acceptable for individual item labels.
USB Barcode Scanner – This item will make the listing component of the process dramatically easier, compared to the hassle of typing in every UPC. Buying one will save you a ton of time in the long run.
Shipping Scale – Getting an accurate shipping scale will allow you to be dead on with weights when shipping, so that you’re not losing money in the rounding up of packages.
Poly Bags – These can be incredibly useful if you intend to create multi-packs, or bag items that are required by Amazon to be bagged (certain liquid items, or toys that are not completely sealed).
Keeping Track of Your Finances
If you’re already running a functioning business, this may be second nature to you, but if you’re new to selling, you may need the gentle reminder. You’re going to need to keep track of your finances, and it’s important that you have a system that works.
Check out the following suggestions to keep your business running smoothly
Receipts – You can store these the old fashioned way in a shoebox, or embrace the more modern route of electronic storage. Try scanning all receipts and saving them to your computer in a folder. This will act as back up in case anything happens to the paper version. This type of storage also makes for easier recall of receipts if you need them, and stops you from digging around in a pile of paper.
Inventory & Sales Tracking – The best way to do this is by creating an Excel spreadsheet. Keep a document that lists: ASIN (Amazon stock information number), where you purchased it, the price at time of purchase, and the price you listed it for. Then, document each item as it sells with: ASIN, payout amount, purchase price, days it took to sell, and your received profit. You can use these sheets in tandem, cross-referencing the sales and inventory files to get an accurate read, as well as project potential profits and time it may take to sell the inventory. Tracking as much as you possibly can will really give you insight into your business, and allow you to pinpoint where you’re making the most money, and where you’re losing money.
Signing Up Amazon
Before you can even get started selling your items, you’re going to need to do a few key things. We’re assuming at this point that you already have a pre-existing Amazon account, but if you don’t that’s the first step! From there you will:
Sign up for an Amazon Seller account. Just find and click the “Sell your Stuff” option. From there you will select whether you have decided on the individual or professional account option (remember the professional account costs money). When you create this account, you will receive details on where to ship your products. Make sure to use the address you are given, as you will be assigned a specific warehouse.
Listing your Items on Amazon
It is important to note that every time you decide to use the FBA program, you’ll need to manage your inventory according to boxes. This can be relatively simple if you’re only sending one box, but can quickly become more complicated if you’re working with multiple boxes. Every time a new box is sent, you must effectively list the contents so that Amazon employees will be able to unpack, sort, and shelve items easily and accurately. Follow the steps below to create and list your first box.
Sign in to Amazon Seller Central, and move your mouse over the Inventory menu. A few different options will drop down. Choose Add a Listing.
Type in the name of the product that you’re looking to sell, and press the Search button. You can also search by other criteria including UPC, ASIN, ISBN, or EAN.
Once you see your choices, select the correct one by clicking the “Sell Yours” button.
The next page may seem a little more complex, but there are only a few things you need to focus on here. Fill out the item condition, the price, and the quantity. Ensure that the fact that it is an FBA item is selected by choosing the button next to “I want Amazon to ship and provide customer service for my items if they sell” (it may already be indicated). From there, click Save and Finish.
If you’re a new seller, you will see a page that asks you to ensure that you’re not selling anything that is prohibited by law, hazardous, alive, capable of killing someone, and things of that nature. From there, click the Send Inventory button to move on to the next page.
At this point, Amazon will need to know what location you are shipping the items from. There may be a default address that is filled in for you already, but you may also need to change it. If this is the case, simply click the Change Address button.
You’ll want to also tell Amazon that you’re sending them a bunch of items packed together in one box. Right now, you’ll see that the Individual Items option is most likely selected. This needs to be switched to Case-Packed Items. You might notice that this changes the inventory list that is located beneath this option, and you’ll have a few fields that need to be filled in: Units per Case, and Number of Cases. If you were selling one item, you’d just fill in the number one for both of these. If, however, you were selling one six pack of pop, you’d enter 6 units per case, and 1 as the number of cases. This would also apply if you were selling two of the same book. You’d enter 1 unit per case and 2 for number of cases. From there, click Continue.
Amazon will now select a facility for you to ship to using your address. From there, you will be asked to name your shipment. FBA will automatically supply you with a generic name, but feel free to change it to something a little more exciting if you’re so inclined. Once you’ve decided on a name, click Save and then Continue.
If that was the limit of what you were going to ship, then you’d be done creating your box. But, if you have more items to add, then you’ll just follow the preceding steps all over again. When you get to the last step however, you’ll receive the option of Add to an Existing Shipment without being forced to create a brand new one. Choose the shipment you’ve just created, and this will keep all your items bundled together and organized for the receivers at Amazon.
Shipping your Boxes
Once you’ve added the last item to a box, you can click the Work on Shipment button to get the shipping process started. As an alternative, you can always find your FBA shipments if you select the Manage FBA Shipments under the Inventory menu. You’ll also find the Work on Shipment button located next to any unfinished boxes on the page.
After you’ve clicked on the Work on Shipment button, give your shipment the once over to make sure that there are no last minute changes that you’d like to make. If all looks as it should, click Save & Continue.
From here, you’ll be sent to the item labeling page, where you will be able to print out labels for all of your items. Print them, attach them to your items, and click Save & Continue.
From here, you can select the size of your shipment as well as the carrier you have opted to use. While you can use any carrier you want, there is an option for an Amazon-Partnered Carrier (which is usually UPS). This option will allow you to purchase a label from Amazon at a reduced price, as well as have the carrier come and pick up your stuff for you. This is the easiest possible method, although you can definitely choose another carrier and ship it all yourself. Once you’re ready to move on, click the Save & Continue button.
It’s time to get the packing slips printed. Select how many you’d like to print. Keep in mind that you’ll need to put one in the box, but you may also choose to keep one for yourself. Enter your choice and click the Print button. Pack the slip into the box with everything else. Then click Continue.
On the next page, you’ll find areas to enter the dimension of your box, as well as its weight. If you can’t get an exact measurement, do the best you can, and then round up. Click the Save button, and then once your information has been saved, click on the Cost Estimate button.
From here, you’ll see a page which will give you a shipping estimate, as well as asking you to agree to be charged for the listed amount. Agree to this, and click Accept Changes & Continue.
Print your label, and attach it to the box as instructed. Then schedule a pickup with the carrier, or drop it off at your nearest shipping facility.
Knowing the Pros of Using FBA
While we’ve touched briefly on the benefits that using Amazon’s FBA program could bring to your business, there are a few key pros worth noting if you’re still unsure about signing up and getting started selling!
To many sellers and small-business owners, Amazon FBA is a system that allows them greater capacity to expand their business, with a number of side benefits including:
1) Higher Prices, Higher Margins, and Higher Payouts
This is a really key factor, and one we mentioned in a previous chapter. All items sold through FBA are eligible for Free Super Saver Shipping as well as Amazon Prime. This is really great for the seller, because FBA users can actually raise their prices to match their competitors’ total price (which is cost and shipping). This little boost not only adds some extra profit, it also counteracts the FBA fees, allowing the FBA seller to ultimately still receive a higher net payout than sellers on other platforms. So for example, if your competitor is selling an item at $30, plus $10 shipping, you’re free to list your item at $40, as the free shipping option counteracts the increase.
2) Less Work
Imagine making money while you’re not even working! Once the items are in the Amazon warehouse, FBA sellers have the potential to be selling 24 hours a day, 7 days a week. Items will ship at all hours of the day or evening, and this includes weekends. So regardless of whether you’re having a nap, or taking an extended vacation, your items are making you money. Once you’ve taken that step and sent the items into Amazon, your work is done, and you don’t need to do anything else. You’re welcome to monitor inventory or adjust prices as required, but you don’t have to sit down to the tedious task of packing items, stocking boxes, printing shipping labels, and hoisting packages down to the nearest post office.
3) More Selling Opportunities
As we discussed in a previous chapter, Amazon customers tend to purchase more items than other shoppers, both in quantity and frequency. By signing on for this program, you as a seller can effectively piggyback on the impulse buying habits of this established customer base.
4) Happier Customers
There are a large percentage of Amazon shoppers who have never purchased an item from a third party merchant. To them, buying from you as an FBA seller and buying from Amazon itself are synonymous. These individuals are people who have a relationship of trust with Amazon, and like the security of knowing that if there ever is an issue that Amazon will assist them. In fact, Amazon buyers are willing to pay more money to get their items shipped by Amazon or an FBA seller. They do this because they get the Amazon service, fast, efficient, and trusted. This not only benefits you by offering more sales, it also takes the burden of general customer service off our business, freeing up greater resources for you.
5) Shipping Benefits
Keep in mind too that FBA products are shipped from Amazon at a far faster rate than products from other retailers. Pair this with 24/7 customer service and ability for buyers to track delivery throughout the process, and you’ve got a real bonus. In most cases also, there is an increased customer awareness of the no-shipping cost and express shipping, and they will often opt for FBA as a result of that benefit.
6) Amazon Branding
While you are an individual seller, FBA retains the Amazon name, and as a result, the positive reputation that accompanies that name. Amazon has worked very hard to create a company that values its customers, providing them ease of ordering and impeccable customer service. Why not let that good reputation reflect positively on your business?
7) More Sales and Growth
Because of the minimal effort required for the seller, and the fulfillment on the part of Amazon, businesses using FBA are capable of handling a larger scale of inventory and fulfillment, allowing them more time to focus on the growth of the business.
8) Cost Effective and Simple
Compared to the significant service that Amazon FBA provides, the cost is very reasonable. If a business were to pay for storage space and shipping for all items, the cost would be far greater than anything that Amazon charges. Add this to free outbound shipping, and include customer service, and it’s apparent what a great deal it really is.
If the Amazon FBA program is one that you’re seriously considering, know that the pros really can outweigh the cons for many businesses. Ultimately, the customer pays for (and receives) the professional and timely service that he or she desires for little to no extra cost. Also, the freedom that this outsourcing and customer service provides allows the seller to devote more time to building their business through sourcing inventory, expanding product lines, evaluating margins, and putting timely and coveted items up for sale during key retail periods. They can do all this because the hassle of fulfillment and tracking is no longer in their hands, freeing them up for greater development.
Contemplating the Cons of FBA
While we’ve established that Amazon FBA is a really great program with many positive reasons to sign on, there are a few downsides that it is important to be cognizant of if you’re deciding to move forward.
1) While it can be done, Amazon FBA is not great when you’re selling cheap items such as used books or DVDs (the ones no one wants anymore). If you can’t hope to get over $4 for your item, there isn’t a lot of benefit to using this service. Luckily, Amazon will let you know what you’ll make when/if your item sells so you’re properly informed before you officially send it in.
2) There are restrictions on what items you can sell, and it’s important to note that not every item is sellable through this service. Often, Amazon will require certain packaging to be present in order to assist them with adding it into the system. If you have the misfortune of missing a bar code or ISBN number, you just might find yourself having trouble adding it into the system. This isn’t always the case though, just something to be cognizant of.
3) Although the process is easy once you really get into the swing of things, it can be a little frustrating at the beginning. Like all things with many steps, stay away from it while in a bad mood, or if you’re the type of person who finds themselves easily frustrated.
Some other things to consider include:
Be Prepared for Returned or Damaged Items
It’s a fact that Amazon’s return policy is absolutely amazing for the consumer, and probably a large component of their success. Keep in mind when you’re dealing with Amazon that their number one priority is keeping the customer happy. As a result, anyone can return an item for absolutely any reason. While the majority of people aren’t going to abuse this, some people inevitably will, taking advantage of the return policy at the expense of your inventory and profit. If you’re finding time and time again that the same item is being returned, and it’s cutting into your profit margin, you may need to evaluate whether this is an item you should keep selling, or whether you should raise your price to compensate for the returns.
While it can be hard to accept, once that box leaves your hands and is on its way to Amazon, you cease to be in control of what happens to your items. Unfortunately, you are ultimately still responsible for them. While Amazon’s 100% satisfaction guarantee is comforting to the customers, it can leave you slightly out of pocket if any of your items arrive less than perfect. Estimate that at least 3-5% of items will most likely be returned, and be completely unable to be resold.
Amazon as Competitor
When you first join Amazon FBA, you may enjoy a short honeymoon period where you appear to be the only FBA seller of an item. Unfortunately, this is often short-lived as other sellers list their FBA inventory and start to drive the prices down. Something that is really important to understand when you’re using the FBA program is that you’re not just competing with other third-party merchants, but also Amazon itself (which may pose the biggest threat)! If you’re working with an item that Amazon doesn’t sell, you may be better off, but often Amazon will acquire new products and create more competition in the market. In order to avoid losing sales, ensure that you know what Amazon is pricing similar or the same items for. Can you compete at that level? If you can’t, perhaps you need to reevaluate your items and selling strategy. Amazon’s pricing should always be something you’re cognizant of, and something that affects your pricing from the very beginning of the process.
Because Amazon has numerous distribution centers spread in a variety of location, it opts to use the distribution center located closest to the customer when it ships product. As a result of this, the product that you end up selling may not actually technically be yours if you agree to co-mingle. This can happen quite easily if you are a selling a book that another Amazon seller may have listed. While the advantage here is that co-mingling can ideally help you sell more of your stuff faster. The disadvantage, however, if that you really don’t want to vouch for the quality and the legitimacy of another seller’s merchandise. There have been instances where accounts have been closed because of co-mingling confusion. One seller may actually be the one responsible for the violation through illegal, pirated, or unacceptable materials, but the other may suffer the consequences if there is no way to prove whose product posed the issue.
When dealing with Amazon FBA, there are also a number of inventory issues that may arise within your business including:
Unfulfillable Inventory – Whenever a customer returns an item, Amazon will determine if the item is able to be resold or not. If it can be resold, it will be added back to your existing FBA inventory. If not, it will fall under the category of unfulfillable, and you will have to request that it either be returned to you or destroyed. Common practice is to remove all unfulfillable inventory monthly, and keep in mind that this will have a cost to you. Ultimately, you may find that your items may be legitimately damaged or there may be nothing wrong with them. If you find that nothing is wrong with them just reprocess them to your FBA account.
Lost/Missing/Damaged Inventory – Occasionally, you may find that some of your inventory is missing or unaccounted for. This can either be a seriously delayed receiving issue, or an actual loss of one of your items. While this can be a hassle for you as a seller, if Amazon has lost or damaged your inventory, you will ultimately be compensated for the items in question.
Other Costs on Products and Amazon
Commission – Amazon will take a cut on all your sales through its program. While you probably expected this, it’s important to really look at the numbers and decide whether you can live with it. If the percentage is one that seriously cuts in your profitability, it may not be worth it in the long run.
Additional Fees - While the fee structure of the Amazon FBA program is fairly straightforward there are a few extra fees that can creep up on you. Basically, any time an Amazon employee has to handle your product, either to stock it or to ship it, you will be incurring extra fees. This is not a situation where you pay a straight commission and that’s all. There will be handling fees, item pickup fees, and fees based on the weight of your items. Absolutely nothing is free here, and it’s important to be very cognizant of that. There are also fees that will be incurred if you make use of Amazon’s Long Term Storage system. Any items that you’ve had with Amazon for over a year will incur a specific fee above and beyond any basic storage fees that you’re paying.
Advertising Costs – One financial factor that will affect your overall success on Amazon is your willingness to pay for Amazon’s own advertising. Opting to use this service can come with a significant price tag, but opting not to use it can often destine your products to being relegated to not as key a spot as those that do pay the advertising fees. Weigh the pros and cons on participating to see if it brings a significant benefit to your business profits.
Shipping Costs – While this has been mentioned before, it is important to state it again. You will be responsible for your own shipping to Amazon. If you’re dealing with a significant amount of product or heavier items, this can really end up costing you. While Amazon does offer discounts on shipping through their provider, shipping will still remain a significant cost that should be considered when you’re looking at the profitability of your items.
Other Considerations to Keep in Mind
Choose a niche
While there is no hard and fast rule that you have to only sell one type of product, focusing your energies and finding a niche will help you to understand that section of the market more effectively. Don’t spread yourself too thin. Instead evaluate products in a certain segment, and focus on becoming a bit of an expert. We’ve all heard the old adage “Jack of all trades, Master of none.” Master one area, and gain a comprehensive understanding of which products do and do not sell well. Instinct does count for something, but the majority of your decisions should be based on research, experience, and studying the specifics of one category.
Price items to sell
If you’re looking to turn over items at a reasonable rate, and not collect a bunch of inventory that isn’t making you money, make sure to price your items to sell. It’s important to be competitive with the market that you’re selling in. Know what the going rate is, and make sure that your product falls in the appropriate range.
Know the Rules and Regulations
While the FBA platform can be incredibly lucrative for those willing to invest the time in research, and the money in product development, it is important that you really understand the rules and regulations as laid out by Amazon. When you make the decision to use Amazon’s platform, you are committing to following their policies and procedures in their entirety. Know that if you breach a single one of their guidelines, your account may be irrevocably suspended. This can also be the case if your seller performance is not kept to a high standard. Remember that in Amazon’s world, the customer is absolutely always right, and you’ll be expected to stand by that philosophy as well. Remember too that your merchandise must also conform to Amazon’s rigid product listings and categories – there isn’t room for leeway here. While these rules and regulations can seem frustrating, they absolutely should not be an impediment to using this incredibly profitable selling platform.
Know Your Tax Responsibilities
We all know that any type of small business or self-employment can cause tax issues, and it’s important that you are aware of these factors before you jump into Amazon FBA. You may live in a state that requires you to report all sales tax, or on the flip side your items may be shipped to a state that charges a different level of sales tax than the location you sent it from. One of the issues with multiple warehouses is that you may not always know where your items are being shipped. Although tax collection is enforced with different levels of severity depending on where you live, it is important to be aware of it to avoid any unnecessary and nasty surprises come tax time.
While these factors are all things that you should consider before jumping in with both feet, sharing them is only meant to give a bigger picture, and ensure that sellers understand the roles and responsibilities that come with signing up for the FBA program. Keep in mind, however, that the benefits of FBA, especially for smaller sellers, far outweigh the risks and concerns. Think of it as outsourcing your entire warehousing, fulfillment, and customer service departments!
Making it Work for You
Although there are many factors to be weighed when considering transitioning and growing your business through use of Amazon’s FBA program, it can really be an effective tool for growth and development for many small businesses. While it’s easy to feel bogged down at first by the details and process, doing your research, and weighing the pros and cons will leave you well equipped to move forward.
FBA’s convenient fulfillment option allows sellers to leverage Amazon’s popularity, solid reputation, and resources to increase marketplace sales. For individuals and businesses trying to change and expand in the ever-evolving market of online commerce, Fulfillment by Amazon poses a very viable alternative to traditional modes of selling online.