Is Amazon FBA a Legitimate Business Model?

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Fulfillment by Amazon (FBA) is a service by Amazon that provides packaging, storage, and shipping assistance. It helps sellers by granting them flexibility in selling their products. Through the program, sellers deliver their merchandise to a fulfillment center, where Amazon will store the items until they’re bought. When someone places an order for the items, Amazon prepares, packages, and ships the products.

Now that you get a picture of what Amazon FBA is all about,  you’re probably wondering if it’s still a viable business. This has been a favorite of online sellers since around 2015 and is projected to continue as more people discover the business.

How Amazon FBA Works

When you join Amazon FBA, you use your selling account, but you have to follow a few instructions to update products. How the FBA program works is simple:

  • You send your products to Amazon
  • Amazon stores the products
  • Customers purchase your products
  • Amazon FBA packs your products
  • Amazon ships the products to customers
  • Amazon deposits sales profit to your bank account every two weeks

That sounds easy. You don’t even handle customer emails, including notifying customers their product has been dispatched. All you need is to provide the stock and Amazon FBA handles everything else. But this service is not free as Amazon charges you a fee for using this program. You’re using Amazon’s power to make sales, so it’s a convenient arrangement that will help you avoid dealing with post office queues. However, there are things you must do.

What You Should Do

  • Choose products 

Supplying products to Amazon is no guarantee you’re going to make huge profits. You still need to conduct research to understand what people want to buy. Find the best source for your products considering the quality and also the cost of acquiring the products.

  • Stay up to date with your inventory

Amazon will notify you when you have low stock levels. It’s your responsibility to replenish stock as soon as you notice there’s a shortage.

  • Write product listings and promote your products

While Amazon is a huge platform, you still need to write effective listings. You will also need to promote the products; otherwise, people will not find them.

Benefits of Amazon FBA

What are the benefits of Amazon FBA compared to doing everything independently? When you choose Amazon FBA, you’re assured to enjoy these benefits:

  • You Can Benefit From Amazon’s Reputation

Millions of people trust Amazon because whenever they order something, they’re sure the company will deliver it. Buyers also know they can return defective products. You can exploit this reputation to sell your products through the Amazon FBA program.

  • You Can Provide a Super-Fast Service

The Amazon FBA offers a unique ordering system, which relies on faster processing and dispatch. This means the company can ship products faster than you could do if you chose to go through the postal service.

  • Higher Ranking on Amazon and Better Product Visibility 

When you join the Amazon FBA program, your product is placed higher in search results. Sellers not using the FBA program see their items listed by price and shipping costs. However, those on the FBA program have their products listed by price only, ensuring it’s the first item that appears on search results. 

  • A Chance to Win the Amazon Buy Box

The Amazon Buy Box refers to the “Add to Basket” button you see on product listings. Using Amazon FBA places you in pole position to win the Buy Box. Of course, Amazon offers the Buy Box if you sell a similar product as the company, but being in the FBA program offers you a better chance to compete.

  • You Offer Free Delivery Automatically

Free delivery helps customers save money, so they’ll likely prefer a seller who offers this benefit. If you’re in the FBA program, Amazon Prime customers get free delivery on products. This gives you an advantage over sellers not in the FBA program. Prime customers usually purchase more items, especially during the busy shopping season.

  • Your Overheads are Reduced

Because you’re not dealing with storage, employees, and administration, you can focus on selling more products. This will boost your profits.

Amazon FBA Fees

Amazon will charge you different types of fees to sell your products through the FBA program.

  • Standard Seller Fees

Amazon charges approximately 15% to 18% of your product price for each item sold. This varies based on the product sold. Although Amazon says they charge 15%, there are a few hidden costs, such as refunds that increase the overall charge.

  • Fulfillment Fees

These fees are charged per unit and vary depending on whether the product is oversized or standard. The fees include shipping, packing, picking, customer service, handling, and product returns.

  • Inventory Storage Fees

Considering the time of the month and average daily volume, Amazon charges sellers a storage fee per cubic foot. The fees can vary based on product size. You can get long-term storage fees in addition to the monthly fees if your products need storage for longer than 365 days.

Drawbacks of Amazon FBA

While there are many benefits from using Amazon FBA, there are several drawbacks you should consider. First, Amazon does not package the products with your logo, so if you’re trying to build a brand, this could deny you an important opportunity. It also costs money to use the Amazon FBA program. If your stock fails to sell quickly, you can incur losses through storage fees. And due to the easy return process, you could receive more product returns from customers.

Conclusion 

Many entrepreneurs are using Amazon FBA to run their profitable businesses. However, the program might not be perfect for every business model. You have to maintain products that sell quickly and also research your niche well to avoid losses. It’s a convenient solution if you are looking to expand your business and improve efficiency in product handling. Before you start, be sure to learn Amazon’s rules and understand your target market to know if the program can work for your business.

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