Fulfillment by Amazon (FBA) is a convenient solution for those Amazon sellers who don’t want to waste time on shipping, logistics, and customer service. By passing the ball to Amazon, sellers get the chance to focus on other important aspects of their operation.
This program enables brands to access the retail giant’s logistics machinery, without lifting a finger. Among many other perks, with FBA, sellers are free from dealing with inventory management.
Brands enrolled in FBA just pack and deliver stock to a warehouse, and Amazon takes it from there.
In this comprehensive guide, you’ll get the nuts and bolts about Fulfillment by Amazon (FBA).
FBA Through the Years
Fulfillment by Amazo (FBA) is the go-to Amazon business model for millions of sellers. That’s what the retail giant sought to accomplish when it launched the program in 2006.
Back then, Amazon realized that it could help hundreds of small brands grow. How? By sharing its own fulfillment capabilities as a third-party logistics company.
Amazon developed a program that gives access to its own logistics machine. This includes warehouses, stock management, suppliers and customer service for sellers.
In short, small businesses could deliver products on time, and on a nationwide scale, just by adopting the “Amazon Way”.
This simple strategy allowed sellers to focus on growing their brands, without investing in storage and staff. Thus, Fulfillment by Amazon (FBA) was born.
Amazon has invested many resources on FBA over the years. The system is so streamlined that customers are unaware that they’re buying from third-party sellers using FBA.
Over time, enrolling in FBA became a no-brainer for online stores, and here’s why:
How Amazon FBA Works
As we mentioned above, Fulfillment by Amazon (FBA) has become a benchmark solution for sellers. As of 2021, there are few online stores that don’t have some presence on Amazon.
What’s more, many sellers now use the FBA system to fulfill products through non-Amazon channels. And thousands of merchants are still adopting the FBA model.
The program works with a very straight-forward process.
First off, sellers must take care of the following steps:
- Research and select products with high demand but low competition. The goal is to find (or create) the most profitable items to sell, even after FBA fees.
- Source the items from a trustworthy supplier or manufacturer, at a reasonable fee. In some cases, the supplier also ships the product to Amazon.
- Create product listings to advertise and sell your items in the marketplace. Use high-quality images, targeted keywords and detailed descriptions to engage customers.
Now, this is what Amazon handles in Fulfillment by Amazon (FBA):
- Store products in their fulfilment centers. Amazon will distribute the items across different warehouses to cut shipping times.
- Process transactions for every item ordered. Amazon then picks, packs and ships the product.
- Handle customer service tasks, such as providing tracking details, or requesting ratings and reviews.
It’s crucial to track sales constantly to track sales in Seller Central to appraise the success of every item. Plus, this will tell sellers when to update the inventory when stock levels are low.
Later in this guide, we will list the pros and cons of this program in more detail. But here is a brief summary:
The Benefits of FBA
There’s more to Fulfillment By Amazon (FBA) than timely deliveries. Signing up to FBA, opens many other amazon benefits to sellers.
- Brand association – Users have come to expect great delivery service from Amazon. That means most shoppers will appreciate when a third-party store handles delivery through FBA.
- Higher Search Ranks – Amazon’s algorithm favors FBA products, leading to better search rankings. Plus, this boosts the chances to win the buy box.
- Customer Service Management – FBA features complete, 24/7 customer service management. Amazon’s staff handle all inquiries, refunds and returns on behalf of sellers.
- Multichannel fulfillment – Storing stock in Amazon’s warehouses does not mean sellers can only sell through the marketplace. Amazon can pack and ship products sold on multiple online channels.
- Amazon Prime eligibility – FBA products are Prime-eligible. This comes with 3 perks: free delivery option for customers, better chances to win the Buy Box, and boasting the Amazon Prime badge.
The Drawbacks of FBA
It’s clear that Fulfillment by Amazon (FBA) is easy to use and offers many advantages. Sellers can forego stock management, packaging and shipping.
The program also enables Amazon to handle refunds and returns from customers for brands. This way, businesses can focus on improving sales and profit.
Fulfillment by Amazon (FBA) may not be the best solution for some sellers, however. Here are some factors to consider before enrolling in FBA:
- Competition – There are thousands of sellers benefiting from FBA around the world. This a huge pool of competition, including Amazon’s private label brand.
- Stickerless Commingling – The warehouse tends to bulk similar products from each manufacturer together. So, inventories get mixed up. This could lead to faulty deliveries.
- Increased returns – Amazon’s return policy makes it very easy for customers to return items. Since Amazon FBA handles returns and refunds for brands, some sellers experience more returns after joining the program.
- Product Guidelines – The FBA inventory warehousing guideline states how products must be packaged, labeled, and shipped to the warehouse. Failure to comply will result in items being rejected for storage.
- Long-Term Storage Fees – Slow-selling a stock is bad news for sellers. Amazon expects a constant turnover of products to save storage space. After 180 days of storage, Amazon will charge sellers with long-term storage fees.
By using Fulfillment by Amazon (FBA), sellers must pay specific fees for storage and fulfillment. The main rates are monthly, fulfillment, and storage fees.
How to Calculate FBA Costs
An important tie-breaker is how much the FBA program will cost. How it works is the more inventory you have, the more you’ll be charged, because you’re paying for the space your items occupy in Amazon’s warehouse.
That means that lower-cost items can become less profitable when considering those fees.
The issue is that inventory fees tend to become more expensive when a product has been in storage for more than 180 days.
Amazon will let you know if any of your products aren’t moving enough with a stranded inventory report.
The good news is that you don’t have to include all of your listings in the FBA program, so you can exclude products that you think won’t be selling that quickly. The fees also increase during the holiday season, so remove any inventory you know won’t be selling for that time.
Here’s a list of the FBA service fees sellers must account for:
FBA Service Fees
|Professional seller rate||$39.99 per month|
|Individual seller rate||$0.99 per item sold|
|Individual selling rates||$0.45 to $1.35 per unit|
|Stock removal||$0.50 to $0.60 per unit|
|Labelling||$0.20 per unit|
|Product prep||$1.00 to $2.20 per unit|
|Long-Term Storage||$6.90 per cubic foot or $.015 per unit|
Watch item is charged a variable fee depending on its weight and size. And to meet high demand, FBA storage fees increase during the holiday season.
FBA Storage Fees
|Months||Standard Storage Fee||Oversize Storage Fee|
|January-September||$0.69 per cubic foot||$0.48 per cubic foot|
|October-December||$2.69 per cubic foot||$1.20 per cubic foot|
FBA sellers also incur a Fulfillment fee. This is the cost to pick, pack and ship an item. The rate starts at $2.41 per unit, for 1- to 10- ounce items.
Similar to storage rates increase, fulfillment fees can go up to $137.32 for special, oversized products.
Plus, there’s the Amazon standard seller fee. The marketplace takes approximately 15-18% of an item’s price after it’s sold.
It may be hard for small or starting sellers to cover these expenses. However, the investment is well worth it, once a business sets a solid foothold in Amazon.
Now, let’s see how we can go and find the best FBA items.
How to Find Products to Sell on Amazon FBA
Sell products with low competition but high demand. That’s the key to success on Amazon. The question is how to find said items.
For great results, the best a seller can do is to find the most profitable niches. These are small, specialized subset of buyers, products, or categories.
Well-known items translate to increased visibility, and more competition. Niche products come with targeted customer engagement, with less contenders in the marketplace.
Here are the best products to sell on Amazon:
- Home & Kitchen
- Sports & Outdoors
- Toys & Games
- Health, Household & Baby Care
- Beauty & Personal Care
- Kitchen & Dining
- Clothing, Shoes & Jewelry
- Garden & Outdoor
- Tools & Home Improvement
We recommend you find niche products within these categories to boost visibility and profits.
Once you’ve found the best niche for your brand, it’s time to find the best products to sell. Here are some guidelines to go about this quest:
The right price
Sell items for $25-50 for a healthy revenue, even after accounting for all Fulfillment by Amazon (FBA) costs and fees. Lower prices will eat your profit margins away. Also, going high may scare customers away from products they don’t know yet.
Narrow your choices
Select a few products to track for a few weeks. This will tell you which items are free of seasonal spikes. It’s also great to discard products inflated due to special offers or discounts.
A good rule of thumb is to stock around 300 monthly units to make 10 daily sales. But That would be quite a feat when dealing with seasonal products, right? So, it’s best to deal in niche products that sell throughout the year.
Find products with 3- to 4-star ratings, but less than 200-100 reviews. Why? There’s room for improvement, and an opportunity to beat competition.
Simple, small, and light is better
You don’t want to be bogged down in shipping, manufacturing and quality control.
- Be wary of IP concerns. Amazon is always on the lookout for counterfeits and trademark infringement claims. So, ensure your selected items come with the rights to produce and sell.
- Importing. We live in a global market. If you want to sell outside your country, then comply with the import regulation of your chosen selling territories. You’ll avoid tedious customs hassles.
Product Research Best Practices
These practices will help you enormously in your product research quest:
- Let data guide you, rather than picking a product to sell simply because it’s something you like.
- Don’t rush it. Product research is essential preparation that requires some time and analysis to be successful.
- Use a tool, like Jungle Scout, that can mine massive amounts of Amazon data to find a product with the trifecta of: high demand, low competition, and positive profitability. We’ll show you how.
Sourcing Your Amazon FBA Products
Finding the products is just the first half of the process. Sellers also need to find a supplier.
As we said, you want to find products with low competition and high demand. But it’s also crucial to get the highest quality items available.
You can find thousands of manufacturers of the same product. The trick is to narrow the list down to 5-10 suppliers that feature the following qualities:
- Quality. Needless to say, the best-made products sell better, get high reviews and continued sales.
- Experience. Check the supplier’s import history to know if they’ve manufactured the product for at least 3 years.
- Communication. Good seller-supplier relationship boosts your FBA brand productivity. Evaluate response times and how suppliers answer your inquiries.
- Fair price. Your final choices should share similar price ranges. Much higher or lower prices could be a red flag.
But how does one find suppliers? There are several options to start searching, such as online arbitrage.
Taking Advantage of Retail Arbitrage
This strategy is about searching goods below retail value online. Then, compare prices on Amazon to check the profitability.
If the item and supplier match all your criteria, you can order bulks and send them to Amazon. Finally, you can upload your listings and sell.
One of the best sites to find products and suppliers is Alibaba. Being the largest B2B platform in the world. The site features many products, sold directly by the manufacturers.
Now, a second sourcing option is retail arbitrage. This involves selecting products at retail stores or liquidation centers.
Look for chain stores with discontinued goods. You’ll find products at 50-70%, and some scarce niche items to profit from.
Mass up some copies and store them at Amazon’s warehouses. Then, create your product listings and start selling.
The trick is to focus on major buys that last for months. And Regardless of the method used, keep in mind Amazon’s fees when sourcing products.
The final profits are the difference between the selling price, minus FBA fees and the item’s original cost.
How to Get Started on Amazon FBA
You cannot start selling before setting up your FBA business on Amazon. This involves one crucial choice: Is it better to start from scratch, or to buy an FBA store?
Here are two options for you to choose from:
1. Buying an FBA Business
An up-and-running store can give you an edge. The store already has products to sell, a customer base, and it’s generating income.
What buyers must consider is the capital risk. The price regular value for an FBA store is at 2-4 times its yearly EBITDA.
So, to buy an FBA business that makes $10,000 net profit per year, the investor would need $20,000-30,000 to purchase it.
It’s also crucial to dive deep into the business and detect discrepancies.
Some Things to Consider
Here are some key points to look out for:
- Profits and Losses. Check the store’s net profit for inconsistencies, sales trends, and potential opportunities for growth.
- Account Health. Evaluate the business’s reputation. Amazon expects sellers to meet specific performance and service metrics, such as:
- Order Defect Rate: below 1%
- Pre-Fulfillment Cancelation Rate: 2.5%
- Late Shipment Rate: below 4%
- Valid Tracking Rate: 95% or higher
- Invoice Defect Rate: below 5%
- Inventory Performance Index: below 350
- Suppliers. Find out the seller-supplier relationship status and contract policies. Are they exclusive partners? Dig out the terms and unforeseen costs that could affect you.
- Accounting Records. Ensure all accounts and taxes are set up properly to evaluate the FBA store. For example, check that all Amazon fees are present in the financial records. Also, make sure the seller is not inflating any profits.
You can find the most profitable FBA stores using platforms like Empire Flippers or Thrasio. Then, contact the seller and draw up a deal.
2. Building an FBA Business from Scratch
It takes time and effort to build a profitable FBA business, but stick to it and your hard work will pay off.
Here’s what you need to get started:
- Startup Capital. New sellers invest around $ 3,836 to inventory, orders and marketing, according to Jungle Scout.
- Research. Contact established FBA sellers to play your way into Amazon. Learn as much as you can about the setbacks they encountered. This’ll give you tips to map out your FBA strategies.
Setting Up Your Amazon FBA Business
The previous steps will help you map out your FBA strategy, and to properly set up your Amazon FBA business, we suggest you to do the following:
How to Create an Amazon Seller Account
If possible, select a Professional seller account. As we said, you’ll pay a $39.99 monthly fee, but there’s no limit to the items you can sell.
The Individual account is best when selling fewer products. It has no subscription fee, but you’re charged a $0.99 fee per item sold to Amazon.
Listing Your Products
Log in to your Seller Central account, go to “Inventory” and click on “Add a Product”. Find your items using names or barcodes and submit the relevant data:
- Selling Price
- Product description
Optimizing Your Listings
You can’t expose your store without an SEO strategy. Find the most relevant keywords for your products and place them in your content.
Include head phrases and long-tail Keywords in the title, bullets and description. This is crucial to take advantage of the Amazon algorithm.
When users type in your keywords, it’ll increase their chances of finding your products in the search ranks.
You should also create high-quality visuals, such as A+ Content. The key is that each image clearly says what your product can do for customers.
Click on “I want Amazon to ship and provide customer service for my items if they sell.” Then, go to “Manage Inventory” and “Actions”. Now, select “Change to Fulfilled by Amazon” for your eligible-FBA items.
Setting Up an FBA Shipping Plan
When you select “Convert & Send Inventory”, Amazon will prompt you to choose a shipping plant. Here’s what you need to do:
- State if you’ll send “Individual products” or “Case-packed products”
- Choose which items you’ll store at the warehouse
- Prepare for shipment
Now you can start shipping to Amazon:
- Go back to “Inventory” and select “Manage FBA Shipments” to submit the units you’re sending out.
- Print out brand labels, stick them to each package, and follow Amazon’s guidelines to prep and label each parcel.
- Last of all, program the pick-up. The rest is up to you. Expose yourself with some marketing and excellent customer service.
FBA, FBM, and Seller-Fulfilled Prime
When it comes to Amazon shipping, sellers must choose between FBA and Fulfillment By Merchant (FBM).
FBM sellers manage orders’ fulfillment on their own. They may not enjoy FBA shipping perks, but they control the whole process.
However, FBA sellers are automatically enrolled in Amazon Prime. This perk translates to higher sales and better ratings, thanks to Amazon’s guarantee.
You’d think FBA sellers can’t really get access to Prime Customers. But FBM sellers have the option to enroll in Seller-Fulfilled Prime (SFP).
This program allows sellers to handle their own customer orders, and access Prime shipping. SFP also ensures FBM brands meet Amazon’s high shipping standards.
Is Fullfillment By Amazon (FBA) Right for You?
Here’s why FBM and SFP could work best for some sellers:
- Lower Costs. This is particularly good for brands dealing in heavy and bulky items. It means lower shipping costs, which would save profit margins.
- Convenience. Amazon FBM allows you to directly manage stock levels and quality. You don’t have to worry about long-term storage fees.
- Quality control. You’ll handle all customer returns. This way, you can review any product damage for possible resales and replacements.
- Brand Protection. No more commingling inventory. Sellers can store stock the way they see fit, without any products being confused with similar items from other brands.
- Customer Service. Add the personal touch to customer relationships. Since you know the products better than anyone, SFP allows you to deliver better shopping experiences to buyers.
In short, SFP sellers enjoy direct brand protection, quality control, customer service, and Prime shipping.
However, It’s a lot more work. Seller-Fulfilled Prime eligibility requires a 99% distribution track record.
Plus, your cancellation rate must fall below 1%. That’s why most brands prefer the FBA program.
But if you deal in low-cost products or large items, SPF is a great path to the Prime badge. Plus, you’ll be free from FBA fees.
FBA vs Non-FBA
It’s not mandatory to enroll in the FBA program. Some sellers opt for Seller-Fulfilled Prime (SFP) and they are the ones responsible for storing, picking and packing their products, but they do get to use the Amazon Prime name and shipping guidelines.
The FBA program charges fees depending on the services you need and the size and volume of products you keep in stock, while with SFP you are obliged to pay for all shipping costs. Amazon has also mentioned that FBA fees can change at any time.
There’s also Fulfillment by Merchant (FBM), which is when sellers have total control of their entire fulfilment process. You might prefer this option if you don’t want to pay for FBA fees and keep an eye on every step of the process.
Amazon requires you to stick to their guidelines for any program you decide to use. This means that if you decide to handle fulfilment by yourself, it’s important to be familiar with rules regarding returns and exchanges.
Maximizing Your FBA Sales Like a Pro
Fulfillment by Amazon (FBA) has been around for a while now. There are a few tricks out there that are proven to work to maximize your sales:
1. Using analytics tools
When doing your product research, analytic tools are essential to identify which product will make you more money. Analytic tools can also help you find the most profitable categories.
2. Selecting the right product
Think about the products that are less likely to be stranded in a warehouse. The longer a product stays in storage, the less profitable it becomes. You may even end up losing money if you store something for too long. Focus on popular high-ranking products that will sell like pancakes.
3. Bundling products
One of the biggest challenges on Amazon is competition. There could be other products very similar to yours already, especially if we’re talking about popular products. Creating bundled listings is a way to catch users’ attention and make your product stand out.
4. Building your Brand
Ok, so it’s not all about the product. There should be some research behind your product selection, but what can make your items unique is the brand. Take the time to think about your target audience and the message you want to communicate to them. Your product quality can also increase your customer’s trust in your brand.
5. Answering questions
Show your possible buyers that you care. Reply to any question they have in a timely manner. Communication can be a factor that convinces people to buy your product or not.
FBA Pros and Cons
We already mentioned that using Fulfillment by Amazon (FBA) for your listings requires some analysis.
And as we promised at the beginning of this article, here we detail the pros and cons of enrolling in FBA:
Forget about Shipping and Logistics
As long as you keep track of your sales and inventory, Amazon will do the rest for you. Yes, you’ll pay some fees, but you’ll be making profit while being able to focus your time on something else.
FBA products automatically get the Prime badge, which means you can use Prime free shipping and shipping times. This is a great advantage to stand out from the competition and it’s already included.
Warehouses are expensive to rent and depending on the size, inventory can be difficult to manage. If you have zero infrastructure to carry out fulfillment logistics, the FBA program might be a relief. FBA users basically have unlimited storage space. It’s not free, but it’s definitely a good option.
Better Shipping Rates
Amazon is quite experienced in fulfillment, and so they have the advantage of offering better shipping prices than the ones you would get if you manage shipping on your own.
Returns and Refunds
FBA handles refunds and returns, because they are part of the fulfillment process.
Amazon is customer-centered and they are willing to extend their services to FBA sellers.
FBA sellers also get access to The Multi-Channel Fulfillment service (MCF). This means Amazon can handle picking, packing and shipping when you sell on different platforms (like eBay or your own online store).
Some sellers have a difficult time including FBA costs in their budget. Because of the way fees are calculated, you might want to try out just a few items first to test the waters. You can also check out the Amazon FBA calculator to make sure the listings you choose for the FBA program are actually profitable.
Increase in Returns
Joining Fulfillment by Amazon (FBA) is supposed to make returns easier, but because of Amazon’s open return policy the number of returns you get could increase. You don’t have to handle them, so it’s not all that bad.
Storage Fees for Stranded Items
A strategy to encourage sellers to keep their inventory moving is to charge for products that stay in Amazon’s warehouse for a long period of time. Keeping control of your stock is key to avoiding your margins being eaten by storage fees. Amazon will also charge you for storing products that are not actively on sale.
They do provide reports in the FBA dashboard that will let you know what’s not moving and you can choose to ship them back to your facilities.
Product Prep Guidelines
Listings that are part of the FBA program need to comply with Amazon’s requirements regarding packaging and labels. Read all fine print to avoid any rejections
In the U.S. this tax depends on the State. If your business is based in one state but has items stored in a different one, the sales tax rate may change. The FBA platform also can help you calculate how much that would be.
Payment of FBA Fee
Amazon will deduct what you owe them before paying you. That means you can’t use a future sale to pay for a past one. If you don0t have enough balance to pay for the fee, Amazon will require a credit card to complete the payment before you can continue selling.
SEO FBA Best Practices
SEO is not just for Google. Implementing SEO in your Amazon listings can help you to improve organic rankings on your Amazon Listings. If you’re already paying for Fulfillment by Amazon (FBA), focus your efforts on boosting sales and make up for those fees you’re paying.
Keep in mind most Amazon searches are transactional, compared to searches on Google, which are usually informational. Amazon’s algorithm focuses on two main aspects:
Optimizing your Amazon product listing will definitely increase your conversion rate. You can use relevant keywords in the different fields of your product page to influence ranking factors.
Here’s what you should be paying attention to:
Focus on all necessary information. Think about the questions your future buyers may have and try to reply to all of them in a concise manner.
The first thing a possible buyer sees when checking out a listing is the product image. This is your best shot at getting your customer’s attention so invest in quality photos that show all parts of the product and how it works, if possible.
Titles are a great opportunity to use the top 3-5 keywords related to your listing. Write them into the title in a way that they describe the product accurately.
Follow these tips to have a killer title:
- Use your brand name to raise brand awareness
- Be very specific about your product details, like size, colors, and quantity
Backend keywords are “hidden” keywords that are only used in the backend section of your Seller Account, but important nonetheless. Amazon uses them to know that your product listing is targeting a specific keyword.
For your SEO, imagine backend keywords as meta tags.
Try to use 250 bytes of additional top keywords in the backend to make it effective.
You don’t have a lot of room in your description for long explanations. Bullet points are easy to read and customers can easily scan them to find the most relevant information for your product. Focus on explaining benefits rather than features.
Descriptions go hand in hand with bullet points. Make the copy readable and convincing and exclusively from a sales perspective.
What every Amazon seller should know before starting to sell on FBA
Before you sign up for Fulfillment by Amazon (FBA), it’s a good idea to already be familiar with Amazon selling practices. You’ll be investing money to sell on Amazon so you might as well do it right. Take the following into consideration to decide if FBA is the best option for your brand.
Use the SEO best practices we’ve mentioned before.
You want to keep your inventory moving, so make sure you’re closing sales. Optimizing your listing takes a short time and you can end up with a great listing that looks professional and trustworthy, especially if you’re selling expensive products.
How are your reviews doing?
User reviews on Amazon can make or break a listing. Customers tend to check product reviews whenever they are unsure about the item to purchase, so it is critical that you pay attention and listen to your customer’s feedback. Their opinion will lure more buyers or scare them away.
Being successful in the FBA program depends also on your marketing strategy.
An effective marketing campaign can improve your margins by a lot. With FBA you’ll save a ton of time that you can use to have an amazing strategy that’ll make the program fees worth it.
Latest Features of Amazon FBA (2021)
Amazon constantly implements changes to try to improve the FBA program. Brands should keep up with all latest changes and additions to be able to take the most advantage of the FBA service, and to keep track of consumer demand.
Back in 2020 Amazon added commingling inventory. Also known as stickerless inventory, which means that if your product has an Amazon barcode, it will be stored with every other unit of that single product together.
This comes with a risk for sellers, because it increases the possibility of having counterfeit items delivered to your customers. Amazon will ship the product that is available at the closest location, so it’s not necessarily your own personal stock, but one from a different seller.
The Inventory Performance Index is another change that took place in August 2020. The Performance Index determines how your inventory is performing using different indicators:
- In-stock inventory
- Excess inventory
- Stranded inventory
- Sell-through rates
The ideal score is anything above 500.
While changes are unpredictable, FBA will communicate immediately about any changes in the platform.
One of the perks about Amazon is that there are different ways of doing things. Fulfillment by Amazon (FBA) can be a great ally to make your online sales easier to handle.
You do need to do it the right way to make sure you’re actually using the program to your advantage. It all comes down to choosing popular products that are easy to sell and easy to store.
With this guide you are now aware of what boxes you need to check to decide whether it is in your best interest to join the program or if it’s a good idea to join but only list a couple items as part of FBA.
This is not a one-size-fits-all solution, remember you can opt for FBM or SFP if it makes more sense for your business.
Content Writer & Copywriter at AMZ Advisers
Content Marketing Manager at AMZ Advisers