Advantages and Disadvantages of Using Amazon FBA – Fulfilment by Amazon
What is Amazon FBA?
One of the main reasons people shop on Amazon is the ability to get free next day shipping on products through the Amazon Prime Program. It is a key decision maker in a lot of user's purchasing decisions. It’s a feature that’s available on Amazon’s own listings, but Fulfilment by Amazon is also available to you the everyday seller using Amazon Marketplace.
It allows you to pack your stock in bulk and ship into Amazon Fulfilment centres. They will pick and pack for you, and ship out to the end user. This means you can offer your customers a premium logistics service for your products. They will even take care of the returns process. It is then just up to you keep an eye on the sell through rate of the products, and replenish stock accordingly.
Advantages of using Amazon FBA
Simplifies the fulfilment and returns process – If you mainly ship out to wholesale customers in bulk, packing individual orders for customers can be time consuming and stressful. Amazon FBA allows you to pack your stock and send it into Amazon as you would with any other customer. You can then keep an eye on how many day’s cover you have left and replenish when stock levels drop (we recommend less than 30 days cover). If a product needs returning, it is returned to an Amazon warehouse, meaning you don’t need to open returns packages and process the returns / exchanges.
Access to Amazon Prime - As a Prime customer, I expect to be able order whatever I want from Amazon and to receive it the next day. With this in mind, when I’m shopping on Amazon I usually filter by Prime. This means I am excluded from all sellers who are self-fulfilling and I will never see their offering. Selling via FBA and therefore Prime should increase your listings traffic and conversions because of this.
Reassurance for customers – Amazon has a strong reputation as a retailer. By offering FBA, you can ride on the back of this reputation. Customers will see "Fulfilled by Amazon" on listings, helping to increase trust in your brand and therefore increase conversions.
Increased rankings and sales - Increased traffic and conversion rates, mean an increase in sales. Metrics including traffic, conversion and sales velocity form part of Amazon’s algorithm. Increasing these, should help you rise up the rankings, leading to even more sales.
Disadvantages of FBA
It’s not for all products – Amazon FBA isn’t a free service. You pay a percentage of your sales for Amazon to ship for you. Weight and sizing are taken into account, meaning that it might not make commercial sense for you to sell via FBA if you have bulky products or products with a low selling price / margin. It also doesn’t work for products that are personalised or may spoil (chocolate in summer we’re looking at you).
Stock is grouped together – Amazon will put your stock with stock of the same EAN code in their fulfilment centres. Therefore the stock you send in may not be the stock that reaches your customers and may be from another seller.
Amazon will charge you for long holding periods – If your product is a slow mover, Amazon will charge you for holding the stock. Amazon wants to make money on the stock it holds, and if you aren’t selling, they aren’t making money. With this in mind it is important to forecast accurately what stock you need to replenish. We generally recommend sending in roughly 3 months stock, however this can be difficult to calculate with slow moving items.
Shipping Requirements – Amazon requires you to follow their labelling structure when sending stock into their warehouses, it isn’t quite as simple as labelling a box and sending it off. However once you’ve got the hang of their requirements, it should become second nature.
Amazon FBA may not be for everyone but it does offer a lot of benefits. Only you can make the decision whether it is right for your business, but if you have strong margins, and a product without too many specialisms, then it is a great way to simplify your logistics and increase your sales.
[notice]Expert Edge can help you with all the things above if you don't have the time or resources to do it yourself. Our team is made up of former Amazon employees, vendors and sellers who have experience in doing this for multi-million dollar/pound brands as well as smaller startup brands. Find out more about our Amazon Consulting services.[/notice]