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Fulfilment by Amazon, often shortened to FBA, is an order fulfilment service offered by Amazon. Amazon Sellers can use the FBA service to fulfil customer orders on their behalf.
This is similar to dropshipping, but not quite the same thing. Instead of the Seller holding stock and then sending it out to the customer themselves, they can ship everything to an Amazon centre. With FBA, Amazon then takes care of everything for them.
Fulfilment of orders includes storing items and then picking, packing, and shipping them out. It is the Seller’s responsibility to keep inventory updated and stock ordered as needed.
The FBA programme launched in 2006 with the aim of helping third party sellers operate on a larger scale. Amazon wanted to share their platform, reach, customer service, and fulfilment capabilities with small businesses who might otherwise struggle to attract a customer base.
If you’re a small business looking to increase your sales and make more money online, the OddsMonkey guide to Amazon FBA is the perfect place to get started.
Just like with most things, Amazon comes with its own lexicon. We’re not going to go into lots of detail here but let’s look at some of the most relevant terms.
An Amazon Seller is someone who is registered to Amazon and sells products via their Marketplace.
Amazon.co.uk offers two levels of Seller account: Individual and Professional. We talk about both of these accounts in more detail throughout this guide. As a third party seller, you’ll need to choose one of these accounts in order to sell through the Amazon platform.
This guide uses both ‘Seller’ and ‘seller’ to try and differentiate between those who sell through Amazon (capital S) and sellers (merchants) in general.
The following terms are the different types of fulfilment that can be used once an order has been placed.
When a customer buys something from you on Amazon, Amazon will pick, pack, and ship the item to them. Order fulfilment is taken care of with FBA.
You are the merchant. FBM is where you fulfil a customer’s order yourself. When a customer buys something from you on Amazon, you process, pack, and ship the order.
So how does FBA work? There are four main steps to Fulfilment by Amazon:
So how do you actually get started as a Seller with Amazon FBA? We’ll take you through the main steps you need to complete in order to start making money online through Amazon’s FBA scheme.
NB: this guide assumes you are already ready to go with products to sell through Amazon.
If you’ve only ever used Amazon as a buyer before, it’s time to register for a Seller account.
There are two types: Individual and Professional.
Preparation of your inventory is one of the most important parts of Amazon FBA. First, you need to decide who will package the items: you or Amazon.
If you choose to do this yourself, you must follow Amazon’s prepping guidelines. Prepping requirements are outlined in great detail. For example, below are the rules around using bubble wrap to package items.
Products that require bubble wrap must:
Preparing your inventory properly before sending it to an Amazon fulfilment centre is one of the most important parts of FBA. Your inventory won’t be accepted to an Amazon fulfilment centre if it’s not properly packaged. Or you will be charged per item that needs preparing properly.
Alternatively, use Amazon’s prep service, which charges on a per unit basis. Some of the fees are shown in the table below, but check with Amazon directly for complete up to date information:
Now it’s time to make some money! It’s up to you to attract potential customers and convert site visits into sales.
Selling through Amazon, you’ll come up against a lot of competition so you have to stand out from the crowd. This may be through your pricing, brand awareness, or items on offer.
Use the Inventory Performance Dashboard to keep track of what is selling well, what isn’t, and make sure stock levels are maintained on popular items.
Once an order has been placed, Amazon workers pick, pack, and send it out to the customer from your inventory stock.
As with most things, there are a number of pros and cons to choosing fulfilment by Amazon.
FBA allows you to access Amazon’s existing customer base and sell on a potentially worldwide stage. Buyers come to Amazon because they know they’re likely to find what they’re looking for. And, sometimes, a load of stuff they’re not looking for.
But ultimately, they know they’ll have options on Amazon from businesses competing for their attention.
Introduced in August 2020, the Inventory Performance Index tells you how well your inventory is performing. The Index measures current performance and then suggests ways to improve. Get rid of excess inventory, keep stock levels updated, and improve sell-through rate to take your business to the next level.
FBA can be a great platform to start an online business from. You can start small, selling a few products and testing the waters, giving yourself time to build up knowledge and confidence before scaling up.
It helps that you don’t have to worry about finding a larger brick and mortar premises or warehouse in order to make your online business bigger.
Research has found that the average return rate on Amazon can range between 5% to 15%. Thankfully, with FBA, you can use Amazon’s returns and replacement policies, and Amazon will process them for you.
Yes, it’s another acronym, but with FBA, Amazon takes care of business for you, at least in terms of fulfilment and customer service.
Using FBA can help increase your profit margins in a number of ways.
For example, it removes the need to hire staff to fulfil orders, reduces the storage space you need to cover, and saves you time in packing and shipping your products.
Shipping costs are included in FBA fees. This means that you don’t pay extra to send via Amazon Prime for unlimited, fast One-Day Delivery on millions of orders.
You may have the potential to reach a lot of eyes through Amazon, but sales, profits, and success are guaranteed.
Selling through Amazon gives you a good foundation to start from but it’s up to you to try and make consistent profits. There is a possibility that you’ll invest significant amounts in stock but have great difficulty in selling it.
Due to the sheer amount of active Sellers on Amazon, competition for sales is high. You’re competing with online shops of all shapes and sizes. You need to stand out from the crowd…within the confines of the Amazon marketplace.
Amazon has set guidelines around how you’re allowed to communicate with your customers. There are specific rules around the kind of direct, indirect, or buyer-seller messages that are or aren’t acceptable. As an Amazon Seller, it is up to you to follow these guidelines.
You don’t have complete control over the platform you’re selling from. Amazon FBA constantly changes to meet the needs of its sellers. While this can be helpful in some ways, it can also be difficult to keep up with the constant updates to processes, guidelines, and other aspects of the programme.
This is on the ‘Cons’ list because this recent addition to FBA could have a negative impact on your business. In 2020, Amazon introduced the co-mingling of inventory. Amazon can now store every unit of a single product together, regardless of the seller, and then ship any one of these units to a customer.
Putting potential advantages of this new system to one side, the biggest risk to the seller is contamination of stock. Because products are picked from any available stock, your customer could receive a counterfeit product, rather than the authentic item you shipped to Amazon. Some sellers have received negative feedback and been banned from selling on Amazon, because customers have been sent counterfeit or damaged items.
There are two types of Amazon Seller account: Individual and Professional. The Individual account is free to open and is suitable for sellers who:
Although this type of account is free, you’ll need to pay a charge of £0.75 (plus VAT) to Amazon on every product you sell.
The Professional seller account costs £25 + VAT a month but you don’t have to pay each time you sell an item. This account is suitable for sellers who:
When you send inventory to an Amazon fulfilment centre, they hold it for you until it is sold. The fees you pay are based on the volume of packaged inventory. Fees are charged on a monthly basis.
At the time of writing, UK Amazon FBA Sellers storing clothing and accessories pay £0.56 per cubic foot from January to September and £0.75 October to December. This is because of the run-up to Christmas being a much busier period for sales and Amazon workers. Other items have different fees – check Amazon’s information for full details.
Remember that monthly storage fees are charged on the daily average volume that your inventory takes up within the fulfilment centre. Volume is measured in cubic feet, and is based on the size of each unit when properly packaged and ready to ship.
In addition to the monthly fees, you may be subject to a ‘storage utilisation surcharge’, which requires you to pay an additional fee if you meet all the following criteria:
Other occasional fees include:
Amazon fulfilment fees include picking and packing orders, shipping and handling, customer service, and product returns. Remember: most costs are determined according to the weight and dimensions of a packaged item. Fulfilment fees are paid per item sold and shipped from an Amazon fulfilment centre.
See Amazon’s Rate Card for more information on their UK fulfilment fees.
Another cost you’ll have to factor into running an online shop is marketing and advertising fees. Advertise products on social channels, either organically or through paid features. Each social platform has its own paid advertising options, so make sure you check out what works best for you.
Amazon offers its own advertising options to Sellers which include sponsored products and brands.
If a customer is unhappy with their purchase, they can choose to return it to Amazon, and you will need to pay Amazon a return processing fee. For UK Amazon Sellers, the returns processing fee is equal to 50% of the total fulfilment fee for a given product.
There are a few ways to reduce FBA costs, but ultimately it’s worth remembering that it’s already quite a cost-effective service.
Perhaps one of the easiest ways to reduce costs is to avoid paying long term storage fees on inventory. Make sure that your items are selling well and not sitting in storage for too long. That way, you only have to pay monthly storage fees without any extra long term charges.
Storage fees are charged on the size and weight of items, not their value. Therefore, one way to reduce costs could be to try and stock smaller and/or lighter items.
Another way to reduce costs could be to focus on higher-value items, to ensure that the margin between cost of storage and price of sale is larger.
Selling items in bulk or in a bundle means that you can avoid paying fulfilment fees on each individual item. The more items you can bundle together into one shipment, the less you have to pay Amazon to process and ship them.
The best way to keep an eye on things is through the Inventory Performance Dashboard, which shows you all fees that your items are incurring. The dashboard lets you monitor activity and gives you insights into performance levels of the items you stock. With that information, you can create a strategy that will help eliminate unnecessary FBA costs.
The Amazon FBA business model makes scalability a real possibility for successful businesses. Once you know what works for your business, you can ramp up your efforts.
Amazon is a global platform, so it’s time to think globally. As an Amazon Seller, you can access their entire audience and use Amazon Global Selling to list and sell your products on any of their online stores in North America, Europe, and Asia.
And Amazon makes fulfilment possible too, with FBA Export. According to Amazon, “FBA Export allows international customers to purchase export-eligible ASINs from your selling marketplace”.
This means that you can grow your business without having to worry about shipping to different countries. Once again, Amazon FBA takes care of that for you.
How much money you can make using Amazon FBA depends on so many factors. In and of itself, you’re not going to get rich using a fulfilment service – there’s so much more that goes into running a successful online business.
However, if you’re already running a small business selling physical products, using FBA to fulfil your orders can allow you to scale things up, opening up the possibility of significantly higher turnover.
On the other hand, FBA is unlikely to make you rich if you’re starting from scratch. If you’re looking for a side hustle, there are much better alternatives out there that don’t require a high initial investment to get going.
FBA can save you time and money. By asking Amazon to fulfil your orders, you aren’t having to process every single individual item to send out. You also don’t have to have your own warehouse for stock or hire another employee to do it for you.
If the cost of paying for FBA is lower than the amount you currently spend on fulfilling orders, then FBA does seem worth it.
Individual Sellers can indeed use FBA to send their orders out to customers. Instead of paying a monthly fee, you pay a small commission on each item sold. And if things go well, you can always move to a Professional account.
Not really; selling through Amazon FBA requires you to invest in stock upfront. If you’re looking for a good side hustle and don’t have much money to spare, there are other, better options out there. Speaking of which…
If you don’t already have at least a small business going, Amazon FBA isn’t going to be a suitable side hustle for you – but don’t worry, there are plenty of other options!
Matched Betting is our personal favourite. It’s an online money-making technique that allows you to make a profit from the free promotional bets offered by bookmakers. Because you bet on and cover all potential outcomes, the only way you can lose money is if you make a mistake.
Check out the OddsMonkey Beginner’s Matched Betting Guide to find out what you need to do to get started.
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