Amazon FBA: The Key to Online Sales Success Through Fulfillment

1. What is Amazon FBA?
2. How does Amazon FBA work?
3. Are Amazon FBA and dropshipping the same?
4. Who is Amazon FBA suitable for?
5. What are the advantages of Amazon FBA?
6. What are the disadvantages of Amazon FBA?
7. What costs and fees are incurred with Amazon FBA?
8. What products are particularly suitable for Amazon FBA?
9. Is Amazon FBA still future-proof?

Founded in 1994 by Jeff Bezos, Amazon is now an indispensable part of online retail. From its origins as an online bookstore, Amazon has developed over the years into a global technology corporation and the world's largest mail order company. In 2022 alone, according to a Statista studythe corporation generated revenues of more than 513.98 billion US dollars, with a continuing upward trend.

In 2021, Amazon.de generated more online sales than Otto.de, Mediamarkt.de, Zalando and Ikea combined. Amazon owes its current size in particular to consistent scaling and maximum customer satisfaction.

Undoubtedly, one of the most important business divisions is "Amazon FBA", a service that especially facilitates the entry of smaller merchants into the Amazon marketplace. In this article, guest author Santhos Thiru brings you everything you need to know about Amazon FBA, including the advantages and disadvantages of Amazon FBA and what you need to consider when choosing your product range as an Amazon seller.

What is Amazon FBA?

Since 2006, Amazon has been offering its merchants a service called "Fulfillment by Amazon" (FBA), which minimizes the effort for goods acceptance, inventory management, picking, packaging, franking, shipping the products to the end customers and handling returns.

With it, merchants can not only almost completely outsource their logistics processes to Amazon and benefit from Amazon's experience in this area, they also achieve greater visibility on Amazon, which generally leads to a significant increase in sales.

Below is an overview of the standard services included in the FBA package:

• Storing your goods in the modern Amazon logistics centers
• Packaging your products, possibly together with other orders from an Amazon end customer
• Shipping your products including "Shipped by Amazon" labeling
• Inclusion in the "Prime items" category, automatically achieving greater reach.
• 24-hour customer service for questions or problems of your customers
• Processing of returns
• Shipping your merchandise via a European shipping network to customers in Germany, France, Italy, Spain and the UK

In addition to the standard services, the e-commerce giant also offers a range of variable servicesthat can be booked at an additional cost if required. Here are a few examples:

• Packaging in poly bags or bubble wrap for additional protection
• Return to the seller or disposal of products.

How does Amazon FBA work?

Prerequisite

The prerequisite for starting with Amazon FBA is the recording of all relevant product data in the Seller Central, the backend of the Amazon marketplace. This is done manually for a small number of products. With a larger range, this is done via a data feed upload. Once the recording is complete, you need to make sure your merchandise arrives at one of Amazon's distribution centers. There are about 20 of these in Germany.

Source: Dype.me

There are no minimum or maximum quantities for storage at Amazon. However, larger quantities are likely to incur higher costs. Amazon distributes the goods from the distribution center to one of its logistics centers. The risk of loss or damage to the goods on the way to an Amazon logistics center is borne by the seller. Also, care must be taken that the goods are labeled with a scannable barcode (e.g. EAN code).

As an FBA seller you then only need to worry about delivering the invoice to your customers. After that, nothing stands in the way of selling the respective items through Amazon FBA.

Did you know?

Besides FBA, there is also the model "FBM". FBM stands for "Fulfillment by Merchant", i.e. "shipping by the seller". FBM merchants must take care of storage, shipping and returns management themselves or hire a service provider to do so. FBM is particularly suitable for custom-made items, unique items or niche products in small quantities. FBM is also sensible for companies that have sufficient storage capacity themselves and use Amazon as one of several sales channels.

Are Amazon FBA and dropshipping the same?

No, Amazon FBA and dropshipping are not the same. With dropshipping, you place an order with a wholesale company, transmitting your customer's data. The ordered items are then shipped directly from the manufacturer to your customer. 
 A stopover in one or more warehouses is thus eliminated.


The advantages of dropshipping are that it is cost-effective and scalable. A big disadvantage, however, is that the profit margin is usually lower than when using Amazon FBA. The low control over delivery time, design, product features and the strong competition are also disadvantages. In recent years, the reputation of the dropshipping business model has deteriorated considerably because it does not create value in the traditional sense.

Who is Amazon FBA suitable for?

The decision about which shipping method is best for you must always be made individually. Even if Amazon FBA is touted on social media as the glorious solution for merchants - it is not always and not for everyone!

As a seller, you have the freedom to offer individual products from your range via Amazon FBA and others via FBM.

For start-ups without their own logistics fleet, Amazon FBA is ideal for testing the market as cost-efficiently as possible with an MVP (Minimum Viable Product).

What are the advantages of Amazon FBA?

1. Outsourcing of logistics

One advantage is certainly the outsourcing of logistics, which means you no longer have to worry about warehousing, shipping and returns handling. Amazon has excellent logistics know-how: customers now know that "Shipping by Amazon" guarantees fast delivery and therefore prefer to order via Amazon. Greater trust and thus more sales also comes with the Prime logo, which many customers specifically filter for. Experience shows that FBA products are also rewarded with a ranking in the Amazon search results. 

2. Internationalization

Internationalization is also easier with Amazon FBA than through traditional channels. With the Amazon PAN EU program, expansion into European countries is greatly simplified.

Amazon sellers can also use the "Shipped by Amazon" service as amulti-channel fulfillment solution and thus have orders from their own online store or other sales platforms shipped via Amazon.

3. Traffic with purchase intention

With around 450 million monthly users, Amazon has a unique access to a huge, affluent target group.

4. Amazon Prime - It doesn't get any faster!

Around 70 % of Americans with an income over $150,000 have a Prime membership. Also, the conversion rate for non-Prime customers is on average 13 %, for Prime customers it is 74 %.

What are the disadvantages of Amazon FBA?

Every coin has two sides, as they say. So there are also some disadvantages to the Amazon FBA program.

Amazon FBA ≠ E-Commerce

First is the significant distinction of Amazon FBA from e-commerce, as Amazon FBA is not a business model by definition. Amazon FBA, as mentioned at the beginning, only describes shipping by Amazon. Unfortunately, this is often confused by self-proclaimed Amazon FBA coaches.

Lack of customer data

Since all customer data is processed by Amazon and only limited software with the seller himself, a customer-lifetime calculation, depending on the niche & segment, is only possible to a limited extent. This is now essential in many categories, as only sales due to the high advertising costs are not profitable.

Amazon also prohibits the addition of flyers that refer to an external website. This way, the end customers get the same shopping experience over and over again, so they barely notice when the product they bought is from another seller.

Return quota

FBA sellers often experience a higher return rate compared to other sales channels. The free and uncomplicated returns handling could be a reason for this.

Strict guidelines

Another disadvantage are the strict guidelines associated with the use of FBA. High inventory levels with low sales can result in penalties for the merchants. In addition, regular shipping price adjustments quickly lead to margin destruction.

What costs and fees are incurred with Amazon FBA?

The costs are primarily made up of four points:

• Amazon Seller Account - 39 € per month
• Marketing Fees - PPC
• Commissions - between 7% and 15% per sale
• Shipping fees - depending on weight, volume, and size
• Storage fees

The Shipping fee is charged by Amazon for shipping to the end customers. The amount of the shipping fee depends on the size, volume, and weight of the item. You should note that for the calculation the details that were entered when the item was created in Seller Central are not used, but instead the data that Amazon itself took at the time the products were stored.

The Storage fee is based on the storage volume used in the logistics center. It is based on the average storage volume used per month in cubic meters. There are two rates for storage areas: High season (October to December) and off season (January to September). Storage in the high season is generally more expensive. If your stocks are stored for longer than 331 days, a long-term storage fee is charged.

The exact fees are adjusted regularly, so it is worth doing the research in advance. In addition, Amazon offers a handy "Revenue Calculator" tool that can give you an overview of costs.

Sales commissions and marketing costs are also added. As the graphic shows, they can amount to up to 55% of the turnover in total.

Amazon Fees - Source:Marketpulse

What products are particularly suitable for Amazon FBA?

Due to the latest fee adjustments in shipping, primarily small items with little volume are ideally suited for shipping through Amazon.

Furthermore, you should note that the following items cannot be shipped via Amazon FBA:

• Legally questionable items, e.g. cigarettes
• Products that are longer than 150 cm, weigh more than 30 kg or have a circumference of more than 3 m
• Products that need to be stored and shipped chilled
• Products that would not survive a drop or shake test without damage

If you have common items from the Far East in your range that are also offered by the competition, you will inevitably find that due to the transparent sales channels, your own manufacturers dare to enter the marketplaces.

Because as soon as the first sellers offer large discounts due to lack of product differentiation, miscalculations or business closures, an enormous price war begins - also called a "Race to the Bottom". Customers choose the cheapest offer with adequate quality. Achieving profits with competitive prices becomes difficult. Therefore, we recommend our customers to be relevant, noticed, and sustainable:

• Relevant: Superior offer with features that are important to the customer
• Noticed: Distinctiveness of the offer is adequately perceived by the customer
• Sustainable: The superiority of the offer can be maintained against competitors in the long term, e.g. through patents

We recommend focusing on a sustainable competitive advantage, the "Unique Selling Proposition", and brand strategy when selecting a suitable product for Amazon.

A suitable quote from American marketing expert Seth Godin is: "In a busy Marketplace not standing out is the same as being INVISIBLE". Even if it seems difficult at first glance to differentiate oneself on platforms like Amazon, this should be aimed for. The development of sustainable competitive advantages is crucial.

Is Amazon FBA still future-proof?

For outsourcing the shipping process, the Amazon FBA model is certainly forward-looking. Amazon FBA as a business model unfortunately is not. Even though it has never been easier to enter e-commerce, it has rarely been so difficult to be sustainably successful with it. Your e-commerce business is only future-proof when you develop relevant competitive advantages. These can be, for example, the price, the brand or the quality of your products. In addition to product differentiation, in-depth knowledge of Amazon SEO & Amazon Advertising is necessary. Also, various Amazon PPC Tools can help with marketing measures.

In e-commerce, Amazon is a sales channel that cannot be ignored. However, the core values of D2C Brands can only be exercised on Amazon to a limited extent. Above all, customer loyalty is only possible on Amazon to a limited extent.

Core Values D2C - Source: DTC Brands Article on OMR Reviews

At OMR Reviews, you can find out about a range of Amazon PPC tools that can support you working with Amazon FBA. Based on the verified customer reviews, the following tools are particularly popular in our community:

Adspert

ADFERENCE

Helium 10

AMALYZE

Perpetua

AMVisor