Most consumers are pretty familiar with how making purchases works in the Amazon interface, but what about on the seller’s side? When you want to sell your products on Amazon, how does that work?
Fulfillment by Amazon is a highly-advanced fulfillment network that offers services to retailers that include picking and packing, shipping, and ongoing customer service for these products. They manage the fulfillment center location, they handle distribution, they offer their own eCommerce fulfillment models—all so you don’t have to.
As of March 2020, Amazon had 2,734,713 active sellers, and 8,156,753 total sellers on their roster. As an online retailer considering Fulfilment by Amazon (FBA, or sometimes Amazon FBA), what does this mean for you? By selling on such a recognizable eCommerce platform, are you gaining more attention for your brand or are you getting lost in a sea of sellers?
Here’s an in-depth look; a deep dive to see how Amazon FBA works, and if it’s truly as beneficial as it seems for online sellers.
How Fulfillment by Amazon Sells Your Products
How are your products actually sold on Amazon? Through Amazon FBA, sellers can host their products on Amazon’s platform. To begin this process, online retailers set up their own Fulfillment by Amazon account.
Within the Amazon FBA seller interface, you can create product listings and add products to the Amazon Catalog, specifying your exact FBA inventory as you do to account for the total number of products you have. Then, sellers pack and prepare their products to be transported to an Amazon fulfillment center. These products are packed and shipped according to Amazon’s packing guidelines, as well as their shipping and routing requirements, and then the goods are shipped to a nearby Amazon fulfillment center location using Amazon’s shipment ID labels.
From there, how does the selling process work? For each sale made through the Amazon website, sellers pay referral fees and FBA fees to Amazon—like a commission—through the seller portal. After each sale, these fees are taken out of the seller’s individual Amazon account. Online retailers who choose to sell their products through Amazon FBA also pay monthly storage fees as well. Amazon also handles returns management for sellers.
Amazon FBA isn’t the only option sellers have, though. Amazon also offers Fulfillment by Merchant (FBM). With this selling mention, vendors pay even more for more seller support, losing more of their profits in the process. Sellers pay for shipping, packaging, and the time it takes to ship these products, plus the referral feels and the storage of your items.
How much will Amazon FBA or FBM cost you? You can determine that using Amazon’s revenue calculator to best understand the fees associated with using Amazon FBA.
Is Amazon FBA Still Profitable?
In the third quarter of 2020, Amazon showed a 37 percent increase in sales year-over-year. With sales on the rise and a higher number of Amazon FBA sellers than ever before, is Amazon FBA still profitable?
There are a few things to consider when evaluating Amazon FBA as a fulfillment provider. Record levels of FBA sellers also means more products on Amazon Marketplace than at any other time—which also increases competition. Will your products get the attention they deserve in the marketplace, or will they get lost in the shuffle?
There are a few other pitfalls to consider when dealing with Amazon FBA, including:
- When Amazon Prime members purchase your product, they receive free shipping. In these cases, the forced free shipping for consumers means you end up footing the bill
- You gain total loss of control as to how your products are shipped. You lose your ability to personalize your packaging and shipping methods, and you lose brand recognition.
- If there are problems with customer service, your customers deal with Amazon. They fall prey to Amazon’s return policy, but when they have a customer service issue, they leave reviews at your Amazon store interface.
- When your customers buy your products from Amazon, they aren’t interacting with your brand, they’re interacting with Amazon. You don’t have the same control over your customers’ shopping experiences that you would have with direct-to-consumer sales models.
While you may gain some visibility selling your products through Amazon FBA, you may end up paying all kinds of fees and you lose your individuality as a brand.
Are There Better Options Out There?
Fulfillment by Amazon isn’t the only choice you have. You may be questioning whether or not a direct-to-consumer selling model is a better option for you. What kinds of benefits are there to selling your products through your own interface and your own store?
- You benefit from personalization and have more control over a better customer service model where you are able to interact with your customers when they most need you
- You have more control over marketing, less competition, and can develop stronger brand recognition since your customers are buying directly from you
- You can benefit from full shop integration, and you have more options to explore a subscription commerce model
The direct-to-consumer sales model is on the rise. In fact, direct-to-consumer sales are expected to see growth of 19.2 percent in 2021. With the help of modern fulfillment providers, direct-to-consumer, business-to-business, and third-party logistics platforms are reaching more consumers than ever before, with scalable customer care and better personalization.
Thanks to the support of strong modern third-party logistics providers, direct-to-consumer sales can offer high rates of order accuracy and same-day shipping, plus two-day nationwide shipping coverage, great shipping rates, and high order capture capabilities.
OceanX is a modern, fulfillment-as-a-service logistics provider that’s well-versed in empowering direct-to-consumer sellers to reach more customers than ever before with more efficient warehouse practices, low shipping rates and fast ship times, beautifully-packaged products, and spot-on analytics.
Are you still considering Amazon as a platform to sell your products? It’s definitely a strong way to reach new customers! In addition to direct-to-consumer and business-to-business fulfillment services, OceanX can also act as your Amazon third-party fulfillment service. With options to sell directly to consumers as well as through Amazon, you can reach more customers and grow your business.
Want to learn more about what we can do for you? Download our informative guide today.