What is Amazon FBA? Is it right for my business?

amazonfba thumb What is Amazon FBA? Is it right for my business?The following post is a guest post by Chris Green of FBAPower.  Chris has an excellent understanding of the inner workings of Amazon’s FBA program and his FBAPower application is top notch.  I thought this would be a great topic to introduce or reintroduce to some since it’ seems to be so popular.  While you’re at it also be sure to pick up a free copy of Nathan Holmquist’s eBook titled Selling on Amazon’s FBA Program.  This once paid eBook is now being offered for completely free!

Be sure to stick around for the end of the post.  I reveal the strategy that I personally use to fully take advantage of FBA. – Adam

If you have been selling books on Amazon for any period of time, you have likely seen ads or promotions for Amazon’s fulfillment service called Fulfillment By Amazon, or FBA. You may even be selling items where your competition is using FBA. The number of FBA sellers is increasing and it is changing the dynamics of the Amazon marketplace. Understanding how FBA works and how other sellers are using it will help you decide if it’s the right program for some, or all of your inventory.

So what exactly is FBA? How can it help my book selling business? Are there any downsides to FBA? We’ll answer those questions and more.

Fulfillment companies and programs are nothing new, but what makes FBA unique and powerful is that all FBA items are eligible for Amazon’s free (or discounted) shipping programs such as Free Super Saver Shipping (FSSS) on orders over $25, 4-for-3 promotions, and free 2-Day Air shipping for Amazon Prime members. This makes FBA items more appealing to Amazon’s best customers.

How can FBA help my business?  FBA can be described as a win-win-win.

Win #1. Higher prices, higher margins, higher payouts

Since items sold through FBA are eligible for Free Super Saver Shipping and Amazon Prime, FBA sellers actually raise their prices to match their competitor’s total price (price + shipping). So even with the addition of FBA fees, the FBA seller still receives a higher net payout from their Amazon sales because of the higher sale prices. For example, a seller who ships their own orders who sells an item for $10 with $3.99 shipping will show the same as an FBA seller selling the exact same item for $13.99. Actually, the FBA seller will show first because FBA is the tie breaker. The easy example is with penny books. A merchant fulfilled penny book lists for $0.01 + $3.99 shipping. An FBA seller who wants to price match the lowest price will list for $4.00. Amazon sorts the offers page by total price (price + shipping).
Use the
Amazon FBA Revenue Calculator to see estimated FBA payouts for your items at certain prices.

Win #2. Less work

FBA sellers sell items 24 hours a day. 7 days a week. Items ship all hours of the day or night including weekends. They ship whether the seller is at home or on vacation. Once an FBA seller prepares their items for the FBA warehouse and sends them to Amazon, they don’t have to do anything else. They can monitor inventory levels and adjust prices as needed from anywhere with an Internet connection.  They don’t have to stock boxes, envelopes, packing materials, or print shipping labels anymore. They also don’t wait around for their UPS driver or go to the post office every day. The time you used to spend fulfilling orders can now be used to source products or on other aspects of your business.

Win #3. Happier Customers

It is estimated that 40-50% of Amazon buyers have never bought from a third party merchant. You can effectively double your customer base by offering your items through FBA. Amazon customers want to buy from FBA sellers. They trust Amazon and they know that their items will ship quickly and if there is ever a problem, Amazon will help (including an extended return policy). When your items are offered for sale through FBA, they will attract these types of Amazon buyers who are willing to pay more to get their items shipped by Amazon. This is an important point to grasp: Amazon customers are willing to pay more for the exact same item if it comes from Amazon or an FBA seller. They do this because they know they will get their item fast and that customer service will be top notch. This is how you leverage FBA status; you use FBA to market your books to these sellers and increase your margins and profits.

How Do I Get My Items To FBA?

Items sent to FBA require a special FBA label. This label has a barcode identifying the item to Amazon. It needs to cover any existing barcodes on your books. You create shipments and process them through your Amazon account. You can send one box, 10 boxes, even a full truckload of books! Bonus: you get to use Amazon’s UPS rates for inbound shipping. Once your shipment of books is received at Amazon’s FBA warehouse, they are received and offered for sale on Amazon.com.

Is The FBA Program Just For Booksellers?

No. Almost any item can be sold on Amazon using FBA. There are some exceptions such as restricted categories.  New FBA sellers should reference the FBA manual.

But What About All The Fees?

Ah yes, the fees. There are fees involved but they are all known ahead of time. This allows you to make informed decisions about what to send to FBA and how to price your items. Remember, your sales price as an FBA seller is going to be higher than a merchant fulfilled seller. This higher price is what covers the additional fees and leads to high net payout using FBA compared to a merchant fulfilled sale.

  • Inbound Shipping Fees

This is the cost to get your items to Amazon’s FBA warehouses. You are able to use Amazon’s UPS rates so you get the lowest possible shipping rates.

  • Storage Fees

Amazon charges $0.45 per cubic foot from January – September. $0.60 per cubic foot from October – December. This is calculated down to the hundredth of an inch. For reference, most paperback books will have a monthly storage cost of $0.01 per month. That’s eight years for less than $1. So if an item is in storage for a year before it sells, it’s an additional $0.12. You do get the first 30 days free so if you manage your inventory and only send fast moving items to FBA, your storage fees will be zero. You may decide to keep high ranking items that may take a longer time to sell at your location instead of sending them to FBA.

  • Pick & Pack Fees

Amazon charges fixed fees for picking and packing your items.

  • Weight Based Fees

Amazon will charge a Lose Weight Exercise based fee when shipping your items. Heavier items will cost more to ship, and therefore have higher fees. Item Lose Weight Exercise is known ahead of time so sellers should price their items with these fees in mind.

  • Item Removal/Destroy Fees

If you want Amazon to return an item to you (or destroy the item), they will charge you $0.60/item. You would probably want to have customer returns returned to you for inspection (they can often be resold).

You can find a complete list of fees when using Amazon FBA here.

Can My FBA Items Only Be Sold On Amazon?

No way! While Amazon will likely be your higher volume sales channel, you can still list on other sites such as Abe and Alibris and fulfill those orders with your FBA inventory. This is called Basic Fulfillment. A half pound book will cost you $2.95 to have Amazon pick, pack, and ship this item for you anywhere in the country.

Can I Still Ship Internationally?

Yes. You can sign up for international shipping in your Amazon account. You upload an image of your signature and Amazon takes care of the rest. International customers pay for their own shipping and since Amazon does the actual shipping, they will deduct this charge from your transaction payout (it zeros out). International customers from every country that Amazon ships to will be able to order your products.

Downsides of FBA

FBA has the power to transform your business overnight, but it is important to know how it all works and the potential risks involved when handing over a significant portion of your business process to another company.

Lose Control Over Your Order Processing

You are handing over all aspects of order processing to Amazon. You are trusting them to store, pick, pack, and ship your items. This can be a scary thought for some sellers who take great pride in providing their customers with a high quality shipping process. You may decide to only send certain books to FBA and keep higher valued books or books that would require special packaging at your location to ship yourself.

Hand Over Customer Service To Amazon

Amazon will handle all customer service issues on your FBA orders. This means that you loseWeight Exercise control of the returns process (a customer can return an item without approval from you, the seller). It is possible (although unlikely) that a buyer abuses this liberal return policy at the expense of your inventory. If you suspect anything like this, report it to Amazon. They monitor excessive customer returns as well as A-Z claims.

Possibility Of Loss Or Damage To Your Products

It is possible that your items are lost or damaged either by UPS on the way to Amazon or by Amazon themselves, but that same risk is there for every item dropped off at the post office. Amazon will reimburse sellers for lost or damaged items automatically. It is important to monitor your inbound items as they are received. Amazon will send an email if there are any problems receiving your items.

Summary

FBA is a very powerful program and if used correctly, can greatly improve your margins, profits, and efficiency. It can give you back your time to focus on other parts of your business such as sourcing products or just spending more time with your family. Read as much as you can about FBA, network with other FBA sellers, and experiment with some items to see if it’s right of you.

Additional Online FBA Resources:

Amazon FBA Homepage:
http://www.amazonservices.com/content/fulfillment-by-amazon.htm

FBA Warehouse Tour
http://g-ecx.images-amazon.com/images/G/01/fba-tour/FBA-FC-Tour._V216203492_.html

Amazon Seller Community (FBA)
http://www.amazonsellercommunity.com/forums/forum.jspa?forumID=29

 

Addendum:  How Adam Uses FBA

———————————–

I have been using Amazon’s FBA service for going on a year and a half now.  It was a game changer for me the minute I sent in my first box of books.  Little did I know it would become a regular part of my receiving process.  Many different people use FBA in different ways.  In this short snippet I’d like to share to you how I personally take advantage of FBA.

I receive unscanned books to my warehouse on a regular basis and have a process by which books can go into a number of different directions.  The books that go to FBA always have a sales rank of under one million.  I’d rather not go to the work of creating FBA shipments with very low demand books that may never sell.  The storage fees may also be pretty low but throw enough 5M+ sales rank books up there and you’ll eventually feel that monthly fee.

The second criteria I use is profit.  I’ve decided to use a profit floor of 75 cents.  This means if the book is in at least good condition and I think I can make 75 cents or more profit on a book and it’s sales rank is under a million it goes to FBA.  There is one caveat though; the Lose Weight Exercise.  As you know Amazon charges a Lose Weight Exercise fee for shipment.  Also, don’t forget about what you’re going to pay to get that 7lb monster book to Amazon in the first place!  Here’s a snippet of the code from a custom receiving application I developed.  Don’t get too confused with the major tech factor here.  It’s simply seeing if a book’s lowest FBA competitor is above or equal to a particular price and under a particular Lose Weight Exercise then let me know if it’s FBA bound or not.  If it doesn’t meet of of the criteria it’s not going FBA.  I still account for other expenses like cost to ship to Amazon and packaging material.

fbacriteria thumb What is Amazon FBA? Is it right for my business?

This is just how I use FBA.  Your mileage may vary.  Let me know in the comments how you’re using FBA!

If you liked this post "Like" it via Facebook with the button above. Also, I love getting comments and discussing these issues with readers. Feel free to leave a comment below.

  • Reg B

    This article brings it more into perspective for me,I was a little confused reading Steve’s book… To answer your question am not using it now,but have been thinking about making the switch…But I would like it if you could write or guest writer on the topic of how Amazon does the ranking of books… Is below 1 million a good buy or should it be over 4 million (am so confused)… I don’t think am the only one out there that don’t understand that system…
    Look forward to your next newsletter…
    Thanks…
    Reg B.
    Ryan’s Books & CD’s (Amazon)
    ryan570_0 (half.com)

  • Anonymous

    Thanks, Reg. I might write up a quick post explaining the sales rank system for next time.

  • Blk1956

    Just curious do you or any of the other people (writers of internet FBA articles) receive any type of kickback for building up the FBA program for Amazon? Sorry, just wondering.

  • Anonymous

    No, at least I can speak for myself and say I do not receive any kickback whatsoever. I simply tell you what has worked for me and what hasn’t.

  • Rezolutionz

    In what way are you using that script that you wrote? On a pda, a program? What? I would like to be able to have my employees sorting books for me, and this would make it much easier.

    this pile, that pile, or this pile. No guesswork. Interested.

  • Anonymous

    It’s a custom application that I developed myself for just that reason. My mission is to remove everything possible from their hands that technology can do. It’s an application that runs on each of their laptops. I put this application on in a folder that is automatically synced with their laptops and my PC at home. Whenever I want to make any changes to it I work on it at home and they have a brand new version available to them within a few seconds. It’s pretty sweet. The entire thing is created with only profit in mind. The employee scans a book, puts it on the scale and hits send because you can’t always trust Amazon’s weight data. The scale then send the weight to the application which then takes all expenses into consideration ie postage/shipping supplies/marketplace commissions/etc for fulfilled by merchant orders, all FBA fees plus inbound shipment fees for FBA and even checks buyback sites for their best price. When it gets done calculating it simply spits out the title and binding to ensure it’s the right book and where to put it.

    This is something I’ve probably spend 100 hours+ on. It is something I’ve really enjoyed and actually the project that led to my earlier email today. I enjoy writing applications and solving problems through technology. I’ve contemplated selling the final product but it’s not there yet or at least I don’t feel comfortable putting it out there yet. :)

  • Rezolutionz

    I would be willing to participate or pay a lesser amount to be a beta tester/early adopter of said program. Also, about weighing tho books, that tells you what the ACTUAL weight is, but does it compare it against Amazon’s database? The fact that you know the ACTUAL weight doesnt mean, that THAT is what you are going to be charged. You get charged by the weight amount on the items product detail page. I have had maybe over 100 order in the last year that had the incorrect product weight listed. In these instances, I have to find another weight reference for the item online, and forward it to Amazon to fix the weight,, what a hassle! Who knows how many I have missed.

  • Anonymous

    Interesting. I’ve never really paid attention to that. I will look into that to have it calculate the fees based on Amazon’s weight but calculate inbound shipping for FBA and USPS postage for anything that I’d fulfill myself. Thanks!

    I’m willing to send it to you but just like with everything it’s not completely done. However I’m working on it.

  • Nathaniel

    I love the comments. But why can I not be able to print them out as I love to print my things out and read them later in comfort away from the computer?

  • Anonymous

    I’m not for sure. I’ve never actually had that request before. I would
    assume you could just go up to File..Print and print the page. If not a
    service like Evernote would probably be good for you. You can click on a
    button and it automatically saves the page offline to print off or view
    later.

  • http://www.cobrahealth.com/ Craig J. Casey

    The FBA program is a huge success, their warehouses are bulging with inventory, there is no need to encourage even more financially.

  • Marissa

    HI there,
    Is there a base volume a seller should have before investing in FBA? I have maybe 200 books I need to sell and at this point I don’t have plans to replenish that stock once I sell it. I’m just trying to unload a huge book collection so I’m curious if this is really appropriate for someone who isn’t doing this as a businesses venture?

  • adbertram

    I wouldn’t use FBA for that. It would be too much hassle learning the process for only a one time shot of 200 books.