How Amazon FBA Works

How Amazon FBA or Amazon Logistics Works

Amazon FBA stands for «Fulfilled by Amazon», which literally translates into Spanish as «Managed by Amazon», and Amazon itself has called it Amazon Logistics in Spain. Amazon’s FBA program basically consists of:

• The Seller reaches an agreement with a supplier to provide them with a product.

• The same Seller is responsible for importing the product (usually from China) to the country where they will sell it.

• The products are sent directly to one of Amazon’s fulfillment centers.

• When a product is sold, Amazon handles the entire order completely, from labeling and packaging to delivery to the end customer, including customer service.

It may seem simple, but Amazon Logistics is highly optimized and it is very difficult to reach the level of service quality that Amazon has today in most of its orders, not to mention the millions of users who visit its website every day to shop.

Therefore, the Amazon FBA business model is a very good idea to grow your business exponentially and in a scalable way.

Advantages and Disadvantages of Amazon FBA Sellers

Advantages of selling through the FBA program: «Fulfillment by Amazon»

Among many others, below we highlight some of the most attractive advantages you will enjoy when selling your products through Amazon FBA:

Traffic

One of the biggest advantages of selling through any Amazon business model is benefiting from the traffic that reaches its website every day. Amazon has become the e-commerce giant in practically the entire world and, thanks to its success, it has built a database that is very hard to beat.

Fulfillment centers

In addition to its organic traffic, you will use Amazon’s fulfillment warehouses to store your merchandise. This means you do not need to have physical spaces such as your own stores or warehouses where you keep your inventory at any time; instead, you can send it directly from the supplier to Amazon, where it is registered and stock is shown in real time.

Delivery

Once that traffic converts, meaning a sale happens, it is time to label, package, and ship the merchandise to the end customer, which Amazon will also handle. 1-day deliveries seemed like science fiction a couple of years ago, and today they are a reality for Amazon Prime customers.

By selling through Amazon FBA, you will not have to worry about any logistical aspect that can become a headache in some cases, since you will not have to negotiate with the logistics company or worry about order delays or lost merchandise. Amazon takes care of it for you.

Customer service

Not to mention its excellent customer service. The customer wants to know where their order is, change the shipping address, or make returns, and Amazon takes care of the customer. Amazon’s customer service has quite a few positive features that really help the user.

Popularity

Thanks to Amazon’s size, you will reach a much broader audience than you could if you started from scratch on your own website. You can have sales from day one and start making your products known. If you have a good product, with good packaging and branding, you will gain popularity among the customers who buy your products.

Amazon Affiliates

In addition to the Amazon FBA system, there are also the so-called Amazon Affiliate

Best sellers

If you manage to get many sales of your product in a short period of time and get reviews on Amazon, the Amazon algorithm will start identifying your product as a best seller. This means the product will begin to rise among the top positions and bring in more sales.

Disadvantages of selling through the FBA program

As we have seen above, the advantages of signing up as an Amazon FBA Seller are many and very attractive. However, you must keep in mind that not everything that glitters is gold, and you also need to consider some less positive issues when selling your products through Amazon FBA so you are not caught off guard:

Dependence on Amazon

If you join the FBA program, your sales will depend on Amazon. Normally, they say you should not depend on a single company so that if conditions change one day and you do not agree, you can close your Amazon store without your business collapsing.

Therefore, it is always interesting to maintain your own website so that as your popularity on Amazon grows and users get to know your brand or company, they can even access your online store.

Amazon customers

When a customer buys one of your products on Amazon, that customer is buying from Amazon, not from your company as such. Therefore, you will not be able to have that customer in your database, with their email address, to inform them about offers, new launches, etc. This is something to keep in mind because a database is one of the most valuable assets a website has and, in this case, you will not have it.

Commissions

Later on, we detail Amazon’s commissions so you are not surprised. However, it is a point to review when calculating your margins. Amazon, logically, takes a commission for making its sales platform available to you, in addition to handling the logistics operations. They cover all the expenses, but they take them out of the commissions.

Recently, there have been changes in their commissions, and these variations are something that worries Sellers. As we mentioned, dependence on Amazon can be high, so you need to be very clear about how Amazon FBA works and study the margins.

Ratings

A positive point, but one that can be dangerous, is product reviews or ratings. Sellers must be very careful with them because once you have several negative comments on one of your products, the algorithm will not rank it as highly, and even customers themselves will be more reluctant to buy the product.

Even having the best product in terms of quality and features, it may not fit the customer who bought it properly for any reason beyond your control. However, if they leave a 1-star review, your product’s ranking will be penalized.

Data you need to know before creating a page on Amazon FBA – Seller Central

Product prices

The price of your product will be key to getting sales. You should check whether other sellers are already selling your product, at what price, and whether they offer discounts. Monitor the products to know if there are any changes.

Product size

If you decide to sell a product with larger-than-normal dimensions (for example, a table), you must keep in mind that you will pay a higher fee for storing it in Amazon’s fulfillment centers.

Product descriptions

Use the most searched keywords to appear as high as possible in search results.

Products sold through Amazon FBA

Quality and demand

The key is to choose a product of good quality and high demand, and Amazon will take care of the rest, as we have already seen above. Products with high demand and low supply are the ones that work best on Amazon, as is logical, but sometimes it is difficult to find the right product.

Category

There are millions of sellers on Amazon who sell millions of products of all kinds, from books (that is how Amazon started, selling books online and later expanding beyond that and now even selling the famous Kindles for reading a book on an electronic device), to home products, sports, video games, electronics, beauty, or fashion. The latter, fashion, is a category in which Amazon is still not a benchmark in countries like Spain because it has very strong competitors, but it has very high potential and they are

Prices

Once you have found the perfect product, you need to give proper importance to the selling price. Prices are always a very important filter in any marketplace like Amazon, since the customer can sort products from cheapest to most expensive or even filter by a maximum price in the search. Therefore, the seller will have to do thorough research to see the competition and adjust their margin as much as possible if they have many similar items.

That is why, once again, product quality will be key to competing with the rest of the similar items available on the marketplace.

Size and fees

An important point to keep in mind is the size of the products. For example, a table takes up much more physical space in Amazon’s warehouses and, therefore, Amazon’s fees for this type of product with such large dimensions will be higher. Amazon’s inventory storage is highly optimized, but it is clear that with millions of units in its warehouses, Amazon has the responsibility to manage logistics almost perfectly so that the experience for both the Seller and the end customer is always optimal. That is why they charge fees (which are not low) for their services.

Questions and answers

On products listed on Amazon, many customers ask questions about the item to confirm whether it is what they are looking for or not. It is very important to stay alert and respond quickly to the customer in order to try to retain that customer and prevent their interest in buying the product from fading.

It is very common for Amazon customers themselves to answer questions about items, creating something like a forum among themselves, which generates a lot of trust if the comments are positive, since they will be confirming that the product is of good quality and will greatly improve sales numbers. Amazon also conducts a survey among its customers to check whether the item has met customer expectations.

Stock

It is important for the seller to ensure fast and agile replenishment of products with the supplier. Having enough inventory is very important to avoid stockouts during a sales peak. There is no need to have excess stock because that is a risk if the products do not sell, but the seller must know the replenishment times for the products to avoid surprises if the item turns out to be a huge success.

Strategies for selling on Amazon FBA

Define your brand

Do branding. Surprise your customers with different packaging so they remember your brand. Remember that the user buys on Amazon, not on your own website, so many times they do not even notice which brand the product they are buying belongs to. Sometimes it is complicated because it comes directly from the supplier, but try to add a user guide, instructions, or simply a message inside the product (for example: «thank you for purchasing a product from…»), so they remember your brand.

Questions and answers about your products

Pay attention to the questions users ask about your products. If a user asks a question, it means they are interested, so it is crucial to answer as quickly as possible to try to retain that customer. Possibly, if you solve their doubt, they will end up completing the purchase.

Get a quick sale

Once you upload your products to the Amazon platform and they are for sale, it is very important to get a quick sale. Use your social networks if you have them to announce that your products are now available on Amazon with a launch discount, for example. If you do not have any database, you can simply offer a special launch discount to get sales from the start.

If you get orders quickly, Amazon’s algorithm will detect that your product is strong and it will gain good positioning on the first pages, which will help you sell much more.

Discounts

Define a discount strategy on a calendar so you are clear about what percentage discount you want to apply to your products and on which dates. You must take into account major promotion days such as Black Friday, when Amazon’s order volume grows significantly and you will face a lot of competition.

Remember to take the discount strategy into account when calculating margins with commissions, since sooner or later you will need to run some promotion to stand out and rank your products.

Margins

With the promotion strategy designed, calculate the margins carefully as we mentioned. Roughly speaking, you can divide the price into 3 parts: 1/3 will correspond to the product cost, 1/3 to Amazon FBA commissions, and the remaining 1/3 will be your profit margin. Calculating it this way can be more transparent and simpler, but everything will depend on how much you want to earn as well as the type of product.

Conclusions

If you are interested in setting up an Amazon FBA store, we encourage you to find the right opportunity and go for it. At Moaflip, we also offer Amazon FBA stores available for purchase, here you will find more info.