To FBA or FBM on Amazon? – Part I: FBA

By Tina Marie Bueno | January 26th, 2016

Every Seller has to ask, “Should I have Amazon fulfill my orders, or ship it directly to customers?” There are many different criteria Sellers use to answer that question. To help you with that decision, this article covers some pros and cons of FBA (Fulfilled by Amazon), and Part II will cover FBM (Fulfilled by Merchant).

The FBA Consideration

This option is when you want Amazon to warehouse your inventory; pick, pack, then ship your orders; and handle customer service for you. Some Amazon Sellers find this option necessary since they just don’t have the capacity to handle high volume products. While others prefer it because they have little or no infrastructure to store inventory and don’t want to run to the P.O. or a UPS outlet for every order. Especially as sales builds momentum.

So, is FBA the best option for your Amazon business? Take time to weigh these pros and cons:

FBA Pros

  • Freed-up Time. Although there is unavoidable time required when preparing a shipment to Amazon; once products have arrived to their warehouses, Amazon handles every aspect of the order fulfillment process and any returns so you can focus on managing and growing your business. 

  • Higher Prime Conversation Rates. According to the Chicago-based market research firm Consumer Intelligence Research Partners, Prime members spend an average of $1,500/year, while non-Prime members spend an average $625. Reporting over 40 million Prime members, FBA products win the majority of their dollars. Why? To a Prime member, FBA products means they get two day free shipping. In a Sellbrite 2014 survey, “71% of FBA respondents (Sellers) reported that their unit sales increased more than 20% since using FBA.”

  • Better Seller Ratings. You are required to send your products drop tested and ready for Amazon to ship. When one of their warehouses receives your inventory, if nothing has broken during transit, then you are in the clear. Any damage that arises thereafter, or delayed shipments (assuming you have enough inventory to fulfill orders), are Amazon’s to deal with and your Seller’s ratings will not be affected.

  • Can compete for the Buy Box. Amazon does not officially state that FBA will automatically get YOUR products into the Buy Box; however, countless Sellers have had the  experience of moving higher up on the list of buying options. Amazon does state when signing up for FBA, “Eligible FBA products compete for the Buy Box and the competitive listing.”  While there are multiple factors to gaining the highly coveted Buy Box, choosing FBA certainly won’t thwart your odds.

FBA Cons

  • Fees. While this may be the option that frees up your time and space; FBA is not free. Amazon charges a Seller Fee of approximately 15-18%, plus a pick and pack fee, a weight-based fee, and an inventory fee. There is also a refund fee for any returns. Use the FBA revenue calculator to determine what you would be paying in fees for each of your products.

  • Lack of Control. Since you cannot be at the warehouse pulling your product and monitoring quality control, sometimes products get shipped that wouldn’t pass your own inspection. Another major consideration is that not every merchant gets their own bin location if there are multiple sellers for the same product. Often your inventory will be pooled together. Generally that may not matter; however, it could mean that the physical product your customer receives may not be the exact one you sent to Amazon. It may be one from another seller. There is also a possibility that the supposedly “same item” sent is of lesser quality or counterfeit. Check out our articles on Brand Registration and Frustration Free Packaging as strategies to protect your products and detail pages.  

  • Multiple Shipments to Various Warehouses.  After you have gone through the steps of creating your Shipping Plan, Amazon provides packing slips with the number of each unit you are sending which usually goes to multiple warehouses. While you will most likely buy your UPS freight from Amazon since it’s always cheaper, these are additional expenses on top of your packaging costs to be calculated into your product pricing.

  • Delayed Reimbursements on Lost Items or Returns. It’s not hard to imagine that sometimes products get lost or damaged in Amazon’s ginormous warehouses. So, Amazon has a policy called “FBA Lost and Damaged Inventory Reimbursement.” If an item falls into their accepted list of reasons, they will determine the amount that you are reimbursed. But don’t expect it to be exactly what you think that amount should be. Read their policy page for more details.

You may want to schedule time to view your Inventory Reconciliation Report. It shows your inventory details for a specified time period.

FBA

Use this report to analyze your inventory movements to and from Amazon fulfillment centers. Be sure to include products that are sold, returned, removed/disposed of, damaged, lost, and found.

You can view all historical movements of your inventory for 18 months. Check it against your payment reports (the Transaction Report you download) to see if you have actually received the reimbursement.

FBA

Hard to imagine, but sometimes Amazon forgets and the word in Seller forums is that it takes 45 days for you to receive the funds!

If you have determined that FBA is the way for you to go, here are steps to prepare:

  1. Set up your account for the FBA program,  by going to http://www.amazonservices.com/fulfillment/; sign in at the top right corner; then, follow the instructions.

  2. Make your packaging ready to ship from Amazon’s warehouses. Include any inserts in every package so that Amazon simply prints a shipping label and sends it out. Packaging also includes that if anything can chip, crack, or break; do the 3 foot drop test (five times, each from a different angle) to ensure it is properly wrapped. Watch Amazon’s video below for details: 

  3. Print a scannable bar code.  You will need to print a scannable barcode product label to place on the package. Or, you can pay $0.20/label for Amazon’s FBA Labeling Service. You will make that choice while going through your Shipping Plan.

  4. Create a Shipping Plan by selecting “Manage FBA Shipments” under the Inventory tab. The first couple of times may take a little bit of getting used to, but experience will decrease your preparation time.

From personal experience, I have used the 30 labels per page in a Word document. I included my Sku, the product name, and the FNSKU barcode along with, “Warning: This is not a toy. Keep away from children.”  

If FNSKU caught your attention, you might ask, “Why not the UPC, or EAN barcode?” When warehouses receive your FBA shipment, products are re-labeled with an FNSKU (a number automatically generated by Amazon when you add a product to your inventory).

After having issues with incorrect re-labeling during the warehouse receiving process, a conversation with Customer Support resolved the issue by recommending that I use the FNSKU barcode on the label in lieu of the UPC or EAN. That way, no re-labeling would be necessary. Just copy the FNSKU from your FBA Inventory Management page and generate a barcode for free at this link: http://barcode.tec-it.com/en. Download, save, then Insert it at the top of your label.

In our next article, FBM. Which is the most valuable option for your Amazon business?

 

Tina Marie Bueno
Tina Marie Bueno is a global citizen with an MBA in Int’l Business plus over 20 years of content marketing experience both in the U.S. and overseas.  As iLoveToReview’s Marketing Director, she strives to deliver relevant content to serve Amazon businesses of all sizes.