What Is Amazon FBA? (How It Works, Meaning + More)

Shopping on Amazon is a normal part of life for millions of Americans, as the leading e-retailer carries an incredible array of products, with everything from groceries to furniture, clothing to computers, and a whole lot more.

If you’ve ever shopped or sold on Amazon, you may have come across something called Amazon FBA. So what’s Amazon FBA, and why is it so popular? I was intrigued by this, too, so I researched and learned a lot about Amazon FBA!

What Is Amazon FBA In 2022?

Amazon FBA means Fulfillment by Amazon, a service Amazon offers to third-party merchants as of 2022. Sellers can automate order fulfillment and shipping by paying a fee to Amazon. In return, Amazon handles all shipping, returns, refunds, and product warehousing, streamlining these processes so sellers can focus on selling their goods to millions of Amazon shoppers.

If you want to know more about Amazon FBA, including how it works and its benefits, then keep reading the rest of my detailed guide!

What Does Fulfilled By Amazon Mean?

One of the main things to remember about Amazon is that there are two types of products: those made and sold by Amazon and those sold by third-party sellers on Amazon Marketplace.

While Amazon makes some products, such as the Kindle e-reader and Echo smart speaker, there are millions more products from Amazon Marketplace sellers.

Therefore, due to this massive amount of Marketplace sellers and products, Amazon introduced FBA as a seller solution.

Further, Fulfilled By Amazon means an order was packed and shipped by Amazon rather than the actual merchant.

Each day, more and more third-party sellers opt into Amazon FBA and send their products to Amazon to store and ship.

Still, keep in mind that Amazon FBA is not a requirement for Marketplace sellers, although many are leveraging this opportunity to concentrate more on sales and less on order fulfillment.

According to Amazon, FBA sellers see an average 20-25% increase in sales, and around half of roughly 500,000 US merchants use FBA to package and ship orders from Amazon warehouses.

How Does Amazon FBA Work?

Fulfillment by Amazon is a popular way for eCommerce companies to increase profit margins and free up supply chain issues, which comes in handy considering about half of all sales on Amazon come from third-party merchants rather than Amazon directly.

With FBA, Amazon picks, packs, and ships orders on behalf of Marketplace sellers, a service made possible by massive Amazon warehouses across the US and other countries.

Essentially, Amazon gives its FBA clients access to its extensive logistics network, which helps merchants scale their businesses and optimize their operations to be as efficient as possible.

Because Amazon is one of the leading US employers (employing 1 in every 153 American workers), it has pivoted and extended its successful warehouse solutions to Marketplace sellers.

Also, as highlighted in Amazon’s FBA Getting Started Guide, there are a few critical steps to getting started with Amazon FBA and making it work.

First, the seller must set up FBA using Seller Central in an Amazon selling account.

Next, sellers create product listings and add them to the Amazon catalog, specified under FBA inventory.

Once products are listed, sellers need to prepare them for safe transportation to the nearest Amazon fulfillment center.

That said, these shipments need to meet Amazon packing guidelines and shipping requirements.

Then, the final step to setting up Amazon FBA and ensuring the process works well for all parties is to ship products to Amazon.

So, sellers need a shipping plan and printed shipment ID labels from Amazon to ensure shipments are appropriately received at fulfillment centers.

When Marketplace products are checked in at fulfillment centers, they become available for shoppers on Amazon.

After that, all of these FBA orders are then managed by Amazon, so sellers receive payments for completed orders while Amazon takes care of the rest.

Is Amazon FBA Or Merchant Fulfillment Better?

Many of the most popular products on Amazon are FBA.

That said, this trend doesn’t seem likely to change anytime soon as the eCommerce leader continues to make headlines for its huge warehouses and growing transport fleet.

For the most part, Amazon FBA is better than merchant fulfillment because Amazon has way more resources to ensure smooth logistics and fast delivery throughout the US and beyond.

Currently, there are 1.9 million small and medium-sized businesses selling on Amazon Marketplace, and around half of them use FBA to ensure fast, efficient order fulfillment for customers around the globe.

Moreover, Amazon merchants have the choice of fulfilling their own orders or signing up for Amazon FBA, but there are a few risks associated with merchant fulfillment.

However, small sellers can easily get bogged down by a rush of orders, stocking issues, and shipping delays.

Plus, there’s customer satisfaction to consider, and if shoppers have an issue with their order and need a refund or a replacement, it could take a small seller weeks to sort it out.

So, rather than tying up a big chunk of their resources in order fulfillment and customer service, thousands of third-party sellers are taking Amazon up on their offer to automate the fulfillment process.

Of course, there’s a fee involved with Amazon FBA, but many businesses find this a worthwhile investment because they can save on operational costs and make more sales.

What Are The Benefits Of Amazon FBA?

What Are The Benefits Of Amazon FBA?

There are many advantages of Amazon FBA, as it’s designed to make selling and shipping easier for smaller Marketplace merchants that don’t have the same level of logistics solutions as Amazon.

With that, perhaps one of the biggest pros of Amazon FBA is efficient shipping and logistics.

Basically, Amazon completes all the fulfillment tasks for merchants, so all they need to do is track listings to make sure products are shipped to Amazon as required.

So, many satisfied Amazon FBA merchants are pleased to hand over fulfillment tasks to Amazon for a small fee, as they can just work on selling and stocking items while the experts at Amazon warehouses take care of the rest.

Additionally, the discounted shipping fees are another advantage of Amazon FBA, as the global fulfillment leader offers cheaper shipping solutions than paying for all your fulfillment costs.

Although fees are involved, Amazon FBA can be pretty cost-effective because this service makes the most of the existing Amazon fulfillment network with nearly 200 fulfillment centers in major metropolitan cities.

With Amazon FBA, returns and refunds are processed seamlessly, and all customer service requests are maintained in one central portal, which helps merchants stay on top of their transactions and maintain a high level of satisfaction.

In addition to the simplified shipping and customer service aspects, the long list of Amazon FBA benefits goes on and on to include quick delivery.

After all, Amazon customers are used to some of the fastest delivery options in the eCommerce world, and FBA products are automatically eligible for Amazon Prime.

This speedy shipping option, free for Prime members, comes with a badge on the product listing.

Therefore, by appealing to buyers and making it easier for Prime shoppers to get what they need when they need it, FBA opens up more opportunities for sellers.

Also, FBA merchants can appreciate the Prime shipping options without paying or charging higher shipping rates because they’re already included in the FBA program.

Moreover, one more thing to mention about Amazon FBA benefits is the huge storage space.

That said, not all merchants have access to giant warehouses to store their stock, but Amazon does.

Essentially, given the sheer size and quantity of Amazon warehouses, there’s unlimited storage available for FBA sellers who want to move more inventory and watch their sales skyrocket.

What Are The Drawbacks Of Amazon FBA?

It’s no secret that there are numerous benefits of Amazon FBA, but as with anything in life, there are some potential cons to consider too.

For example, Amazon FBA may not work as well for some sellers due to possible drawbacks like more money and returns.

Amazon FBA isn’t free, and costs vary based on the product size tier, shipping weight, and item category.

So, while these fees are usually considered competitive and worthwhile for many sellers, they can still add up.

Especially for sellers that are just starting, it may seem daunting and even counterintuitive to tack on more fees.

For example, if a seller has their shipping and returns processes pretty under control, it might not be worth paying Amazon FBA fees.

Despite the fees, Amazon aims for transparency and offers an FBA calculator to help merchants understand whether moving to Amazon fulfillment is a smart move for their operations and financial situation.

Speaking of money, there are long-term storage fees associated with Amazon FBA too.

Amazon is all about moving inventory quickly, and the longer a seller’s products sit on the warehouse shelf, the more they’ll pay in storage.

With that, while Amazon FBA storage and shipping fees aren’t going to make or break most businesses, it can be frustrating for some sellers to deal with a higher rate of returns.

Also, Amazon’s open return policy means FBA merchants often receive more returns, but they can increase their sales to help make up the difference.

Luckily, Amazon handles the returns processing, but there’s still product prep and payments to keep in mind.

Finally, one last drawback to think about is the potential sales tax implications, as this is managed at the state level and may seem complicated if goods are warehoused in a different state.

To help with this, Amazon offers automated tax support and resources for merchants, but all these details need to be considered to ensure a successful business.

How Do Amazon FBA Returns Work?

The good news for Marketplace sellers using FBA is that Amazon handles the returns process as part of its fulfillment services.

So, suppose a customer decides to return an item, and it’s eligible for a refund under the return policy.

In that case, Amazon will accept the return at its fulfillment center and process it accordingly.

Fortunately, FBA sellers don’t have to do anything special for returns, other than keep in mind some may be eligible for reimbursement if they feel Amazon or the purchaser is at fault in some way, such as by damaging the product.

Like purchases, returns will be automatically processed and show up in the seller’s FBA account.

Also, merchants can contact Amazon FBA support 24/7 if they have any concerns about a returned order.

Moreover, while Amazon keeps an eye on customers who make too many returns with its return warning, overall, it can benefit Marketplace merchants to offer some flexibility in their returns process through FBA.

Occasionally, some Marketplace sellers can get a bad reputation for selling misleading products or not accepting returns.

Because of this, many shoppers will opt for items fulfilled by Amazon directly, so it pays off for sellers to join the FBA program.

To learn more about Amazon, you can also see our posts on the Amazon review program, Amazon protection plan, and if Amazon is safe to shop on.

Conclusion

Fulfillment by Amazon is becoming more popular for nearly two million small and medium-sized businesses selling on Amazon Marketplace.

That said, merchants can sign up for Amazon FBA to have Amazon take care of order fulfillment, including packing and shipping.

Additionally, Amazon FBA even handles returns so merchants can focus more on actually making sales and less on the tricky logistical details of running an internet business with shoppers worldwide.

There are many benefits of Amazon FBA, including a reported 25% increase in sales.

Further, that’s not to mention the discounted shipping weight and comprehensive fulfillment support offered by Amazon’s innovative industry experts.

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Marques Thomas

Marques Thomas graduated with a MBA in 2011. Since then, Marques has worked in the retail and consumer service industry as a manager, advisor, and marketer. Marques is also the head writer and founder of QuerySprout.com.

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