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How does Fulfillment by Amazon Work?

Ihor DubovetskyiUpdated on October 08, 201911 min to read

Amazon FBA and your
Metacapitalistic business.

At the end of the 20th century, the metacapitalism has been born. This business model appeared to be ideal for the digital era, and thousands of entrepreneurs around the World use it having no clue about it.

What does it mean, and how it can be used to gain success on Amazon? 🤔

First of all, this is a great idea!

In a straightforward explanation, your company won’t need production places, raw materials, warehouses, complicated logistic, engineer division, accounts department, and even marketer can be hired from time to time depending on the current task.

You need to have an idea and nothing more.

You go to the bank and get a loan. Then you hire an engineering company to create a project, marketers to develop a marketing strategy and place production order somewhere in South East Asia. Ready-to-sell goods you have to put somewhere online, Amazon, for example.

Don't forget to come up with a bright name for your brand and - bingo - you are a successful businessman. In other words, you don't have to hire employees; you are hiring contractors.

And in a very moment when your goods appear on the Amazon, you have to choose between Fulfillment by Amazon (FBA) or Fulfillment by Merchant(FBM).

Lindsey Tod from Viral Launch posted FBA vs FBM Infographic in her blog post:
FBA vs FBM: A Full Comparison for Amazon Sellers. You can see it below. 👇

FBA vs FBM Infographic

What is Fulfillment by Amazon?

This is the FBA service, which includes most of the actions you need to perform to make a sale on Amazon.

73 percent of Amazon.com sellers in the U.S. were found to utilize FBA.
Fulfillment by Amazon usage worldwide

- by J. Clement on statista.com

How does Amazon FBA works?

You are sending your goods from the production place to Amazon Marketplace, and that's all you have to do because Amazon will take care of:

How does Amazon FBA works
  • store your merch on its storehouses;
  • picking, packing, shipping and tracking the order for your customer;
  • take responsibility for returns and refunds.

Thus you are hiring Amazon as a contractor for all of the above services.

Indisputable Benefits of Using Fulfillment by Amazon (FBA)

Why it's a good idea?

You are getting rid of the headache of organization, management, and control all these necessary boring and painful business process stages.
The fee is not comparable with expences you spend if you choose the Fulfillment by Merchant.

The more benefit you are getting is the release of resources. It means that you can focus on marketing entirely!

It includes photo optimization, copywriting, SEO, PPC, or Sponsored Brands.

The following services will be obtained as far as you choose Amazon FBA model:

  • Logistics and shipping issues - outsource to FBA the entire process, taking advantage of their expertise and experience.
  • Shipping discounts - big deals mean significant discounts. Amazon's major shipping carriers able to give steep discounts on shipping costs. It leads that Prime members get free two-day shipping on all FBA products - great incentive to buy.
  • Well established returns and refund policy - you are delegated all rights and obligations of returns to Amazon where a process was already in place. Yes, you'll be charged for this service, but it is worthy.
  • Customer support service management - priceless option. What can I say? If you ever established any kind of support service, you know how hard it is to make it work. They offer 24/7 support via phone, chat, and email. And this is fantastic!
  • Unlimited storage space in potential - don't worry about storage space. Amazon will take care of it. FBA means If your products sell quickly, you'll get unlimited storage. No inventory minimums - you can send a single item.
  • Fast delivery - an extensive worldwide network of the fulfillment centers provide the quickest delivery.

Why Not Amazon Fulfilled by Merchant?

Many merchants have excellent developed logistics services. It is especially true for sellers with massive products, such as decorative elements, furniture, refrigerators. In this case, the storing price on the Amazon warehouses is jumping up and become very high. For such guys, FBM is a perfect solution.

But - there is always "but" which kills an idea. If you compare two similar listings of the two same companies, one of them will be FBA and another one FBM, the FBA company would be upper then FBM in search results.

⚠️Warning! This information based on our data, it is not official but obtained purely by experience. Naturally, Amazon will not confirm this. It is their world, their rules; it is profitable for them.

Well, you are, as a reasonable businessman, made your choice and faced with the question:

How to start Amazon FBA?

If we talk about starting an Amazon FBA business in 2019 -2020, we have to admit that the main problem is: the market is OVERSATURATED in many niches.

oversaturated niches

That happened because the trend of sales on Amazon has survived its boom and every man and his dog are willing to sell on Amazon and make money calling it "passive" income.

Is it true? - Of course not!

This situation was created by Amazon's guys, the gurus of marketing. They simplify the information so much that the person who reads it begins to consider it not a full-fledged business, but the somehow way to earn some money. "Easy money"

Easy money gif

- "Victor" via Eran Mendel Image Source: dribbble.com

- they mutter- "why not get some extra dinero?" It is not the right approach and, as a rule, such sellers have not stayed for more than 2- 3 months. At some point, they leave.

How to start an Amazon FBA business good enough to stay?

Very easy: you have to change the approach to the business itself on Amazon fundamentally. First, perceive as a full-fledged business with the production of physical goods and their sale. To sell a product successfully, you need to be competitive in a niche. You don't need to reinvent the wheel, just find the right supplier.

The right supplier is the guy with an adequate price/quality ratio. Don't hesitate to go to your supplier factory, check the quality - watch samples, attract specialists.

Behavior yourself like an old-school businessman.

Add a very personal touch to your goods and position your corporate identity. When you are looking for products on Alibaba, or you are ordering them from Korea, etc. you're slightly modifying the goods and achieve the personality that competitors lack so much.

It's ok.

But if you really want to be a number one, you have to develop your product from scratch. And this is the point from which your metacapitalistic model starts to work correctly.

Frankly, it worked well before, but from this point, it would show amazing results. Go, hire an industrial designer, and good luck!

develop your product from scratch

Worst of all is to import the same product for a niche just with an attached label. Everyone did it, In 2013-2014 everything was great, but now it has passed. It's hard for them to compete: the CPC has increased, the conversion is small

- why should you choose your product if there is one with 10 times more reviews? They will not buy your product, these sellers evaporate quickly.

How to start an Amazon FBA business now with my experience and knowledge?

Money is the point.

Ihor Dubovetskyi
CMO

Supplier reliability is even more critical point. First of all, I would like to find out how much does it take. This is a difficult question without a simple answer, but I try.

For example, you can buy $500 worth of eye patches and spend huge money on advertising because the competition there is merely unreal.
Do not do this!

I think that for now, an adequate budget for the first batch starts from $ 5,000 least. It includes at least $3,000 in advertising, $1,000 in the copyrighting, and the same amount in the photo production.

So, then it would be $5,000 and + product + ship + min activity.

But you can safely multiply by three - because if things go well, you need to order more. For the next order, you will need about $26,000. You'll be ordering the next bach for two to three months of sales.

avoid the out of stock

And it's hard to return. A week and a half are still acceptable, but more than three weeks is a total disaster. Thus, you'd better calculate thoroughly and find reliable suppliers.

Disadvantages of Using Fulfillment by Amazon (FBA)

• Long-term storage fees are rising exponentially;

If you are not selling - you are losing money, and this is not just lost profits, but direct losses and fines. Because of lack of sales, the storage fees will be that torpedo that will sink your ship. 5-6 months of the slow movement in the warehouse and the Amazon fee will be huge.

$11.25 per cubic foot for 6-12 months in an Amazon fulfillment center and $22.50 per cubic foot for 12 months or longer. And this is an extra payment. Unsalable products can be a real problem.
Damn that torpedo!

• Control inventory can be inconvenient;

It would be great to use the Shopkeeper, which can help you in inventory management on Amazon by automating the process. To be honest, you may lose track of the availability of your products, especially if you are selling on various channels. Automatization may be the right solution.

• Sales tax can be complicated and confusing;

You have to pay special attention to the tax legislation of various states. You never know where your next buyer from, and it would be perfect for dealing with this issue before any misunderstanding. This is Amazon - all states are welcomed. Try to use tax partners program like TaxJar to automate complicated tax rules for different regions.

• Amazon can commingling merchandise in a terrible way;

With the best intentions, to increase the effectiveness, Amazon can mix the same products of different sellers in one pile, and this monster can be scary. Think twice before accepting this offer. Time-saving on labeling and prepping your products may not compensate for the negative consequences. There were cases when legitimated sellers were banned from selling on Amazon due to this.

In conclusion, I have to say that both FBA and FBM have their advantages and disadvantages. Ultimately, it is on your personal choice. Anyway, it will be better to calculate thoroughly possible risks.


Next time I'll tell you how to find a product to sell as well as creating marketing to start branding on Amazon. Thank you, and I genuinely wish to help as many sellers as I can with my blog posts, so stay tuned because more will be coming on the way!