What is Amazon FBA?
If you run an online shop with physical products and have not yet discovered Amazon FBA (Fullfilment by Amazon) for you, then you have had to think about storage and shipping. Because every physical product needs space and you have to send it to the customer. This creates costs, because you need a sufficiently large storage room and packaging material, time to pack the goods, the way to the post office and, of course, money for shipping. With Amazon FBA, you could do away with warehousing and shipping, which saves you a lot of work. But how exactly does Amazon FBA work and what do you have to consider?
Definition: What is Amazon FBA?
Basically, Amazon FBA is a very simple system offered by the Amazon online marketplace. Amazon is the largest online retailer in the world and takes care of the storage of your products for you as a retailer, ensures adequate packaging and sends the goods to the customer, no matter where. In addition, Amazon takes care of customer service and any returns. All of this happens in Amazon’s logistics centers.
For you, this makes your work a lot easier, because you no longer have to do anything with the entire ordering process. With Amazon FBA, your only task is to send the customer the invoice for his purchase. This is the greatest advantage, but also the greatest disadvantage, because apart from issuing invoices, everything is taken out of your hands.
The Amazon FBA service is available to you in Europe and you can use all logistics centers to store your products as close as possible to your customers. Amazon organizes the dispatch of the goods via its dispatch network.
How does Amazon FBA work?
In order for you to be able to participate in Amazon FBA as a retailer, you first need a so-called seller account , i.e. a retailer profile on Amazon . All further steps are then processed via this account. By registering for Amazon FBA, you receive a higher retailer status, your products are placed more prominently and you get access to free Prime Standard shipping.
At the beginning, you have to send your products to various logistics centers in Germany , France, Great Britain, Spain and Italy or even worldwide via a freight forwarder of your choice or with the help of a transport organized by Amazon and have them stored there. In this way, the ordered product reaches the buyer very quickly. Storage at Amazon is of course subject to a charge and depends on the type, size and weight of the product. There is no minimum amount, so you can store as many products as you want.
All orders that customers place via Amazon are comprehensively processed by the company. In addition to orders that are placed directly via Amazon, you can also have orders sent by Amazon that have been received on your own website, for example. The large Amazon shipping network makes this possible. The Amazon FBA service also includes information on shipment tracking, which is made available to the buyer, as well as 24/7 customer service in the respective national language of the customer. You can manage and update your stocks from anywhere via your seller account. This gives you full control over your business at all times, you can deliver additional products to Amazon if necessary and manage your profile independently. Amazon provides you with tools for this available for sales analysis or suggestions for price optimization. You can even create personalized business recommendations.
IN SUMMARY, AMAZON FBA CONSISTS OF FIVE STEPS:
- When listing your products, select the option “Fulfillment by Amazon”
- Send your products to an Amazon logistics center
- Your products will be marked with the note “Fulfillment by Amazon”. Eligible offers are then given the Prime logo
- Amazon takes the products from the warehouse, packs them and sends them directly to customers all over Europe
- Amazon also provides customer service in the local language and processes incoming returns.
What are the benefits of Amazon FBA?
The absolute advantage for you as a retailer when using Amazon FBA is the size of the company and the global network that Amazon now has. As a participant, you will reach a lot more potential buyers. It has been shown that customers are more likely to click on products with the Prime logo from Amazon. Products labeled in this way are also often better placed in the major search engines and customer satisfaction improves thanks to the good service from Amazon.
Another advantage is, of course, that you no longer have to store goods and you don’t have to worry about returns . Even if storage at Amazon costs something, it is still cheaper than renting rooms. Amazon calculates seasonal storage costs:
- January to September: € 12.50 per cubic meter / month
- October to December: € 18 per cubic meter / month
The shipping fees to be paid by you as a retailer are calculated according to sales channel and storage location. Shipping is always free from a sales price of over € 350.
Another plus point is that you can optimize your own competitiveness by using Amazon FBA. The company’s shipping network, the fast processing of orders and the good customer support ensure that you have better conditions for your business in e-commerce compared to possible competitors .
THE ADVANTAGES SUMMARIZED:
- Access to a large, global network
- You reach more potential buyers
- It has been proven that customers click more often on products with the Prime logo
- Products with the Prime logo are better placed
- There is no need for warehousing
- Returns are handled by Amazon
- Your own competitiveness can be optimized
- Good customer support
Are there disadvantages of Amazon FBA?
Where there is light, there is also shadow – Amazon FBA offers you as a retailer many advantages, but can also have disadvantages. For example, the service is not suitable for every company. Intermediaries with very low margin products should not use Amazon FBA; the costs are ultimately too high.
Further disadvantages are that, as a retailer, you no longer have any influence on the orders or their processing. Although you have a lot less work with this system, you can no longer actively intervene yourself. You also have to live with the fact that the packages to the customer do not have your own company logo, but that of Amazon. This can of course have a negative effect if, for example, you have developed your very own product that you actually want to make known as your invention by selling it. When selling products through channels other than Amazon, you have to regularly check your inventory management so that there are always enough goods available to satisfy customers.
In order not to get into absolute dependency right away, experts recommend a broader line-up of your business. Therefore try to present your products outside of Amazon FBA as well. To do this, you can use social networks as well as online marketplaces, which compete with Amazon. Multiple pillars are always better than relying on just one partner.
THE DISADVANTAGES SUMMARIZED:
- Not for middlemen who offer products with a low margin
- Does not affect the orders
- You can hardly actively intervene in the whole process yourself
- Parcels do not have your company logo, but that of Amazon
Who is Amazon FBA for?
Amazon FBA offers those who want to build a long-term profitable business very good starting conditions. Here you can first concentrate on the products and your own business before you deal with things like warehousing and shipping. So you can first put everything on the perfection of the products and deal with marketing before you think about the logistical things. In addition, you don’t have to start working full-time right away, but can first build up a small business alongside your main job . Amazon FBA is therefore suitable for everyone who is just getting started with their own business. In the long run, it can be more worthwhile if you then break away from Amazon and build your own business entirely.
What does it take to get started with Amazon FBA?
Even if it sounded like you didn’t need a lot of money to start an Amazon FBA business, certain start-up capital is still necessary. Especially if you want to invest in the quality of your products right from the start, which is highly recommended, a certain amount of start-up capital is simply a basic requirement. Here it is advisable to budget at least 3,000 euros, since in addition to purchasing the products, other costs such as certificates, shipping, marketing and tax consultants can also be added.
In addition, the sale of products is a commercial activity that you must register with the trade office . The sole proprietorship is a suitable legal form that you can choose for your company. But you should have done that before you register as a seller on Amazon.
This is followed by the tax registration with the tax office , with which you will receive your tax number . If you want to import goods from abroad to Germany, you also need an EORI number. You can apply for this free of charge at German customs.
Practical example Amazon FBA: The company SNOCKS
The company SNOCKS shows very clearly how successful the Amazon FBA business model can be in practice . The two cousins Felix Bauer and Johannes Kliesch always wanted to build their own business in order to be financially independent. As a passionate sneaker wearer, Johannes discovered that there was a lack of high-quality and cool socks. They wanted to take advantage of this gap in the market as quickly as possible and decided to sell socks online.
They quickly came across the Amazon FBA sales method. It was clear to them that they only wanted to start their business with it because they were still studying at the time. As a result, they did not have the time to take over all the activities of an independent online retailer themselves. Amazon FBA offered the perfect solution. To now offer the perfect products. to be able to, they had sock samples created at various online trading platforms, such as Alibaba , and then compared them. They took over the design, ordering and rating of the products themselves. Once they had found a suitable provider, they could get started. With the help of Amazon FBA, they have managed to generate over 7 million euros in sales to date.
Conclusion: the business model with a future
Some entrepreneurs claim that such models are not very durable. But analyzes show that Amazon FBA is becoming increasingly popular – not only with large corporations, but also with small and medium-sized companies that are active in the eCommerce sector. So that you can get started well, think about the topics before you start
- Amazon as a sales platform
- Financial planning
- Product selection
- Tax law
- Markings & certifications of products according to EU guidelines
Your entry into Amazon FBA will only be successful with a solid basic knowledge and a well-prepared plan.