Fulfillment by Amazon (FBA): Everything Sellers Need to Know

Fulfillment by Amazon (FBA) is a game-changing move that the e-commerce giant made in 2006 – it opened up its efficient delivery and fulfillment network to third-party sellers. Today, 94% of Amazon sellers use the FBA program either for their entire product catalog or for a part of it, and it helps them reach millions of customers worldwide.

From what Amazon FBA is to the benefits of selling on FBA and how to sell on Amazon FBA, we are breaking down everything you need to know in this blog. Keep reading to know more.

What is Amazon FBA?

Fulfillment by Amazon, or FBA, is a paid service that allows third-party sellers to outsource order fulfillment to Amazon. Through its FBA service, Amazon offers inventory storage, order fulfillment solutions, returns management, and customer service to third-party sellers. Here’s how a usual FBA fulfillment cycle works:

Sellers will send their inventory to the Amazon fulfillment centers based on the Amazon FBA packaging requirements

Amazon will receive the inventory, sort it, and then store it in the fulfillment centers

Whenever the customers place an order on Amazon. Amazon FBA will pick, pack, and ship the product to the customer

Amazon FBA will take care of customer service and returns management

Amazon FBA vs FBM - Which one should you choose?

Another famous fulfillment method that sellers use is Fulfillment by Merchant or FBM. In the FBM method, the seller manages the storage, shipping, and customer support in-house or through a third party. Merchant Fulfilled Network (MFN) is Amazon's terminology for FBM.

If you ask FBA or FBM, which is the best option for sellers? There are no straight answers to this question. Before zeroing in on one, sellers must consider multiple factors, such as the pros and cons of each fulfillment method and how it will affect their sales.

You should consider using FBM:

If you are looking for more control throughout the fulfillment process
The products you sell are oversized or heavy
If you already have a storage space in place and fulfillment capabilities sorted
You are using a cost-effective 3PL for fulfillment
If you are selling in a low-competition category
If you are selling slow-moving inventory

You should consider using FBA:

If you sell small and lightweight products
You don’t have the time or capacity to package and ship orders
If you want your products to be Prime shipping eligible
If you want to let Amazon handle customer service and returns
Cannot afford your own warehouse space or employees to package and ship your orders
If you are selling fast-moving products in a high-competition category

Additionally, it's worth noting that you have the flexibility to utilize both FBA and FBM for different products within your inventory. It doesn't necessarily have to be an exclusive choice between the two methods. In fact, approximately 22% of third-party sellers employ a combination of both fulfillment options.

Amazon FBA benefits For sellers

Over the years, FBA has helped thousands of third-party sellers to scale their business and operations by offering its warehousing and distribution expertise. According to an Amazon Seller statistics report, 76% of Amazon sellers become profitable, and 63% of them become profitable within the first year.

Here are some of the major benefits of using Amazon FBA for fulfillment:

No investment is needed for storage and fulfillment

You do not have to invest in storage space, labor, and other fulfillment operations while using the Amazon FBA program. Amazon will take care of the entire picking, packing, and shipping of the order.

Access to Prime badge

Amazon FBA automatically offers sellers the coveted Prime badge, and sellers get access to the customer base of nearly 200 million Prime members. The Prime badge gives you more visibility and increases the chances of buyers purchasing your product.

Experience faster fulfillment

Thanks to Amazon's extensive fulfillment network, sellers can take advantage of its efficient and reliable order processing and fulfillment, leading to faster shipping and improved customer satisfaction.

Buy Box advantage

The Buy Box button is the holy grail of Amazon. Around 83% of all Amazon sales are through the Buy Box. Amazon considers multiple performance metrics before awarding the Buy Box. This is where FBA sellers get an advantage over regular sellers. Amazon gives FBA a perfect score for multiple variables, including shipping method, on-time delivery, and inventory depth, which increases their chances of obtaining the Buy Box.

An established returns process

In FBA, there’s an established returns process in place already. Amazon will handle the returns and customer support for all your inventories sold through the FBA program.

Multi-channel fulfillment

Sellers can use Amazon FBA to fulfill orders for other marketplaces or ecommerce stores. Sellers can create a fulfillment order and ship a product to a non-Amazon customer.

How to sell on Amazon FBA?

Amazon Seller Central is the platform where sellers can manage their Amazon businesses, including the Fulfillment by Amazon (FBA) program. Here's the Amazon FBA step-by-step process on how to enroll in FBA, execute the selling process, and manage your FBA performance:

Set up FBA

Begin by creating an Amazon Seller account if you don't already have one. You can sign up on the Amazon Seller Central website

Next, choose the Fulfillment by Amazon (FBA) option as your preferred fulfillment method during the account setup process

Follow the on-screen prompts to provide the necessary business and tax information, agree to the FBA terms and policies, and verify your identity

Creating product listings

After enrolling in FBA, you can list your products for sale by adding product listings

Amazon Seller Central account. Ensure your product listings are accurate and include essential details such as product title, description, price, and high-quality images

Set competitive prices to attract buyers while considering Amazon's fees and your desired profit margins

Sending shipments

In your Amazon Seller Central account, use the FBA shipment creation tool to create a shipment plan for the products you want to send to Amazon's fulfillment centers

The next step is preparing the products for shipment. Label and package your products according to Amazon FBA labeling and packaging guidelines. Each product should have a scannable barcode for tracking

Choose a carrier, print shipping labels, and send your products to the designated Amazon fulfillment center. You'll need to schedule the shipment through Seller Central

Tracking FBA Performance

Using the Amazon Seller Central dashboard, you can monitor sales performance. You can view sales data, track orders, and analyze your profitability

Furthermore, Amazon provides various reports to help you assess the performance of your FBA business, including inventory levels, fees, and reimbursements

Pay attention to key performance metrics like order defect rate, late shipment rate, and pre-fulfillment cancel rate. Amazon has specific performance targets for FBA sellers, and meeting these targets is crucial for continued participation in the program

Amazon FBA fees and pricing

Fulfillment by Amazon (FBA) involves various pricing and fee components that sellers need to consider when using Amazon's fulfillment services. Below are the major FBA fees:

Referral fees

The referral fees are a percentage of the item's sale price that Amazon charges for each product sold on their platform. The referral fees vary depending on the product category, and most referral fees are between 8% and 15%. When a product is sold, Amazon deducts the referral fee from the total sale price before transferring the remaining funds to the seller's account.

Storage fees

Amazon FBA storage fees are charges incurred for storing sellers' products in Amazon's fulfillment centers. Amazon calculates storage fees based on the volume (cubic feet) your inventory occupies, and the time it remains in storage. Fees may vary by season, with higher rates during peak periods.

Fulfillment fees

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Fulfillment fees cover the cost of picking, packing, and shipping your products to customers when orders are placed through the Amazon platform. These fees depend on the size and weight of the item being shipped. They include both standard and optional services like gift wrapping.

Returns processing fees

Returns processing fees are charged when customers return FBA items, and Amazon needs to inspect, repackage, and restock them. The fee varies depending on the size and weight of the returned item. The return processing fee, on average, can cost $0.52 to $7.25 per item, depending on the size.

Removal order fees

Removal order fees apply when sellers request to have their inventory returned to them or disposed of by Amazon. The fee depends on whether you want the items returned or disposed of, as well as the size and weight of the items. The removal order fee is $0.15 for a standard-sized object and $0.30 for an over-sized object.

FBA holiday season-specific changes

There is an increase in certain FBA fees and prices during the holidays to accommodate the increased demand and ensure a smooth shopping experience for customers. Here are the Amazon holiday season updated for 2023:

Holiday peak fulfillment fee

The annual holiday peak fulfillment fee for Fulfillment by Amazon will start on October 15, 2023, and will be in effect till January 14, 2024. On January 15, 2024, the FBA fulfillment fees will return to the standard rates.

FBA monthly storage fee peak season

During the peak season, sellers tend to increase inventories sent to the fulfillment centers owing to the holiday season demand. So, during the peak season, Amazon also increases its monthly storage fees between October and December. The increase in rate ranges between $0.20 to $8.

To know more, check out our FBA peak season updated fees blog.

Sending inventory to FBA fulfillment centers: prepping, packing, and shipping requirements

1. Create a shipment using ‘Send to Amazon’

There are two ways to create a shipment to Amazon FBA:

Send to Amazon: This is for new products or products that are not currently in stock at Amazon's fulfillment centers.
Send/replenishment inventory: This is for products that are already in stock at Amazon's fulfillment centers but need to be replenished.

All sellers must use the new ‘Send to Amazon’ shipment creation workflow to create a shipment plan. Here’s how the shipment creation process looks like:

Step 1 - In Seller Central, find the product you want to ship inventory for in the “Manage All Inventory” section

Step 2 - If there’s already a workflow in place for that product, it will show up here. If not, you will enter new packing details of the product, including how many units per box, the dimensions, and the package weight.

Step 3 - Confirm your shipping information and accept the charges. Choose your ship date, shipping mode (small parcel delivery or LTL), and confirm your shipping carrier (Amazon partner or non-partner) and charges. Click “Accept charges and confirm shipping” if things look good to you.

Step 4 - Finally, print your labels and paste them into your box. Ensure both barcodes are visible on the outside of your box. Then simply drop off your package at UPS or schedule a UPS pickup. Additionally, you will be able to track your shipment from the Shipping Queue.

2. Prepping your inventory for shipping

Prepping your FBA inventory for shipping is an important step in the Amazon FBA process. By following Amazon's requirements, you can help to ensure that your products arrive at Amazon's fulfillment centers in good condition and are ready to be shipped to customers.

Package each unit in a way that will protect it from damage during shipping. This may involve using bubble wrap, packing peanuts, or other cushioning materials.
Pack fragile items in special packaging. Amazon has specific requirements for packaging fragile items, such as using double-walled boxes and packing materials that will prevent the item from shifting during shipping.
Package hazardous materials in accordance with all applicable laws and regulations. Amazon has specific requirements for packaging and shipping hazardous materials.
Label each unit with an FNSKU label. FNSKU labels are unique identifiers that Amazon uses to track products in its fulfillment centers. You can generate FNSKU labels in Seller Central. Also, ensure that your FNSKU labels must cover any UPC/EAN labels to avoid confusions and conflicts.

3. Packing and labelling

When preparing your products for FBA, you may need to pack them into cases or cartons. The way you pack your products into case pack or individual packed will depend on the shipment plan.
Next, depending on the nature of your products, you may need to use specific packing materials to ensure their safety during transit. Fragile items should be packed with protective materials like bubble wrap or foam, while hazardous materials (hazmat) must adhere to strict regulations regarding packaging and labeling.
Amazon has specific dimension and weight standards that you must follow for each unit and the case or carton it's packed in. Boxes must not be more than 25 inches on any side and weigh no more than 50.00 lb.
Ensure you have proper labeling on your products. For example, each box you send must have a box-specific shipping label and, if applicable, a pallet label.

4. Shipping your products to Amazon

Finally, to ship the products to the Amazon fulfillment centers, sellers can either choose an Amazon-partnered carrier or a non-partner carrier. If you are shipping with a non-partner carrier, you will need to provide Amazon with a tracking code for your shipment. You can upload the tracking code in Seller Central.

Role of FBA prep service providers

Third-party FBA prep service providers play a vital role in helping Amazon sellers streamline their operations and meet Amazon's requirements. Here's an explanation of their key roles and services:

Prep and pack requirements

As the name suggests, these service providers assist sellers in preparing and packaging their products according to Amazon package requirements. This includes labeling items with barcodes, applying suffocation warning labels, bundling items, and ensuring that products are appropriately packaged to prevent damage during transit to Amazon's fulfillment centers.

In short, prep services help sellers ensure their inventory complies with Amazon's stringent standards.

Short-term storage

Sellers also use the FBA prep services as a short-term storage space for their inventory before sending it to Amazon's multichannel fulfillment centers. This can be especially helpful during peak seasons or when sellers need to consolidate inventory from multiple sources before shipping it to Amazon.

Value-added services

Besides basic prep and storage, some 3PLs and prep centers offer value-added services. These services can include quality control checks, repackaging items to improve presentation, creating custom bundles or kits, applying branding or promotional materials, and even inspecting returned items to assess their condition before they are resold. These value-added services can help sellers enhance their products and customer experience.

FBA Prep and Fulfillment: Market Opportunity, Challenges, and Technological Solutions

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What are the challenges faced by FBA sellers?

Just because Amazon FBA is a popular choice among sellers, it does not mean the program has no limitations. The FBA services come with their own set of downsides, and they need not be the right solution for every seller. Here are some of the major downsides of Amazon FBA services:

Higher fees

Some say the FBA is a convenient service, but this convenience often comes with an expensive price tag. Several new and small sellers might be unable to spend that kind of money, and FBA is not a feasible option for them. Since 2020, Amazon has increased the fulfillment fees by over 30%.

Moreover, most sellers find the Amazon FBA fee structure complicated and face difficulty gauging profitability. Amazon FBA calculator comes in handy here. It helps sellers to know if it is a profitable move for them.

Inventory capacity limits

FBA comes with inventory capacity limits to prevent sellers from overstocking their inventories. The inventory amount you are allowed to send in depends on your sales history and IPI score. Therefore, if you solely rely on FBA or a big chunk of your sales happen through FBA, then your numbers can take a hit if Amazon decides to reduce your inventory limit.

Limited branding

Amazon is strictly against marketing materials that come with the products, and these guidelines are non-negotiable. If you fail to adhere to the packaging requirements set by the e-commerce giant, the products are sent back to the sellers, or a repackaging fee is levied as a fine. These strict guidelines can limit your branding and marketing efforts.

Higher return rates

Sellers have often experienced high return rates for the inventories sold through Amazon FBA. That is because it is very convenient and easy for customers to return items on Amazon, because of which sellers experience higher return rates than other marketplaces. Furthermore, sellers must also spend money on Amazon FBA return processing fees.

Stiff competition

It is no secret that since a large number of sellers sell the same products, the competition is always fierce. The excessive competition makes it hard to be discovered by enough customers to convert more sales.

Packaging restrictions

Amazon has strict guidelines and restrictions on how products must be sent to the Amazon fulfillment centers. Failure to stick to the guidelines can result in expensive fines in the form of fees, such as FBA Repackaging Fees. If the entire consignment is improper, the items are sent back to the merchant, and all costs associated with the activities completed previously are borne by the merchants.

Hopstack for FBA prep and fulfillment

Automation is the key when it comes to ensuring compliance with FBA. Multiple spreadsheets and manual efforts do not cut it anymore. Using the Hopstack platform’s unmatched order fulfillment automation capabilities, you can increase operational efficiency, fulfillment accuracy, and throughput.

Hopstack enables you to streamline and enhance every facet of the fulfillment process, from the initial inbound stage to storage and all the way through to outbound operations. This includes automating crucial tasks such as processing inbound orders, receiving in warehouse, quality control, storage placement, generating shipping plans, order grouping, picking automation, prepping, packing in warehouse, and final shipment.

Additionally, the platform also allows FBA prep centers to onboard multiple customers, automate shipping plan generation, adhere to prepping requirements, and ensure weight and dimensions compliance. Schedule a demo to speak with Hopstack’s product specialist and learn how the platform can help with your FBA prep and fulfillment operations.