If your retail business is selling through Amazon, you have the option to use Fulfillment by Amazon (FBA), which means letting the marketplace take over your inventory and shipping needs.
When you become an FBA business, you send your products to Amazon, and they store them in one of their massive warehouses. The moment someone purchases from you through the marketplace, Amazon handles everything related to packing and shipping that product out.
Is FBA a good idea for you and your retail business? Let’s look at some of the pros and cons.
Pros of Fulfillment by Amazon
If you utilize FBA, your products automatically get that little “Prime” logo by them. Why is this important? There are a few reasons.
First off, people can filter by Amazon Prime products. Not only are your products more likely to show up higher in the results for Prime members, there’s a chance that they won’t show up at all if you don’t use FBA because you can be filtered out.
How big is this audience? As of a few months ago, more than 63 million people had Prime memberships.
Beyond simply making yourself more visible, using FBA means that your products will all utilize Amazon’s super-speedy shipping. And Prime members get free two-day shipping.
Many customers are willing to pay more for your products if they know they will be shipped both fast and free.
Dealing with shipping can be complicated, confusing, and time-consuming – especially if you’re running a small business without a lot of resources. You must be really on the ball to handle shipping on your own. And if you don’t, you risk not only angering customers, but potentially being punished by Amazon as well.
Becoming an FBA business means you can stop worrying about all of that. All you need to do is keep up with inventory, so that Amazon always has plenty of your products in stock. The rest becomes their problem.
Amazon will even handle certain customer support issues! You can use that extra time to work on building your business in other ways.
This isn’t a guarantee, but it’s likely you will see higher sales with FBA.
Research bears this out. When surveyed in 2014, 71% of businesses said joining FBA had increased their unit sales by over 20%. Those are pretty good odds.
Cons of Fulfillment by Amazon
When you do not have direct access to your inventory, it is easy to lose track of what you have, what you have left over, and what you should have more of to meet customer demand. Moreover, products that aren’t selling well may end up taking up unnecessary space and end up costing you money.
Normally, the solution to this would be to reduce the amount of stock you have of certain items. But Amazon wants to make sure they always have plenty of your products on-hand so that customers don’t try to order… only to discover that they can’t.
Just like with shipping errors when you’re doing it yourself, Amazon can penalize you for low inventory.
Amazon doesn’t store your items in their warehouse for free. You pay based on how much inventory you have and how long they have to store it. Additionally, FBA is a fee-based service – you’re paying to be a part of it as well.
Shipping products to FBA warehouses is an investment. You must know how many products you need to order and ship to make FBA a profitable endeavor. Overestimate and you’ll end up either paying to have Amazon ship them back or destroy them. Unfortunately, it’s a fairly common practice.
If you are still shaky on predicted sales, you may want to stick with your current strategy. For some businesses, the costs outweigh the benefits.
It’s tedious to ship out your products to customers when they order, but it can be even more tedious to ship out your products to Amazon when you don’t even know if they are going to sell or not.
Each product needs to be properly labeled according to Amazon’s ASIN/UPC system, and it’s a hassle to get your products over to a big warehouse where they will sit for who knows how long.
If you handle shipping yourself, you can simply do the prep on an as-needed basis, so it that doesn’t require as much dedicated time all at once.
The right choice will ultimately depend on your business model and your growth expectations. More often than not, though, sellers find that FBA’s benefits outweigh its drawbacks. To learn more about FBA, visit Amazon Services.
This blog post was written by Bryan Falla, Marketing Manager at GoDataFeed.