Fulfilled by Amazon (FBA) is an Amazon service that allows you to provide fast shipping, quality customer service, and even returns processing through Amazon’s vast fulfillment and customer service network. Currently, more than 65% of Amazon sellers use FBA to provide 2-day shipping to Amazon Prime users, boost sales velocity, and improve their account ranking.
If you're considering FBA or have just begun using it, we put together a list of common and not-so-common Amazon FBA FAQs.
Costs are one of the largest concerns of any seller, but they do change a great deal based on what you are selling and how long that product stays with FBA. You can expect to pay three specific types of fees: fulfillment fees, storage fees, and inventory placement fees.
If you do not have an Amazon Professional Seller Account, you will pay 99 cents per item listed on FBA. Unless you are selling less than 40 items per month, the Professional account is a much better deal.
Inventory Placement – Inventory placement fees are calculated based on the weight of the item and the number of FBA warehouses you ship to. You can expect to pay an average of $0.30 + $0.10/lb. above the first 2 lbs. for standard items and $1.30 + $0.20/lb. above the first 5 lbs. for oversized items.
Storage – Storage costs change depend on the time of the year. From January to September you should pay $0.64 per cubic foot for regular items and $0.43 per cubic foot for oversized items. From October-December, these costs are $2.35 per cubic foot and $1.15 per cubic foot, respectively. You should also expect to pay long term storage fees at $11.25 per cubic foot in February and August for items that have been in storage for 6-12 months and $22.50 for more than 10 items that have been in storage for 12 months or longer.
Fulfillment – Amazon charges fulfillment fees based on weight and location.
You also need to pay the 15% sales fee applicable to all items sold through Amazon. If you aren't sure you can make a profit, Amazon offers a free calculator you can use for currently listed products.
Stickering and Labeling – You can have Amazon sort and label items for you for approximately 0.20-$0.40 cents per item. This may be beneficial if you don't currently have the resources to sticker in-house.
Calculating your economic order quantity can help you to make the right decision when sending products to Amazon. If you send too much, you pay unnecessary storage fees. If you send too little, you lose money on stock-outs, pay additional restocking fees, and spend more time moving inventory and shipping product.
Economic Order Quantity allows you to calculate the ideal amount of or product to send based on sales velocity and demand to balance those costs out. However, you do need existing data to make this equation work.
1) Identify Turns - How quickly does a product move in and out of Amazon FBA? For our example, we've set a benchmark of 2 months. You can use this to calculate average storage costs.
2) Identify demand or sales velocity - How many products are sold each turn? In this instance, we will use 800.
3) Calculate ordering costs – Ordering costs are those associated with ordering a product and moving it to FBA. These costs are only incurred when you create new shipments for FBA. Calculate original ordering costs, shipping, inventory placement, management, cost of packaging and labeling, cost of shipping to Amazon, and fulfillment. However, to calculate full profitability, outside of Amazon FBA, you would have to include costs of shipping and acquiring the item from your manufacturer or supplier as well.
For example, product A weighs 0.75 lbs. and sells for $19.99, with an order demand of 1400 units per month. With this data, we can estimate the following costs:
$6 (ordering costs) + $0.30 (shipping to Amazon) + $0.10 (inventory placement) + $0.20 (management) + $0.40 (packaging and labeling) + $2.41 (fulfillment) = $9.41
4) Calculate carrying costs product - Calculate your storage costs and any costs of management from your end. For example, Product A, which weighs 0.75 lbs., sells for $19.99 and sells in an average of 6 weeks in Amazon FBA would follow this equation:
Carrying Costs = $0.21 + $0.15 = $0.36
5) Calculate EOQ – Economic order quantity allows you to calculate the best quantity of items to send to Amazon to balance total ordering costs and total storage costs. However, in this case, you should typically only use Amazon specific costs including inventory placement, direct cost of shipping to Amazon, and any specific labeling and packaging you need for Amazon.
In this case: $0.30 + $1.02 + $0.40 = $1.72
EOQ = square root of [(2 x annual demand x ordering costs) ÷ annual carrying costs per product]
Square root of [(2 x 16800 x 1.72) ÷ 0.36] = 400
In most cases, the higher your ordering costs, the more product you should send to Amazon at once. If demand drops, storage costs go up, or you are likely to have to pay long-term storage, you should send fewer items.
Most people are afraid of losing money with Amazon FBA, and for good reason. Costs are high, and it is crucial that you can balance costs with sales to make a profit.
Break Even Point in Units = Fixed Costs ÷ Sales Price Per Unit – Variable Costs
You need to calculate total business costs for the following:
Break Even Point = $60,000 ÷ $19.99 - $12.75 = 2,988
The key here is that you must calculate total costs, because if you forget something, your calculations won't cover total costs and you could lose money. For this reason, it’s always better to calculate higher costs with a safety margin of 10-15% to ensure that you have covered everything.
Amazon offers clear guidelines for preparing products for Amazon FBA. Each product must be individually packaged for e-commerce, individually labeled based on the product stickering requirements, and ready to sell.
Image from Amazon Press Room
Packaging – Amazon has very loose rules for packaging, providing it covers the unit and is protective. This means that plastic sleeves, cardboard boxes, cardboard sleeves, and bags are all permissible. The only hard requirement is that the item be clearly labelled for tracking purposes. You should ensure that all packaging is secure and hasn't been marked to avoid confusion.
Cartons - Amazon requires that any products you ship to them be packaged, individually labelled, and protected. Cartons must be less than 50 lbs., and less than 24 inches on any side. The maximum number of products in a carton is 500.
Amazon allows you to use either stickerless comingling or FNSKU (FBA SKU) stickering on products. In each case, you must individually sticker your products so that they can be scanned in and out of Amazon's system.
Stickerless Comingling – Stickerless Comingling is the cheapest and most efficient method of selling on Amazon FBA. Here, you can use the existing ASIN, UPC, EAN, etc., to sticker the individual products. In many cases, if they are packaged for retail, they will already feature these stickers or labels on the package and you won't have to do anything. However, you should still inspect the product. If products are listed as having stickers but do not, Amazon will charge a fine for the discrepancy.
Stickered (FNSKU) – If you set your Amazon FBA up as 'Stickered', Amazon creates an FNSKU specific to your product and your account. This number starts with an X and tells Amazon that this is your specific product. Stickered costs more because you will have to individually label every unit you send to Amazon. However, stickering does ensure that when Amazon sells your product, they are actually selling your product and not the same product from another seller. This can help you control quality, especially if your products are better quality than your competitors.
Create an Amazon listing for the multi-pack or set, create an ASIN or FNSKU, and package the product as one item. Any multipacks sent to Amazon must be packaged together in a sealed sleeve, carton, or box and then labelled as a multi-pack or "sold as a set." Each multipack must be labeled as a single unit with a scannable label.
Amazon allows you to ship to buyers who purchase on third-party stores such as Shopify, Etsy, your own store, etc. However, Amazon will likely ship your product in an Amazon branded box even if you sell on a competitor site like eBay.
When you receive an order you would like to fulfill using FBA you can use the following process:
Amazon makes it easy to use FBA to fulfill orders from other sites, and if you don't use a 3PL or have your own fulfillment solution, the costs outweigh the benefits. However, with required Amazon branding and no support on returns, it should be carefully considered.
Amazon FBA allows you to easily set up and start selling overseas by importing and exporting your products. All you have to do is sell on a corresponding Amazon marketplace (.co.uk, .de, etc.), and send your products to FBA. However, there are numerous fees and complications involved so it is important that you calculate fees in advance to determine profitability.
You can choose to sell overseas with FBA by either shipping to an FBA warehouse in another country or using FBA Export:
Using FBA Export, Amazon transports your products, sometimes on a single unit basis, when they are ordered. Here, Amazon handles paperwork and complexities, imports the product on-demand with existing orders, and works to reduce total costs. If you are using stickerless comingling, Amazon may ship a competitor's product from their warehouse closer to the buyer.
Once approved (up to two weeks), you can select exportable inventory and choose accordingly.
Using regular export, you pay the international shipping costs and import/customs fees. When using FBA Export, these fees fall on the buyer. Both have pros and cons, and they are important to consider when making decisions.
Image from Amazon Press Room
Yes, you can. However, shipping from the manufacturer to FBA requires that you place a high level of trust in the supplier or manufacturer to maintain quality standards and to package according to instructions.
Here, you typically have two options; shipping directly to Amazon FBA and using a Freight Forwarder.
Direct Shipping – With direct shipping, you make a deal with your manufacturer or supplier to ship directly to Amazon FBA. This means:
Freight Forwarder – Freight forwarders accept freight for you, can break it down into smaller shipments, inspect the product, inspect the packaging, and even individually label or repackage products as-needed. Freight forwarders can often also handle duty and import costs, which mean that you are very unlikely to have a shipment rejected.
The disadvantages of using a freight forwarder are that you will pay for this service, including handling fees, any inspection fees, shipping fees, and so on. It will also increase your lead time, depending on the size of the order and the speed and capacity of the service.
In most cases, if you need to ship your product to multiple FBA locations, it is cheaper to use a freight forwarder. You should also use a freight forwarder if you are working with a new supplier, don't trust their quality, or know that they cannot package to Amazon's specifications.
In most cases, SPD is for smaller lots of units and LTL is for pallets. You should check whether an Amazon carrier or your own solution will be more cost efficient before choosing an option.
In some cases, Amazon will label low-cost items as "add-on" items because they feel that they cannot justify shipping costs at the price. This can dramatically cut your sales. In most cases, the best solution is to raise the cost of the product.
Amazon is extremely cautious with "best by", "expiration", and "sell by" dates. Because a violation of expiration date policies will likely result in fines or your product being disposed of, it is crucial that you be extremely sensitive to Amazon policy and the sell-by date.
For the best results, calculate your sales velocity and do not send more products than will sell before 50 days of the expiration date to ensure that you are not losing money.
Setting up an FBA account means preparing your personal accounts and getting information together so that you can easily get started.
You need:
Once you’re ready to set up your account, you can visit Amazon’s FBA page here and easily sign up for the service. If you intend to use FBA with third party services or applications, you need an Amazon Marketplaces Web Services (MWS) identification. If you currently use checkout by Amazon or another similar service, you likely already have these credentials. If not, you can apply here.
Once you’ve registered for FBA you will have to set up your preferences, choose between stickered or stickerless comingling, and select the products you would like to send to FBA.
Amazon FBA has a lot to offer for most sellers, including increasing sales velocity, boosting customer reviews, and improving your seller account health. Hopefully this FAQ will help you to get started.
Any other questions? Send them to us in the comments!