How Amazon FBA works: everything you need to know

There are 3 main models for organising warehouse storage and delivery of goods to customers on Amazon:

1. FBA – is the physical storage of products in the marketplace’s warehouses. The platform takes full responsibility for packaging, logistics, and customer service. It is one of the most profitable and easiest ways to organise a business. However, it is not the most budget-friendly.

2. FBM – the seller independently processes orders, stores goods, and organises logistics. It is suitable for those who have enough competences to organise their own warehouses in the US and Europe in a legally and economically sound manner.

3. Fulfilment services that do not belong to Amazon are an alternative method that is similar to FBA. It is chosen by those who want to save money, as the cost of shipping to/from Amazon warehouses is practically the highest on the market. It is also beneficial if you sell not only on Amazon but also on other American or European platforms.

In terms of savings, the FBM model definitely wins, but at the same time, it deprives you of many of the benefits of FBA, as we will discuss in more detail in this article.

FBA (Fulfilment by Amazon): how does it work?

Fulfilment means fulfilment, implementation.
It is usually translated literally and means “fulfilled by Amazon”.

Under this model, the marketplace takes care of most of the complex tasks, including:

  • processing of incoming orders;
  • correct packaging/labelling;
  • timely and fast dispatch;
  • informing customers about the status of their orders;
  • organisation of returns.

This does not solve 100% of the business owner’s problems, but it definitely simplifies business operations and provides a competitive advantage. The buyer does not pay for delivery from the Amazon warehouse – the marketplace earns money from the business owner (it includes this cost in the operating fees). And here it is important to know a few statistics:

54% of shoppers abandon an item added to their cart because of high shipping costs.
83% of users choose Amazon because of free shipping*.

* official data from the Amazon website

In other words, thanks to the FBA model, you can attract more customers and provide them with high-quality service, which will certainly affect the number of positive reviews in your store.

What does a business owner do in this case? If we are talking about working on the Amazon website, in particular, what are your tasks?

  • listing – creating and filling in product cards on the website;
  • marketing – promoting goods through advertising tools and increasing brand awareness.

You are responsible for product sourcing, production organisation, branding, timely replenishment and delivery to warehouses.

FBA in Europe: simple and profitable

By delivering goods to a US warehouse, you can sell them not only on Amazon or in the US, but also in other countries around the world. Unless, of course, your product is of interest to European consumers and you intend to expand your sales market to that extent.
For these purposes, there are subtypes of the FBA model:

1. Pan-EU – you send your products to a warehouse in the US, and the company handles further logistics and distribution (one entry point). This significantly increases the speed of delivery to customers, and you cover the market of more than 100 countries.

Important! To work under the Pan-European model, you need to have a VAT number and sufficient turnover (we recommend 1.5 thousand units per month).

2. FBA Export – you import goods only to the countries you are interested in. For example, only to Spain and France. This is a fairly popular method to test your product on the European market and start scaling with minimal financial investment.

In this case, you will also need to pay VAT. Therefore, we advise you to contact us for taxation advice.

How much does it cost to participate in FBA?

As mentioned above, the cost of services from Amazon is one of the highest on the market and consists of 3 FBA fees:

1. Fulfilment fee is the main service item that includes the costs of packaging, logistics, and customer service.

2. Monthly storage fees – a monthly payment that covers the storage of goods in warehouses.

3. Long-term – a “fine” for products that have not been sold during the year and are taking up space in the warehouse.

It makes no sense to give specific figures, as Amazon is constantly changing the cost of services. Usually, this happens at least 2-3 times a year, but it can happen more often. You can always find up-to-date information in the PRICING section of the official website.

Conclusion. The FBA model is beneficial for all stakeholders: seller, buyer, platform. Yes, for you, this is associated with a significant increase in costs. However, if you calculate the cost of independent logistics, rent and overheads for organising warehouses, salaries of the client manager and logistician, it is easy to conclude that working with FBA is very profitable.

In addition, you get significant savings in time, resources, and nerves by outsourcing this part of your business to Amazon. And if you outsource the operating system, you get a very pleasant and easy business that requires only ideas and investment.

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