A Guide to Amazon FBA – Is Fulfillment by Amazon Right for You?

Whether running a small warehouse or a multi-location fulfillment center, you’re likely managing some shipping services as part of your operations. Managing all of your shipping processes can be stressful; doing it without the assistance of an end-to-end management solution might make you want to pull your hair out.

If you aren’t currently using robust warehouse management software or a warehouse management system (WMS), outsourcing your fulfillment services is another option.

One of the best—and most efficient—services that allow businesses to outsource order fulfillment comes from Amazon. Aptly named Fulfillment by Amazon, it can add ease to your business never thought possible.

What is Fulfillment by Amazon, aka Amazon FBA

You need to get your products to customers as quickly as possible. Many consumers want their items the same day they order them. Ecommerce sales are currently estimated to be 22% of all sales — and that number continues to grow.  With the increasing volume, getting orders out the door quickly is becoming more challenging.

Amazon’s Fulfillment by Amazon (FBA) can help you meet that growing demand. Their order fulfillment options give you access to their extensive and expansive logistics network. Think about how large Amazon’s reach is. When a business can tap into this global network, it can greatly increase revenue and profits.

With Amazon FBA, a business sends its products to an Amazon fulfillment center. Amazon’s order fulfillment software handles receiving, packing, shipping, customer service, and returns. (If you’re curious about Amazon FBA vs. 3PL, you can read more about it on our blog).

Benefits of Amazon FBA

In addition to getting products in front of millions of customers, Fulfillment by Amazon has several key benefits for companies and brands:

• • Your products are eligible for free shipping, whether that’s two-day shipping or longer.
  • Orders handled through Amazon FBA can enjoy all of the benefits of Amazon’s trusted customer service and returns process.
  • No minimum on the number of products you ship or on which sites you sell your products.
  • Easy pay-as-you-go options are cost-effective and can help save your company money.
  • Your order fulfillment processes are taken care of from start to finish.

New Features of Amazon FBA

Amazon has significantly updated its FBA offering over the past several years to serve businesses and sellers better.

Co-mingling of Inventory

If you use Amazon barcodes on your products, sellers can use the co-mingling service. Also known as stickerless inventory, co-mingling happens when Amazon stores every unit of a single product together, regardless of the seller. However, sellers should be aware that this service has some disadvantages.

Inventory Performance Index

Amazon’s Inventory Performance Index is used to determine how your inventory is performing and how you can improve sales. Your score is calculated based on a variety of factors, such as in-stock inventory, excess inventory, stranded inventory, and sell-through rates. Based on your score, you can get tips on how to use your inventory better.

What is the Amazon FBA Calculator?

When you work with Fulfillment by Amazon, you get access to the Amazon FBA calculator, which can genuinely help your business.

You must know your profits and losses if you sell physical products with Amazon. The FBA calculator can show your profits when selling with Amazon’s FBA system.

If you’re not working with Amazon, the calculator can help you stay competitive and successful by providing information about your product’s profitability. This valuable product research can help you answer the most crucial question: Does your product have potential in the ecommerce market?

By calculating initial start-up costs, Amazon partnership costs, and profits from each sale, you can determine the viability and potential success of any product you sell, or plan on selling. If you’re planning to sell in different locations, the FBA calculator will help you determine product success for your specific location.

How Does the Amazon FBA Calculator Work?

The new Amazon FBA revenue calculator helps businesses estimate their costs, revenue, and profit margin when selling on Amazon.

You’ll need to provide the package dimensions (size and weight) and some product details (product category and selling price) to start the calculation. Some things to note when entering your info:

• • Package dimensions are not the same as product dimensions. The package an item will be shipped in will be larger than the item itself.
  • You’ll be asked for the shipping charge for your item. If you’re using Amazon FBA, you don’t have to put anything in this section.

Once the information is provided, the calculator will display three different options: Amazon Fulfillment costs (if you’re using FBA), the seller’s fulfillment costs (if you do it on your own), and an option to compare Amazon Fulfillment costs with different selling prices for an item.

FBA Fees

There are several different fees and costs you will see in the calculator:

• • Amazon fees are also known as the referral fee, typically 15-20% of the sales price.
  • Fulfillment cost: how much it will cost to fulfill each order for a customer. This number will increase or decrease depending on the size and weight of a package.
  • Storage cost: this is also calculated based on the size and weight of a package.

Depending on the time of year a product is being sold (January – September or October – December), storage fees will vary by as much as 3%.

You will also need to input the number of units stored at the Amazon Fulfillment Center and the estimated number of items sold per month. The calculator will then provide a number for storage cost per unit sold.

Finally, you will need to provide the cost of goods sold—how much it costs to produce an item or purchase it from a supplier and deliver it to Amazon.

The Results

Based on the information provided, the calculator will provide:

• • The estimated cost per unit.
  • The net profit per unit.
  • The net profit based on the estimated number of units sold per month.
  • The net margin percentage.

Remember, the whole goal of using the Amazon FBA Calculator is to determine if a product you’re interested in selling will earn you the profit you would like.

Tips and Tricks for Using Amazon FBA

• • Play around with your numbers. Look at what happens if you increase the number of units stored or your selling price.
  • Don’t be afraid to compare services. Other fulfillment services are available, so be sure to compare prices, rates, and terms with different providers.
  • Keep in mind that there are charges associated with product returns.

If you’re starting your ecommerce business or looking to grow, getting your products in your customer’s hands is the top priority. Finding a fulfillment partner that can meet your needs at a price that fits your budget is essential.

If you have questions about ecommerce fulfillment, we’re happy to chat!Reach out to a member of our sales team orrequest a free demo.

FAQs

How is FBA cost calculated?

FBA cost is calculated on the size and weight of a package to be shipped, the number of items you want Amazon to store, the Amazon referral fee, the cost of goods sold, and any other miscellaneous costs associated with producing or re-selling a product through Amazon.

What is the Amazon FBA calculator?

The Amazon FBA calculator allows businesses to determine if orders fulfilled through Amazon will result in net profits for those products.

What are some benefits of using FBA?

• • Your products are eligible for free shipping, whether that’s two-day shipping or longer.
  • Orders handled through Amazon FBA can enjoy all of the benefits of Amazon’s trusted customer service and returns process.
  • No minimum on the number of products you ship or what sites you sell your products from.
  • Easy pay-as-you-go options are cost-effective and can help save your company money.
  • Your order fulfillment processes are taken care of from start to finish.