September 4, 2018
Avenues to the marketplace come in many forms – be it bricks and mortar retail, dropshipping, affiliates or selling online and using FBA for fulfilment.
Each and every route to market comes with its own set of advantages and disadvantage, opportunities, threats, strengths and weaknesses.
This post looks at the benefits of selling on Amazon and using FBA (Fulfilment by Amazon) as a service to store, pack and deliver your products to consumers.
TAP INTO VAST ECONOMIES OF SCALE
Amazon offers one of the most advanced fulfilment networks in the world through their FBA services. The FBA network of warehouses includes facilities in 25+ States in the USA alone – providing storage, packing, shipping and 24/7 customer service.
Amazon also offers the ability to increase your turnover internationally via 13 marketplaces, 175+ fulfilment centres and a loyal customer base in 180+ countries. They will handle the complexities of international selling and logistics on your behalf.
Some key benefits of FBA are as follows:
- Faster fulfillment and shipping.
- Lower costs.
- Ability to build a solid customer base faster.
- Higher conversion rate.
- Handling of customer service and returns.
- Ability to use plugins such as accounting and sales tax apps to automate away much of the workload and ensure smooth and time saving administration.
For FBA to make financial sense for your business, it will largely depend on how you have your organisation geared to take advantage of the benefits that FBA has to offer. It will also depend on what you sell and how you sell it. Typical products that can do well using FBA include:
- Fast-moving items.
- Items with high demand during peak periods like the final quarter of the year.
- Items with a predictable demand.
FASTER FULFILMENT AND SHIPPING
Same day shipping / delivery and free shipping are two services that FBA can offer. Ask yourself if that is that going to be a benefit to your business and can you offer this yourself with your current resources?
According to research data presented by Flexe.com, 56% of respondents surveyed, said that offering 1-2 day shipping is essential for business. Only 44% rated free shipping in the same regard.
Nonetheless, these two services have now become essential ingredients for becoming a successful online seller.
When you become an Amazon Prime Seller, you have the opportunity to win a ‘buy box’. In doing so, this will rank you ahead of your competition and increase your chances of gaining more sales. Here is an interesting article about winning a buy box.
Lower costs may be a benefit to a business adopting the FBA approach to selling online. This often depends on the physical size of the items you are selling and the frequency at which they sell. By outsourcing your storage and logistics to Amazon, you are effectively trading fixed overheads (rent, rates, insurance, staff etc.) for variable costs. This allows you to scale up or down to meet both business growth trends and seasonal demand without needing to worry about reaching capacity limits.
To make an informed decision about costs versus performance you would need to weigh up your current and expected costs to achieve growth, against the cost structures of FBA.
If you are planning on growing your business using ‘seller fulfilment’ of orders as opposed to FBA, then you need to consider the cost of expansion. This may involve employing more staff, more warehouse space, rental guarantees and more administration overheads.
When you are renting facilities, you need to maximize the usage of your warehouse space and keep staff busy to get the best efficiency from your overheads. With FBA, you only pay for what you use, and are able to tap into some of the most efficient warehousing systems in the world. It also allows you to eliminate many of the unknown costs associated with moderate to rapid expansion.
For a full list of the current FBA service fees, click here. In addition to these fees you also need to allow for ‘referral fees’.
AMAZON BRINGS CUSTOMERS TO YOU
Referral fees are charged by Amazon when you sell a product through their platform. It is a form of commission for bringing the client to you. No different from selling a house through an estate agent. The fee is a percentage of the total sales price and generally ranges from 6%-15%.
Amazon uses a portion of these fees to fund their affiliate program. People online that have a social following such as bloggers and influencers are able to provide links back to products being sold on Amazon. When some follows the link and makes a purchase, the affiliate receives a commission – which can be up to 10% of the sale price!
By providing incentives in this way, Amazon is able to drive an enormous amount of web traffic to their platform. This benefits sellers by providing added exposure to customers around the world
CUSTOMER SERVICE AND RETURNS
Training customer service staff and having them on hand 24/7 to look after disgruntled clients and deal with returns of unwanted or damaged products can be very costly to a business. And let’s be honest it’s not the most enjoyable function to deal with when running a business.
These services are provided free of charge when you become an FBA seller, with the exception of the costs of actual returns and disposal of products. Click here to learn more about FBA customer services and returns.
STOCK MANAGEMENT AND PRODUCT PERFORMANCE
Having the right stock in the right place at the right time is the key to attaining excellent ROIs. With FBA, they ensure you are constantly working towards achieving this through tracking various key performance indicators, which form part of their IPI (Inventory Performance Index).
Basically if a product is not moving they ensure you get it moving with all sorts of prompts. Through what is known as an Inventory Performance Dashboard, you can assess and implement procedures to ensure slow moving items and aged stock are automatically marked down to compete with lowest priced competitors, and reorder levels are in line with sales trends.
Amazon also dynamically moves inventory around their network of warehouses to bring it closer to customers. This helps to reduce delivery timeframes, keeping customers happy in the process
ABILITY TO INTEGRATE THIRD-PARTY APPS TO ENSURE SMOOTH AND TIME SAVING ADMINISTRATION:
Amazon’s Seller Central platform provides an extremely large amount of sales and inventory information. To ensure that your business is making the most of this data, there are many add on tools that you can subscribe to. These tools link to your Seller Central account to ensure the data available is being analysed and used in such a way to save you money and time on tasks such as accounts and sales tax responsibilities.
A2X for example, can be used to automatically input all of the relevant Amazon sales information into your Xero or QuickBooks cloud accounting system. Amazon settles seller accounts once every fortnight, paying any income from sales – less fees. Quite often, sellers forget to take fees into account, and simply record the net amounts received as revenue in their books. This results in large inaccuracies, which A2X helps to solve.
By allowing third-party developers to build apps around the Amazon platform, they are able to create an ecosystem of support services tailored to the needs of Amazon FBA businesses. Not only does this improve the seller experience, but it also helps to reduce and remove any shortcomings that Amazon may have by providing incentives in the way of business opportunities.
AMAZON IS THE PLACE TO BE – FBA MAKES IT EASY TO GET YOU THERE
Amazon is the largest western online marketplace, and represents a juggernaut in the eCommerce space. Through bringing a diverse range of sellers and buyers together, Amazon effectively provides value to customers by creating extreme levels of competition that help to keep prices down. For merchants, this means a growing audience of people who are ready to spend money.
Amazon recently launched FBA in Australia, indicating that they have no plans of slowing down any time soon. Many of the early FBA sellers have made fortunes by being first in at the ground floor, and building a solid reputation on the platform. Whilst FBA is far from a juvenile business, it certainly hasn’t matured just yet, and there is definitely room for new entrants.
If you like the idea of being able to run your business from anywhere in the world, and having the ability to scale up without taking on large amounts of new overheads, then perhaps FBA might be a good fit for you. Click here to find out more about where and how to sign up for FBA.