Understanding Amazon’s FBA Business Model

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Amazon is an eCommerce giant; the scope of their business continues to grow rapidly. Their business practices are constantly evolving and keeping them at the forefront of eCommerce competition. Essentially, they operate with under the philosophy of, ‘if you sell it, then we will ship it.’ Their shipping or fulfilment method has become extremely advanced and allowed for businesses to experience a streamlined shipping experience.

What is Fulfilment by Amazon?

The infamous method is called Fulfilment by Amazon, otherwise known as FBA. With FBA, sellers place their inventory stock in one of Amazon’s fulfilment centres. Once an order is placed for a product from the seller’s inventory stock, it is already one step closer to the customer. The FBA model means that all the shipping logistics are taken care of by Amazon from their fulfilment centre.

For instance, let’s say a shoe company houses their running shoe inventory stock in Amazon’s fulfilment centre.

Once a customer places an order for their size 7, navy blue running shoes from this seller, it’s up to Amazon to make the rest happen. The FBA model means there are people in the fulfilment warehouse who go and find the product and take it off the shelves. They prepare it with the proper packaging, address and shipping postage.

Once it’s ready to go, the shoes leaves the warehouse and are delivered to the customer.

FBA also manages the customer service aspect of these running shoes. They do their best to ensure customer satisfaction and help customers manage returns. Amazon Prime members pay for an expedited, free and guaranteed two-day shipping service.

What are the benefits of Amazon FBA?

Since the fulfillment centre can house a wide variety of products and can fulfill orders quickly, it can help your business grow rapidly. If your inventory stock can match demand, then FBA will manage the logistics and deliver your product. This means it is much easier to have a scalable business.

Heavily discounted and expedited shipping

A small retailer may struggle to ship product to customers in a timely, cost-effective manner. This is because they likely do not have an established shipping network and are therefore paying a pretty penny themselves. Enlisting the help of FBA affords the small company access to a shipping network that has long-since been established to optimise shipping times at reduced rates.

Customer service

Small businesses might struggle with round-the-clock customer support, especially when it involves round-the-clock phone calls or email alerts. Luckily, Amazon’s FBA comes to the rescue. By signing up for FBA, you are handing over the customer service reigns to them and trusting them to keep your customers happy and manage any returns or complaints, at any time. Although a fee is charged for the returns process, this service from Amazon allows you to focus on building your brand rather than dealing with the ins and outs of returns logistics.

Bringing all your retail channels under one, easy-to-manage banner

FBA can be used for multiple retail channels which means if you sell via your own website, another website, or an Amazon store, you can use FBA to coordinate all these streams and manage all the packing and shipping for them. This can be worth its weight in gold, as you can still expose yourself to more markets and multiply your reach without multiplying the time you must invest in managing all the retail streams.

All these points add up to the grand total of a vastly improved customer experience. The customer can expect reduced shipping times without a dramatic increase in cost, 24/7 customer support and easy returns. And at the end of the day, it is always about keeping the customer happy and building loyalty.

rowth can often be hindered by the need for and cost of a bigger warehouse. Some companies do not have the capital to invest in the warehouse and therefore their business fails to grow. Fulfilment centres can take be a much more cost-effective option for growth. FBA implements a pay as you go model. The amount you pay is directly correlated to how much warehouse storage space you use for your inventory stock. Moreover, you are charged for each order the Amazon handles for you. The shipping cost is within the fees that the seller incurs.

Another benefit of FBA is that is gives businesses more time to focus on their business. The burden of shipping logistics, delivery and returns can weigh heavily on a manager’s time. Since this worry is alleviated with FBA, a business can work on strategic improvements and making their product better.

Although there are costs to sellers that come with using Amazon’s storage and shipping facilities, there are many benefits as well. FBA provides an immense opportunity for big and small businesses alike, and allows them to remain competitive across their industry.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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