What is the FBA model?
FBA (short for Fulfillment by Amazon) is a sales model in which the entire logistics process, i.e. storage, packaging and shipping, is transferred to Amazon.
How does the sales process work in the FBA model?
Shipping of goods to Amazon warehouse
The first step is to send goods to Amazon warehouses. From now on, they will be stored by Amazon and can also be transported between Amazon’s warehouses.
When the buyer decides to buy our product, Amazon takes care of everything. The goods are located in the warehouse, packed and then sent directly to the customer.
Complaints and returns handling
Amazon will also take care of any complaints arising from shipping problems and returns. Returned goods are sent to Amazon’s warehouse, where employees are responsible for collecting them and taking them back to the warehouse.
What are the advantages of the FBA model?
The FBA model undoubtedly has a lot of advantages, the most important of which you can include:
Reaching out to customers with a purchased Prime service
It is estimated that Amazon has more than 60 million Prime users who shop more and more often thanks to this service. Using the FBA model allows us to mark our products as Prime, which significantly increases the chances of the buyer choosing our products.
Reduced handling costs
By handing over responsibility for logistics to Amazon, there is no need to hire additional people to handle shipments, including returns and complaints. In addition, Amazon minimizes shipping costs due to the scale of its operations, which can not only increase margins on our products but also increase the interest of potential buyers.
Sales without own warehouse
Vendors, especially in the early stages of their operations, often have to deal with questions about where to store their goods. Even if you have your own warehouse, it may turn out to be too small with increasing sales. In the FBA model, the seller does not have to worry about having to rent additional space or high costs with too much space.
What are the disadvantages of the FBA model?
The FBA model also has a number of drawbacks, which you should be aware of before you start selling.
Obligation to register for VAT in the country of storage
When using the FBA model, please note that VAT settlements must be made not only in the country where you operate. VAT registration, regular returns and payment of VAT is mandatory in the countries from which Amazon sends our goods.
Need to monitor stock levels
The storage costs calculated by Amazon vary according to the storage time of the product. For goods that are in stock for more than 181 days, Amazon adds a so-called “long-term storage fee.”
A complex way of charging
The Amazon model charges the FBA fees by several factors, so it is not always easy to estimate them. When choosing this model, it is important to remember that fees are charged for monthly storage, order processing, collection and packaging and shipment handling.
What are the costs of the FBA model?
The costs in the FBA model are variable and depend on several factors:
- Product size
- Weight of the product
- Storage time
- Additional storage or shipping requirements (e.g. products that require refrigeration or need to be handled with care)