What is Fulfilment by Amazon (FBA) and how does it work? 

What is Fulfilment by Amazon (FBA) and how does it work? 

Nowadays there are many e-commerce businesses with great products. To make their businesses successful, they spend a lot of time on things like sourcing a product, fulfilling the orders, providing customer service, handling the returns, generating sales and trying to grow. But what if I tell you that there’s a service which helps e-commerce business owners to maintain these operations more easily and find new customers at the same time? Fulfilment by Amazon, or Amazon FBA, is an efficient logistics solution which enables businesses to reach an incredible number of customers while simultaneously simplifying their daily operations.

What is FBA?

In essence, Amazon FBA is a great logistics solution for Amazon sellers, and it works in the following ways:

• As a seller, you send all your inventory to the FBA Amazon warehouses, namely Amazon’s Fulfilment Centres (FCs).
• Amazon FCs receive your inventory, and you can always track this through the Seller Central admin.
• Your products become visible on the Amazon website, and customers place their orders.
• Each order is picked, packed and shipped to the buyer, so sellers don't even need to approve each order. It happens automatically when Amazon receives the payment from the customer.
• Amazon provides any necessary customer service; for example, if the product is damaged during shipping, Amazon will take care of that customer.
• As well as this, Amazon processes any returns that customers make.

There are many other advantages FBA provides for the seller, as shown below:

Pan-European FBA

With Pan-European FBA, you send your inventory to fulfilment centres in the country you choose, and Amazon then distributes this to storage facilities across Europe. The distribution is based on the demand of your products in the region. Pan-European FBA is the best solution for localising your business among European countries.

When it comes to the legal aspects of selling abroad, you must be registered for VAT in the country where you use FBA warehouses. So in the case of European Fulfilment Network (EFN), it is only necessary to have VAT in one country. However, for the Pan-European type, you need to be VAT registered for all the European marketplaces in which you intend to operate. In total there are 7 countries where Amazon can store your products – Germany, United Kingdom, Spain, Italy, France, the Czech Republic and Poland.

There are huge numbers of sellers who have succeeded with the Pan-European programme, another benefit of it being that it reduces FBA fees and helps to optimise your Amazon business.

FBA fees

Sellers have to pay a small fee to use FBA advantages. The FBA fee is charged per product and is based on the dimensions, weight, and category of the product.

There is a great tool called the Amazon Revenue Calculator. Which calculates the fee by using a product similar to your own. It works the following way:

• You find a similar product to yours on Amazon and copy its ASIN number. Which you can find in the product’s URL
• Then you go to the Amazon Revenue Calculator. Choose the relevant country in the upper right corner, and paste in the ASIN number. In the right column of the calculator you will be able to enter the sales price and purchase price. And you will be able to see all the calculations

So, as you can see in the right hand column, a £6.00 sales price and a £2 buy cost has been entered. The “Selling on Amazon fee” is a commission (usually 15%, with the percentage based on the category). Which Amazon takes for selling on their platform, and in this case it is £0.90.

The Fulfilment by Amazon fee is £1.97 for this specific product, based on the dimensions, weight, and category.

Over and above this, FBA offers some extra services for a special fee: preparing and packing your inventory, labelling your products and even gift wrapping.

All in all, Amazon is an innovative sales channel which is always developing its business to create a better environment for buyers and sellers.

Let us know in the comment section if you’re hoping to use FBA for your business, or share your own experience with us!

Earning the Prime Badge

Amazon has always preferentially supported FBA sellers. One of the ways this support benefits sellers is that with FBA you automatically have a Prime Badge. Which means that Prime customers can enjoy 2-day free shipping.

As well as this, your product will be eligible for Prime Day. Prime members across the world purchased more than 100 million products during last year's Prime Day event. Small and medium-sized businesses cashed in too, with sales exceeding $1 billion this Prime Day. While total sales exceeded $4.19 billion internationally, according to Amazon.

Increased reach to Prime customers can mean increased sales.

Earn the “Fulfilled by Amazon” badge

Amazon grants the Fulfilled by Amazon badge to FBA products. Amazon customers across Europe favour products with this badge due to the promise of superior delivery, customer service and returns. This can give you a big sales advantage over sellers who don’t use FBA.

It is also easier to sell across Europe with FBA.

Imagine you want to expand your e-commerce business to new countries. In the normal way, you would need to think about hiring agents or setting up distribution channels for your products.

But when your products are fulfilled by Amazon, buyers from lots of EU countries will be able to make a simple purchase.

And there are 2 ways of making this expansion happen. Pan-European FBA (as explained earlier in this article) and EFN which is detailed below:

EFN – European Fulfilment Network

EFN means that your products are stored in one country but they are visible on all the Amazon EU marketplaces. This means that if you store inventory in Germany, but the purchase is made within the Spanish marketplace, your customer has to wait a little longer than usual because the product is being shipped from Germany to Spain.

In the case of EFN, your cross-border shipments will carry an increased FBA fee. Because the shipping and handling process is more expensive for Amazon.