How Does Fulfillment by Amazon Work?
FBA (Fulfillment by Amazon): a lucrative online selling strategy, a tool for established sellers, or just another revenue source for the retail giant? Let’s find out.
What is Fulfillment by Amazon (FBA)?
Fulfillment by Amazon (FBA) is Amazon’s fulfillment service for e-сommerce businesses. Sellers who sign up for FBA get their products stored, “picked and packed,” and shipped to customers through Amazon infrastructure, from Amazon fulfillment centers. FBA also delivers customer service for these shipments and handles returns if they happen.
FBA is essentially a third-party logistics service operated by Amazon.
Who Can Use FBA?
There are 2 major seller groups that could benefit from using FBA:
- Sellers with non-Amazon brands selling directly to consumers on their Shopify, Etsy, WooCommerce, or custom-built stores.
FBA allows independent sellers to take advantage of Amazon’s vast infrastructure for their fulfillment needs while the brand power and pricing remains in the hands of the seller.
Moreover, when working with FBA, the seller’s customers get access to free shipping if they’re Prime members. This can help boost sales especially because the “Buy with Prime” sign alone increases conversions.
- Amazon brands who haven’t used Amazon fulfillment before but fulfilled the orders themselves.
FBA allows these sellers to outsource order fulfillment to a reliable partner while keeping transparency over their inventory through Amazon’s flexible Seller Central platform.
How Does FBA Work? Seller’s Point of View
From the seller’s POV, the interaction with FBA proceeds in the following workflow:
- The seller preps and packs the items, ensuring they are eligible for FBA, and that appropriate box content labels are in place.
- The seller sends the items to an Amazon fulfillment center through a carrier.*
- Once received and approved by the center’s personnel, the items are available in the seller’s Amazon store, or in their e-commerce store on another platform if it’s integrated.
- The seller can track their inventory status and replenish items if needed.
* Carriers are companies that transport goods from sellers to Amazon's fulfillment centers. Common inbound carriers include FedEx, UPS, and DHL.
By using FBA, the merchant outsources the following parts of the e-commerce process: inventory management, order fulfillment, and handling returns. For merchants who want to prioritize things like research and development instead of operational management, FBA can be an amazing tool to free up time for the things that matter.
How Does FBA Work? Dropping Off Products
In the previous section, we walked through what it’s like for a seller to navigate FBA. Let’s now dig a little deeper into the process of dropping off and delivering goods to Amazon fulfillment centers.
Scenario 1: Seller Sends the Products on Their Own
- Preparation for shipment
The seller ensures all items are packed securely according to Amazon's packaging and labeling requirements (e.g., using poly bags, boxes, or bubble wrap). FBA box content labels are printed and attached, detailing what’s inside each shipment.
- Shipping to the fulfillment center
The seller takes the packed items to a designated shipping service (e.g., USPS, UPS, FedEx) or directly delivers the shipment to the assigned Amazon fulfillment center. Amazon assigns a fulfillment center based on their logistics needs and proximity to customers.
- Arrival at the fulfillment center
Upon arrival, the shipment is unloaded, and Amazon personnel check the contents against the shipment documentation. Soon, the inventory count can be seen in Seller Central.
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Scenario 2: Seller Ships Through a Carrier
- Hand-off to carrier
The seller prepares the shipment and hands it off to a carrier. For FBA, sellers often use Amazon’s Partnered Carrier Program (PCP) for discounted rates. Common carriers include UPS or FedEx, which take responsibility for delivering the shipment to the assigned fulfillment center.
- Tracking and updates
The seller receives a tracking number from the carrier, which can be monitored through Amazon’s Seller Central platform. If delays or issues arise during transit, the seller and carrier coordinate to resolve them.
- Delivery and check-in
The carrier delivers the shipment to the fulfillment center. Amazon staff scan the box content labels, verify the shipment details, and begin the intake process.
How Much Does FBA Cost?
Amazon charges FBA sellers fulfillment costs per unit sold, inventory storage costs, fees for aged inventory, returns, and inventory disposal.
Fulfillment fees vary per product category, size tier, and shipping weight, with apparel and non-apparel being two key product groups for which fulfillment pricing differs. Apparel fulfillment costs are consistently higher than non-apparel across all weight categories.
Inventory storage fees are based on the space your products occupy in fulfillment centers, are charged monthly, and are higher in the Winter Holiday season, from October to December.
Amazon has a revenue calculator to compare the costs when fulfilling orders “on your own” vs through FBA. The calculator works best if you have a certain product in mind or ready for selling, and will be hard to use if you’re only brainstorming new e-commerce ideas.
Amazon claims that FBA is 70% cheaper than comparable options offered by other fulfillment providers in the U.S.
Oh, and, as an Amazon seller, you still pay for being able to sell on the platform. You can choose between a flat fee of $39.99/month with the Professional plan or a $0.99 fee for each item sold with the Individual plan.
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FBA vs. 3PL
Understanding the business model of third-party logistics (3PL) services can provide valuable insight into how Fulfillment by Amazon (FBA) works.
3PLs are companies that offer warehousing, order fulfillment, and shipping services to sellers. Many businesses prefer outsourcing these tasks due to the high costs and complexities of building in-house inventory management expertise.
FBA addresses the same challenge—sellers’ reluctance to manage their own warehousing and logistics—but differs from 3PL in several important ways:
- Amazon is a massive public company with unparalleled influence in the logistics industry and pricing power. As mentioned above, FBA charges for virtually every service, making it an option that’s best suited for businesses with stable cash flow.
- Amazon is synonymous with logistics, boasting fulfillment centers nationwide, highly efficient inventory operations, and reliable seller support. If an issue arises, Amazon’s reputation and resources make it easier to resolve compared to lesser-known 3PL providers. Honestly, can you name a trusted 3PL provider off the top of your head? That’s what we’re talking about.
- One major advantage of FBA is the seamless integration with Seller Central. With real-time inventory updates, you won’t need to chase your provider for the latest status—everything is at your fingertips.
Fulfillment by Amazon: Pros
The key benefit of using FBA is an opportunity to outsource e-commerce fulfillment and focus on business development. The latter normally motivates store founders more than the former–it’s why they might have started the shop in the first place.
The other advantages of signing up for FBA include:
High-quality Customer Service
Amazon handles all customer service inquiries related to FBA orders. This reduces the administrative burden on sellers and ensures a high standard of service. In a way, Fulfillment by Amazon is a way for small businesses to up their customer support “by subscription,” without investing into warehouse infrastructure and hiring staff.
Notably, FBA also takes over return management. As we’ve found out in our piece on handling customer returns, returns can make it or break it in e-commerce.
Simpler Scalability
In the fortunate scenario where demand for your products suddenly rises, Fulfillment by Amazon has your back. You don’t need to search for a new 3PL provider with larger warehouses, negotiate new fulfillment costs, or explain to your wife why you need to pile cartons in the basement. Amazon’s physical and legal infrastructure is prepared for scaling workloads up (and down!).
Prime Eligibility
Products fulfilled through FBA are eligible for Amazon Prime, which might boost conversions through increasing buyers’ trust.
Fulfillment by Amazon: Cons
Now, because we want to equip our readers with a balanced view on FBA, let’s talk about its limitations.
Extra Costs
FBA fees, including fulfillment fees, storage fees, and additional charges for long-term storage, can add up quickly. For example, apparel sellers might face tighter margins due to higher fulfillment costs, and heavy items might be very expensive to fulfill, too.
Storage Limitations
Amazon imposes inventory limits based on sellers' performance metrics and sales history. For smaller sellers or those introducing new products, these limits can hinder growth. Additionally, excess inventory can result in long-term storage fees.
Loss of Control
By using FBA, sellers relinquish control over their inventory management and packaging. This can result in inconsistencies in branding, such as generic Amazon packaging, which may not align with a seller's desired brand image.
(To solve this problem, Amazon offers Ships in Product Packaging option.)
Key Takeaways
- Fulfillment by Amazon (FBA) is essentially a 3PL service based on the logistics infrastructure of the retail giant. FBA offers a compelling option for e-commerce sellers looking to outsource the hurdles of inventory management, order fulfillment, and customer service. For example, FBA covers return management, including customer reconciliation and shipping the items back.
- Another big advantage of FBA is the transparency over inventory status it provides via Seller Central.
- However, FBA is not without its drawbacks. Sellers must navigate the intricate cost structure and accept an inevitably reduced level of control over branding and logistics.
- For those who value efficiency and scalability, FBA can be a game-changer. But sellers with tighter margins or a strong focus on brand identity might benefit more from alternatives like third-party logistics providers or self-managed solutions.
