Fulfilment By Amazon (FBA) in Australia
Ever since Amazon started in the late 1990s, its goal was to become the go-to website for consumers. Amazon has achieved that goal, as it is the biggest e-commerce retailer in the world. There are 310 million active users that buy from Amazon globally. Amazon has a market capitalization of US$480 billion, which makes it twice the size of traditional “bricks and mortar” retail stores such as Walmart.
Why is Amazon FBA so popular, and what is the rage about?
To keep it simple, as a third-party seller, your only focus would be to source the product and sell the product. In contrast, Amazon will deliver the product to a customer, take care of all the customer service and returns.
Even though FBA has many charges, such as storage, handling orders, pick and pack, weight handling, and commissions, working with Amazon is still worth considering.
Some questions which may come up would be — is Amazon’s FBA the right option for you? What are some challenges you might face, and what are some benefits? Are there any alternatives?
First-Party vs. Third-Party Seller
You can divide Amazon sellers into two different types of sellers. First-party (1P) or Third-party (3P) sellers.
1P: These sellers would sell wholesale straight from Amazon retail, using the Vendor Central interface. You will have to store your inventory at an Amazon warehouse, and they will control your pricing, and your listing will be displayed as “Ships from and sold by Amazon.com.”
3P: If you want to sell as a third party, then this is an option for you. You will be trading through the Seller Central interface, and you can sell from your account or via a partnership with other 3P sellers who are selling your products.
Who should you be on Amazon?
There are many benefits of selling as a 3P seller that outweighs selling directly to Amazon. If you are a big business with a lot of products to sell, and you enjoy Amazon taking care of most things for you, then 1P might be a more suitable option for you.
Here are some reasons why 3P might be a better option for you.
- If you are an Australian business entrepreneur
- If you have a smaller brand
- Looking to launch new products, gather more reviews, or to get rid of your discontinued or discounted items
- Want to pick up incremental sales for your products when Amazon might be out of stock
- Already have a website and a decent social media presence– you can use the 3P platform to support your efforts in terms of marketing.
Let’s have a more in-depth look at the advantages and disadvantages of both ways of selling products on Amazon.
1P: Vendor Central
Vendor Central is where the companies will act as a wholesaler. They will have a personal relationship with Amazon retail, and this could only happen if Amazon invites you.
Amazon will issue a purchase order to specific vendors. The vendors will have the ability to ship all ordered purchases directly to the Amazon fulfilment warehouse. This is where Amazon will stock all of the products.
You can tell if a specific item is provided by Vendor Central partners, as they have a description that reads “Ships from and sold by Amazon.”
Let’s talk about some of the advantages and disadvantages.
- Economies of scale: purchases in bulk from Amazon
- Fantastic content from Amazon: Have amazing photos and videos and product review, but you will have to pay the price
- ASIN (listing) optimization: listing priority since Amazon sees you as a top retailer
- Amazon prime: access “free” and 48-hour shipping for buyers, which increases your conversion rate
- Credibility: Customers will trust your brand, primarily when Amazon promotes it heavily.
- Support: You will have dedicated support from Amazon’s staff, only if you are a big client
- Amazon Retail will take the burden of restocking your inventory for wholesale orders.
- Vendor Central: Access to marketing and seller promotions, plus control over your listing and options for shipping
- Customer challenges: No need to ship to customers and deal with the issues and refund
- Amazon will take care of any fraudulent customers or competitors.
- Lower control: Amazon will set sales target if your quotas aren’t hit Amazon will spend more on incremental merchandising, or you will start getting less attention from Amazon.
- Loss of pricing control: Amazon will acquire the right to sell your products on whatever price their system decides. This can be below your minimum advertised price (MAP) policy
- Lower margins: Your margins may be reduced as you are selling your products at wholesale prices, not retail prices. Amazon will negotiate and ask for payments of 4 to 10% to help them cover all the marketing costs and “chargeback” costs.
- Paid support: You will have to spend money if you want attention from Amazon retail- they can increase fees at any given time for the ongoing cost.
- You will not control the content: All images and content will have to be approved by Amazon first. They are tough to work with, especially when you’re trying to get your pictures approved.
- Longer payment terms: Amazon will offer 2% Net 30 day, Net 60 Day, or Net 90 day terms.
- Paid Analytics: You will have to pay to see your data, a significant disadvantage.
- Package requirements: Shipping to amazon warehouse will be your responsibility and may be returned if not correct.
- Location: Us sales only; you can gain different approval to sell in Canada and Mexico market.
3P: Sellers Central
The chances of you being a third-party (3P) seller are much higher if you will be using Seller Central since it is open for anyone to sign up. You can still choose to use Fulfilment by Amazon (FBA), which allows Amazon to ship and process your orders. You can also ship the orders yourself, or you can work with a trusted 3P seller.
When you set up as a 3P seller, you can choose between an “Individual,” “which allows you to list 40 items a month,” or “Professional” ( Allowing you to list more than 40 items). Your fees and the tools you have available will be affected based on the seller you decide to become.
Let’s talk about the advantages and disadvantages.
- Control: You can decide when and what you are selling, you will also determine the price you sell.
- Brand control: You can list the product exactly the way you please to get the sales you want.
- Better profit margin for retail: You can decide what you want your pricing to be and following your MAP policy.
- Free analytics: You will have access to free analytics, but not something you can study in dept.
- Seller support: The seller support will be there for you if you need help with any payment issues or listing issues.
- Cost: Much cheaper than 1P, a percentage are fixed by category (usually around 8% – 20%) and no other fees to consider (unless you use FBA)
- Payments are quick: You will get paid within 14 days.
- Fulfilment By Amazon: You don’t need to worry about any of the back end problems such as returns, shipping, and handling. The pricing is very competitive, and sellers might steer away from fulfilling the orders.
- Paid advertising available: You can use in-house advertising available by Amazon. You will have the option to use Sponsored Product Ads and Headline Search for your campaign.
- Sell anywhere: You can sell your products internationally; all they need is access to an internet connection.
- Lack of brand awareness: You will need to have a social media presence or use paid ads to get recognized.
- Lower volume: This may be good at first, as you might be making a higher profit. But this might change over time
- Enhanced Brand Content (EBC): Only permitted for sellers set up on Brand Registry; approval is needed first.
- FBA Shipping Fees: You will have to pay for Amazon to store your products, and you will have to ship the products to Amazon Warehouse.
- Variability on customer service is the seller’s job to deal with customer complaints and fraudulent customers and competition.
This should give you a clear idea of what type of seller you want to become.
Now you might be wondering, what is the best way to sell on Amazon? There are three options.
- Fulfilment by Merchant (FBM) 3P: When you list a product and have the seller fulfil the order.
- Fulfilment by Amazon (FBA) 3P: Amazon will store and ship your product and provide you with customer service.
- Multichannel fulfilment via FBA: Amazon sends the products for you to the customers who order from your website or online marketplace such as eBay