For many small businesses across the world, Amazon has provided access to a global audience of millions of customers. It’s the largest eCommerce marketplace in the world by far, attracting an estimated 5.2 billion visitors each month. Now, if you’ve set up shop with the eCommerce giant, too, then you’re likely familiar with all the Amazon tools and features available for third-party vendors. Fulfillment by Amazon, better known as FBA, is one such service that’s drawn the attention of small- and mid-sized business owners.
It’s designed to take care of the entire order fulfillment process of your business, from warehousing to picking, packing, and shipping orders and even customer service for the deliveries. Needless to say, this represents significant benefits to small businesses. But as with everything else, FBA has a few drawbacks, too. So, understanding these is critical to determine whether and how your small business could benefit.
Amazon FBA: Pros
1. The convenience of outsourcing order fulfillment.
For most businesses, order fulfillment is a time- and resource-intensive process. It requires a certain level of expertise and a considerable amount of legwork. But Amazon already has years of experience in this area. So, by handing over your order fulfillment process to it with FBA, you’ll free up your time and resources to do what you do best: selling your product.
2. Benefit from Amazon’s economies of scale.
Let’s face it; Amazon has scale like no other in its business. This has given it more power to negotiate shipping rates and the ability to manage its warehouses far more cost-effectively. This level of economies of scale is usually beyond reach for a small business. But with FBA, you still get to enjoy its benefits.
3. Scale faster.
When you’ve signed up for Fulfillment By Amazon, all you need to do is ensure that fulfillment centers are well stocked with your product. Over time, this will allow you to take on and process more orders, increase order volumes, and scale faster.
4. Faster delivery.
FBA gives you a Prime badge. One advantage of this is faster delivery through services like free Amazon Prime one-day shipping. Now, that’s a definite plus when it comes to boosting conversions. And these are provided at no extra cost to you.
5. Unlimited warehouse space.
There’s no limit to the warehouse space you can access with Amazon FBA. It allows you to quickly change inventory volumes as and when you need based on demand and your business goals. But if you’re renting a warehouse on your own, expanding or reducing the rented space is not so easy. Often, you could end up without enough space to cater to unexpected increases in order volumes or with excess storage space that eats into your profits.
6. Flexibility to cater to multi-channel sales.
Most small businesses maintain a presence on multiple eCommerce platforms. It’s an excellent way to reach a larger audience. But fulfilling and keeping track of orders from different channels could be challenging when your business starts expanding. With Amazon’s FBA, you won’t have to worry about it. It’ll take care of the order fulfillment process for all these platforms.
7. Customer service guarantee.
Amazon will even take care of customer service on your behalf when you sign up for FBA. This is another advantage for both you and your customers. It’ll provide greater peace of mind for buyers, especially when dealing with small businesses. Best of all, FBA will even take care of returns for you.
Amazon FBA: Cons
1. FBA services come at a cost.
Based on the fee structure, FBA might not deliver cost efficiencies for low-priced items. Plus, for a small-scale startup that’s cash-strapped, it might not be a viable option at the beginning. Without the ability to spend, such businesses may want to keep expenses low and expand at their own pace.
2. You’ll still need to do some inventory management.
Just because you can have as much warehouse space as you want, it doesn’t mean you should stock up a year’s full of products at the fulfillment centers. Amazon will charge you for long-term use of their storage space. So, you’ll need to manage your inventory to minimize unnecessary warehouse costs and enable seamless order fulfillment.
3. There’s no credit facility.
For a small business, negotiating credit terms is a critical part of managing cash flow. But with Amazon FBA, don’t expect any credit facilities or negotiations. Amazon will deduct all dues before sending you your share. It’s a standard service offered to all third-party vendors. And you have to play by Amazon’s rules.
4. Amazon has strict guidelines.
FBA comes with a strict set of guidelines that details how you should send inventory to its fulfillment centers. This allows Amazon to standardize and efficiently manage its processes. So, you’ll need to prepare the inventory before sending it off to the warehouses with, for example, individual labeling of each item based on the guidelines provided. And this might be a time-consuming process for a small business owner.
The bottom line is, there’s no one-size-fits-all service on any platform. Amazon FBA is no different. How well you can benefit from its services will depend on your specific business needs and goals. And as you expand, these would likely change over time. Besides, Amazon is continuously working on improving its services for both sellers and buyers. As a result, FBA also keeps evolving. So, even if you decide not to sign up today, it might be worth revisiting from time to time.
(Image courtesy: Amazon.com)
