How does Amazon FBA work? In eCommerce, efficient fulfillment can make or break your business. Those who want to enter Amazon’s competitive marketplace have two options in that regard: Fulfillment by Amazon (FBA) or Fulfilled by Merchant (FBM).

The choice between managing your own logistics or utilizing Amazon’s robust logistics network is critical. FBA pleads a strong case, as it can transform how you operate — so much so, that an astonishing 82% of the platform’s sellers use it.

Before jumping on the bandwagon though, you need to determine if it’s the right choice for your eCommerce business. To help you figure it out, we’ll walk you through how does Amazon FBA work, how it stacks up against other options, and how you can maximize it.

What is Amazon FBA?

The FBA program lets sellers outsource their fulfillment needs to Amazon, removing the burden of logistical responsibility. It entails sending inventory to the eCommerce giant’s fulfillment centers, which then take care of:

• Inventory storage
• Packing
• Shipping
• Customer service

Through the program, sellers can capitalize on Amazon’s speedy shipping and trusted reputation. It also presents another enticing advantage: greater freedom to focus on growing your business.

Amazon FBA follows a streamlined process designed to ease sellers’ logistical burdens. Here’s a basic overview of the program’s operations to begin to answer how does Amazon FBA work.

1. Product shipment to Amazon

First, sellers ship their products to FBA’s designated fulfillment centers. These are large facilities equipped to hold and handle vast quantities of inventory. Before transporting them, however, you must comply with Amazon’s strict prep, labeling, and packaging guidelines.

The program’s general guidelines are:

• Each of your FNSKUs must correspond to one product. That includes applying a unique identifier to variants like different colors or sizes.
• Each unit’s exterior label should be accessible, as well as have a scannable barcode and matching readable numbers.
• Incorrect barcodes located on shipping box exteriors should be removed, covered, or rendered unscannable to prevent their accidental usage during the receiving process.

You also have to account for Amazon’s requirements for other product categories, including:

• Poly-bagged items
• Products sold as sets
• Loose goods
• Boxed units

2. Inventory storage and management

After Amazon receives your goods, they’re stored in FBA’s inventory system. If you want to view and track your stock, you can do so through the platform’s seller dashboard.

3. Customer purchases

Once shoppers order items through your FBA listings, Amazon picks, packs, and ships them on your behalf. You can manage your orders by choosing the “View FBA Orders” option on your Manage Orders page. There, you can see a detailed list of orders that are:

• Unshipped
• Pending
• Shipped
• Canceled

4. Customer service

Amazon also handles customer concerns such as inquiries, returns, and refunds on behalf of FBA sellers. This ensures seamless experiences both for buyers and you, since you don’t have to deal with customer service or reverse logistics.

How Does Amazon FBA Work? The benefits of joining FBA

FBA is a powerful fulfillment model, but how does Amazon FBA work? There are plenty of advantages but it also has its downsides. To help you make an informed decision, we’ll walk you through both, starting with the advantages.

Global reach

Amazon has a consumer base that spans over 100 countries and regions. As such, participating in FBA can greatly widen your eCommerce business’s scope by reaching audiences around the world. You can showcase your offering alongside renowned brands as well.

Simplicity, efficiency, and extra bandwidth

Access to Amazon’s robust logistical capabilities can enhance your business through three key strengths:

1. FBA significantly simplifies your operations by taking on the complexities of warehousing, packing, shipping, and customer service.
2. The program ensures efficient delivery and seamless customer experiences thanks to Amazon’s strategically located fulfillment centers and optimized shipping infrastructure.
3. Since Amazon shoulders the responsibility of your fulfillment, you can devote more bandwidth to vital business activities like product development, marketing, and scaling.

Prime access

One of the program’s most attractive perks is that FBA listings automatically qualify for Amazon Prime. You can tap into the platform’s Prime members — an audience of over 200 million shoppers keen on fast and free delivery. The Prime badge can make your products more noticeable to this valuable segment and therefore give your sales performance a significant boost.

Streamlined multi-channel strategies

Amazon’s Multi-Channel Fulfillment (MCF) program can upgrade an FBA merchant’s online presence, as it lets them fulfill orders from their other sales channels. Its automated services and integrations cover:

• Your website
• Shopify
• BigCommerce
• WooCommerce
• Wix
• And more

Entrusting your end-to-end fulfillment to Amazon allows you to employ a multi-channel eCommerce strategy seamlessly.

Better Featured Offer chances

Amazon’s Featured Offer (formerly Buy Box) facilitates approximately 80% of sales on the platform. (If you don’t know what it is, it’s the Buy Now button that’s prominently displayed while people browse.)

Typically, sellers must compete for a chance to win the Featured Offer. However, since Amazon favors quick and dependable fulfillment, being an FBA seller increases your likelihood of securing it.

How Does Amazon FBA Work? The drawbacks of joining FBA

Less control

In exchange for the freedom and convenience FBA provides, you’ll have to relinquish control over inventory management, packaging, and customer service, and that can hinder you from differentiating your brand.

This issue is a concern to sellers who prefer a more hands-on approach with their packaging and branding and strive to deliver personalized experiences.

Amazon fees

Although the program simplifies logistics, it comes at cost. Understanding FBA’s fees enables you to determine whether or not it’s lucrative.

FBA fees

• Fulfillment fees: These are charged on a per-unit basis and according to your product’s category, size, and weight.
• Storage fees: These are calculated using your daily average volume in cubic feet, the product’s size tier, and the time of year. They essentially depend on the amount of space your goods occupy in Amazon’s fulfillment centers.
• Other fees: Amazon charges extra for aged inventory, returns processing, as well as removal, disposal, and liquidation orders.

Platform fees

• Selling plan fees: Amazon’s Professional plan costs $39.99 per month, while the Individual plan has to pay a fee of $0.99 per item. (Note: You must have a Professional plan to join FBA.)
• Referral fees: Each successful sale is considered a referral and incurs a corresponding fee. The rates are based on the product’s category and total sales price, but they normally range from 8% to 45%. Amazon also charges applicable per-unit minimum referral fees ($0.30 across almost every category and $2.00 for Amazon Explore).
• Closing fees: On top of other applicable fees, Amazon charges $1.80 for each media item sold. These apply to categories like Books, Music, Video Games, and the like.

Amazon-related issues

Although you have access to a global audience, and FBA provides everything you need for fulfillment success, you’re still subject to Amazon’s standards and policies. Since their rules and fees change regularly, you’ll have to pivot quickly or face the consequences, such as costly penalties or disruptions to your business processes.

Key considerations: Should you use Amazon FBA?

In figuring how does Amazon FBA work you also need to answer the question should you use it. FBA does present advantages that make selling on Amazon more convenient and seamless, but that doesn’t necessarily mean it’s the right fulfillment model for you. Before finalizing your decision, take the following factors into account.

Resources and logistical capabilities

Larger, more established sellers may have the capacity to fulfill orders themselves and be able to save on costs by doing so, as they don’t have to worry about FBA’s fees.

Smaller businesses, however, might find the responsibility and investment required for internal warehousing, packing, and shipping infrastructure too complex or expensive. FBA is best in this case, as the program offers a lighter, more convenient fulfillment alternative.

Your offering

Your offering should be a primary consideration when choosing a fulfillment option:

• Small, fast-moving goods are ideal for FBA because they incur lower storage fees. Also, since they typically sell at high volumes, outsourcing storage, packaging, and delivery to Amazon significantly eases your burden.
• It may be better to handle heavy, low-velocity items yourself because they take up more space in Amazon’s logistics network. Since these aren’t purchased in huge quantities, the fulfillment responsibility is more manageable.

Branding

As previously mentioned, a drawback of Amazon FBA is the loss of control, which greatly limits your branding capabilities. For instance, it utilizes generic packaging, so differentiating your identity from your competition is a challenge.

If this is a priority for your business, an option such as Amazon’s FBM program might be a better solution.

FBA vs. FBM

First, note that in FBM, you’re responsible for your end-to-end fulfillment. Along with this fundamental difference, the program distinguishes itself from FBA through:

• Branding opportunities: Since you deal with inventory management, packing, shipping, and customer service, you’re free to incorporate branded packaging and experiences.
• Flexible shipping: You can use your preferred shipping methods, whether it be in-house capabilities, a third-party logistics (3PL) partner, or both.
• Costs: Opting for FBM avoids FBA’s fees, but the investment required depends on your business. It can cost less if you sell slow-moving items or have established logistical systems. If you lack fulfillment capabilities, however, you’ll need more resources for warehousing, labor, etc.
• Prime eligibility: FBM listings aren’t automatically eligible for Prime, which can reduce their visibility and sales potential.

FBA vs. Seller Fulfilled Prime

Seller Fulfilled Prime (SFP) isn’t a standalone fulfillment option. It’s a program geared towards merchants who opt for self-fulfillment, as enrolling in it lets you enjoy Amazon Prime’s benefits (think FBM listings with a Prime badge on display).

Earning Prime eligibility through SFP, however, takes time and effort. For instance, you must live up to Amazon’s shipping speed standards and SLAs for 90 days to pre-qualify. Then, you’ll need to undergo a 30-day trial with even stricter criteria.

Once you pass and become a full-fledged SFP seller, you must consistently hit these targets:

• Provide free one- and two-day shipping to Prime customers.
• Offer free standard delivery to all customers nationwide.
• Consistently fulfill one- and two-day delivery promises.
• Over 93.5% of customer orders must ship on time.
• Your order cancellation rate should be below 0.5% (seller initiated).
• Have a minimum valid tracking rate of 99%.
• Use shipping methods that fulfill Prime orders on weekends (Saturday, Sunday, or both).
• Offer free returns for items that are under 50 pounds in weight.
• Hand off all customer service inquiries to Amazon.

How Does Amazon FBA Work? How to become an FBA seller

To get you started as an FBA seller, we’ll explain how to join the program and launch your store on Amazon.

Step 1: Preparation

Effective planning will set you up for success. Make sure to cover these bases before creating an account:

• Fulfillment: As mentioned earlier, high-turnover items are great for FBA. To ensure cost savings and compliance with Amazon’s policies, adopt inventory management and FBA prep solutions.
• Inventory prep: Failure to adhere to Amazon’s strict packaging guidelines results in fees and return costs. However, an FBA-specialized 3PL can prevent this.
• Customer service: Amazon handles all customer service concerns on behalf of FBA sellers. If you pride yourself on branded experiences, look into other options.
• Inventory management: We recommend using an inventory management solution or software, since accurately monitoring your goods throughout fulfillment can be difficult.
• Marketing: Properly budget before spending on advertising. That entails precisely calculating your profit margins.
• Merchandising: Create an Excel spreadsheet that contains your products’ descriptions, photos, and all relevant information. Make sure it complies with Amazon’s standards.

Step 2: Account creation and setup

Once your preparations are complete, go to Amazon Seller Central and sign up for or log into your Professional seller account. Provide the required information and documents like:

• Your mobile phone number
• A valid government ID
• A credit card statement or recent bank account
• A chargeable credit or debit card

Then, fill out your profile with your logo, business details, descriptions, and whatever particulars you can. Check your settings and tax information as well. You may be asked to meet with an Amazon associate to verify your details.

Step 3: List your items

Next, thoughtfully craft your product listings. You can do them one by one through a batch upload (using the Excel file you prepared during the merchandising part in step one). For extensive listings, consider:

• Product variants
• Special offers
• Search engine optimization (SEO)
• User-generated content (UGC)

Note: If your products are already on the platform, unique listings aren’t necessary. For new items though, you must provide Amazon the required information and wait for them to assign each one an ASIN.

Step 4: Choose a fulfillment option

You can assign fulfillment methods on a per-product basis, but choose FBA for the sake of this guide.

Step 5: Enroll in Brand Registry

If you sell items under your brand, enroll in Amazon’s Brand Registry. Its various programs encompass intellectual property rights and brand protection. Brand Registry even provides tools that let you form meaningful customer connections and access strategic analytics.

After finishing this process, you can begin your journey as an Amazon FBA seller.

How Does Amazon FBA Work? Amazon FBA best practices

Learning how to become an FBA seller is only half the battle. To maximize the fulfillment program, make sure to employ these strategies.

Explore packaging options

Showing off your brand through FBA is difficult, as the program only uses generic, nondescript packaging. You can, however, look for alternatives that allow you to incorporate customization so your products stand out and still adhere to Amazon’s guidelines. For example, you can:

• Print your brand’s story or customer testimonials inside your boxes
• Utilize custom tape and stickers that display your logo and colors
• Invest in tailor-made inserts

Listing optimization

Your FBA listings are what customers see while they browse Amazon. To showcase your offering in a way that compels your target audience to purchase, make sure to:

• Research keywords
• Create captivating product descriptions
• Use high-quality images of your products
• Include UGC, such as customer reviews

Manage your inventory well

You can’t properly serve customers if you regularly run out of inventory. However, maintaining adequate levels requires diligence. To avoid stockouts and keep your storage fees down, maximize tools like those on your Manage Inventory page, which allows you to oversee your FBA stock. Through it, you can find FBA-specific information such as:

• The quantity of products available to customers
• The volume of products on their way to fulfillment centers or being processed
• The number of products that are in no condition to be fulfilled

You can also utilize sales forecasting and various inventory management techniques to evaluate trends and make appropriate adjustments.

Stay informed

We tackled earlier how becoming an FBA seller leaves you vulnerable to alterations in Amazon’s guidelines and fees, which occur regularly. It’s vital you stay on top of these developments to adapt smoothly, as they can impact your operations and business model.

Use Amazon’s various tools

Amazon’s Seller Central gives you access to analytics that reveal customer behaviors, your bestsellers, and campaign performance. Leveraging these insights helps you enhance strategies for features like Sponsored Products and Sponsored Brands. In turn, this can boost your FBA performance considerably, as they let you target keywords and display ads that are relevant to your audience.

Maximize peak shopping seasons

Seasonal shopping events provide FBA sellers the chance to reach a staggering number of customers. The most notable ones to prepare for are:

• Black Friday and Cyber Monday: During these two days in 2023, Amazon customers ordered more than 500 million items from independent sellers.
• Prime Day: The platform’s biggest annual event proved to be record-breaking in 2024, with over 200 million items sold and millions of early Prime sign-ups over the two-day span.

Being in the FBA program is a huge advantage in its own right, as you’re automatically eligible for Prime. However, to capitalize fully on these buying periods, you need to:

• Always have your bestsellers in stock
• Offer attractive bundles
• Refine your Amazon advertising

Retain uniformity

Although becoming an FBA seller forces you to relinquish some control, you can still maintain your brand identity across various touch points by:

• Ensuring your product listings match your brand voice and messaging
• Actively managing your FBA content to avoid inconsistencies while accurately representing your brand

Find a specialized FBA partner

The right partner can mitigate the challenges FBA sellers face, whether it’s compliance issues with Amazon’s policies or sudden spikes in orders.

MyFBAPrep specializes in handling fulfillment for Amazon sellers, bringing a wealth of knowledge on the subject. Our Amazon FBA prep services, for instance, feature experts with decades of experience to guarantee:

• Quick and correct picking, packing, and shipping of orders
• Proper item entry into FBA’s network
• Fast and seamless customer experiences

If you need a provider that can effectively navigate the intricacies of Amazon FBA and lift its burdens from your shoulders, don’t hesitate to reach out.

Amazon FBA FAQs

We’ve laid the groundwork of how Amazon FBA works, but you may still have questions about the program. So, we’ll finish this article by addressing topics that sellers typically ask about.

Can I sell internationally with FBA?

Yes, you can. FBA offers global fulfillment services that allow you to sell in numerous marketplaces with minimal hassle. In fact, the FBA Export solution was designed specifically for this purpose.

What happens if my inventory doesn’t sell?

Unsold inventory will incur more costs, as Amazon charges additional long-term storage fees each month when products are stored in a fulfillment center for more than 181 days.

How do I ship products to FBA?

Properly sending products to Amazon’s fulfillment centers involves:

1. Creating a shipping plan in your Amazon Seller Central account
2. Packaging items according to the platform’s requirements
3. Labeling them with the right FBA shipping labels
4. Transporting them to the designated fulfillment center

Once this is done, Amazon receives your inventory, stores it, and places the items in the FBA network.

How much capital do I need to start selling through FBA?

The program has a surprisingly low barrier to entry, with 64% of Amazon merchants needing only $5,000 to begin their journey on the platform. Further, 81% of them fund their venture using their personal resources. Even with the low startup costs though, the Amazon Lending program is available to help those with limited cash flow break into Amazon.

Alongside Amazon’s partnered third-party financing providers, they provide eligible small and medium-sized businesses access to cash advances, credit lines, or loans for their ventures. However, you must be invited to enroll.

How long does it take to make a profit on FBA?

Most businesses take two to three years to achieve profitability, but 58% of Amazon merchants reported they accomplished this within their first year on the platform. That doesn’t guarantee a speedy return on investment, but it does show the high potential for it.

Wrapping up — How Does Amazon FBA Work?

Amazon FBA is an enticing option for eCommerce businesses looking to streamline fulfillment, access Prime customers, and scale operations. However, the program does come with unique challenges, particularly in terms of cost and brand control.

Before diving in, you must weigh the benefits and drawbacks, as well as review core business considerations that determine whether FBA aligns with your goals. By understanding how the program works and following best practices, you can unlock its full potential and realize lucrative results. Hopefully now you have had all your questions answered around how does Amazon FBA work and you can make informed choices for your business.