Saturday, 7 December 2013

How to start in a lean way : Fulfillment by Amazon

Setting a E-commerce website is not a difficult task, but handling the operations is one of the most difficult task. When a customer order arrives you need to find the items they have ordered from your storage area, pack them and ship the order to the customers. Even after doing this hard work, you get customer queries regarding the order (may be regarding the customer not getting the order, or may be the product is not the expected one of the customer), and you need to answer those questions patiently. And if the customer is not satisfied with the product you have to ask them return the product and ship the new product to them. All of these operational work take lot of time and causes frustration to the sellers. And you, instead of concentrating on increasing the customer orders, you spend more time doing these types of activities.

Instead of this, if someone takes care of all these operations -- how great that would be ? Then you can concentrate on the most important thing -- that is increasing your customer base, providing more selection to the users. Fulfillment by Amazon exactly offers what you are looking for. Amazon is the most advanced fulfillment networks in the world and your business can benefit from their expertise in this area.

This is how it works
  1. You send your inventory to Amazon's nearest fulfillment center. Cost is borne by you.
  2. Your items can then appear on and you get access to millions of Amazon customers.
  3. When customer orders your items, Amazon picks the items, packs them, ships them to the customers.
  1. They will handle all customer related queries and they will even handle the customer returns for you as well.

  1. You do not have to worry about any of operations side and can think about how to increase your sales and selections.
  2. Your products get eligible for Two-Day Prime Free shipping, Free shipping Amazon offers and you do not have to pay money for that.
  3. Amazon handles customer queries, customer returns.
  4. You can scale your inventory and product selection with ease.
  5. You can have your company’s name on the invoice and you can also ask Amazon to not to put their own logo. I am not sure, if they can put your logo on the boxes.
  6. Compared to the cost you need to spend maintaining the inventory, packing and shipping, Amazon is cost effective.
  7. The charges for small, high value items > 300$ is much cheaper on FBA.
  8. You do not have to sell items from Amazon. With Amazon's multi-channel fulfillment, you can have your own website, or Amazon Webstore and loop your orders through Amazon.
  9. Once you have setup the business working, you can scale your business and reach more business. But, we think, once you really have good enough customers FBA will not be cost effective.

Amazon or any other fulfillment management systems, charges the sellers for the following.

  1. Referral money : It is around 6-25% depending on the product category you want to sell. If you pay for subscription, you can get away with this.
  2. Storage cost : If your product does not sell, the product lies there in Amazon's fulfillment center and that cost money for Amazon. So, they charge cost of storage on monthly basis.
  3. Picking, Packing, Handling charges.

Initially, you will feel like the Amazon's price is high, but thats ok when you are starting your business. When you concentrate more on developing your business, you will get more customers and then you can think about moving away from FBA and have your own fulfillment system.

You can get more details about pricing from Amazon here. They have a nice revenue calculator also.
So, when you are starting as E-commerce we suggest you to explore this type of option and when you are selling enough volume, you can then think about how to scale your business and implement your own website and warehouse management of yourself.

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