This article aims to navigate through the top problems encountered when using Amazon FBA and provide ways to avoid these pitfalls.
Here is a roundup of topics we will be discussing in this article:
- What is Amazon FBA?
- Complex inventory & misplaced stock in Amazon FBA
- Mandatory free shipping on Amazon FBA
- Amazon's FBA limitations and restrictions
- Amazon's intricate fee structure
- Staying compliant with Amazon policies
- Lack of control of your brand
- Customer service challenges
What is Amazon FBA?
Amazon FBA is a fulfillment service offered by Amazon that allows sellers to store their products in Amazon's fulfillment centers. When a customer places an order, Amazon takes care of the packing and shipping process. This service provides sellers with Prime eligibility and access to Amazon's vast customer base without the hassle of managing their own fulfillment operations.
Common pitfall: Complex inventory & misplaced stock in Amazon FBA
Amazon's fulfillment and logistics operation is vast. Yes, Amazon has effective systems in place. However, the primary aim of these systems is to benefit Amazon's profits - not yours. Therefore, in instances where stock is missing or errors have been incurred, it is often the smaller businesses that suffer.
Complex inventory management is a significant hurdle for many Amazon FBA sellers. According to some sellers, there have been reports of extended delays in FBA receiving, lasting from days to weeks to months, as sellers await the processing of their inventory within the Amazon fulfillment warehouse system. This delay can result in items being unavailable. As a further consequence, the seller rating can be affected negatively, or orders can be canceled because of the delay.
What can you do in this situation?
Unfortunately, in the Amazon supply chain, your product can become misplaced. If that happens, a claim will need to be submitted to Amazon about the misplaced product. The good news is that Amazon usually offers reimbursement for the loss. The bad news is that Amazon's reimbursement amount is often based on their own valuation of your merchandise rather than the actual amount you paid for it, which can be frustrating.
Another way you can prevent Amazon from misplacing your inventory is by using third-party logistics (3PL) services. An independent 3PL will be more likely to be your fulfillment champion because they are smaller and do not have all the complexities and intricacies that a huge corporation like Amazon has.
Common pitfall: Mandatory free shipping on Amazon FBA
When selling on Amazon FBA, all products automatically qualify for Amazon Prime shipping. This can be a huge positive because it presents a significant opportunity to appeal to millions of Prime members who are willing to pay more for expedited shipping. However, it's essential to be mindful of the associated shipping costs.
As an Amazon seller using FBA, you won't be able to selectively offer free shipping on certain products. Every product enrolled in the FBA program is automatically eligible for free shipping, which can potentially lead to losses, especially for low-margin products or high-shipping-cost orders.
Before enrolling in Amazon FBA, it is important to carefully evaluate the additional expenses linked to providing free shipping.
What can you do in this situation?
Consider utilizing FBM (fulfilled by the merchant) for products with narrow profit margins and significant shipping expenses to prevent losses.
Common pitfall: Amazon's FBA limitations and restrictions
Trying to navigate through Amazon's FBA limitations and restrictions can often feel like attempting to solve a puzzle without ever seeing the picture on the box. Here's a breakdown to help you make sense of it all:
FBA storage limits
FBA storage limits: Amazon sets monthly FBA capacity limits to regulate inventory in their fulfillment centers. These are measured in two ways:
- Units - the number of individual items
- Cubic feet - the space these items occupy.
The FBA Dashboard in Amazon's Seller Central is the go-to resource for an overview of storage limits, showing the available capacity and inventory performance.
Restock limits and capacity management
Restock limits and capacity management: Monthly restock limits determine how much inventory can be sent to Amazon. The Capacity Monitor and Storage Limit Manager in the Seller Central display shows the available capacity and provides insights on increasing storage space by improving inventory performance.
Amazon's new capacity management system aims to give sellers more predictability and control over their inventory, with the maximum capacity based on the seller's Inventory Performance Index (IPI) score.
Inventory performance index (IPI) score
A crucial metric, the IPI score, reflects the inventory performance over time. Amazon revises inventory limits based on performance, encouraging sellers to maintain a good IPI score. Restock limits vary between individual and professional sellers, emphasizing the importance of performance for inventory management.
What can you do in this situation?
By embracing and adjusting to these constraints, sellers can effectively maneuver through the intricacies of Amazon FBA and explore alternatives to enhance flexibility and gain greater control over the fulfillment process.
Common pitfall: Amazon's intricate fee structure
Understanding the specifics of Amazon's intricate fee structure can help you optimize your costs and enhance your profitability. Here's a breakdown to help guide you through:
Basic fees overview
- Professional seller account: $39.99/mo. Allows unlimited product listings and access to advanced selling tools.
- Referral fees: They are typically 8% - 15% for most product categories, with specific fees varying by category (some fees go up to 45%.) You can find the breakdown of referral fees by product category here.
- Fulfillment fees: Range from 10 - 15% of the revenue, influenced by the product’s size and weight.
- Inventory storage fees: Between $0.56 - $2.40 per cubic foot (prices can fluctuate based on product size and the time of year.)
But that’s not all!
Additional costs to consider with Amazon FBA
- Long-term storage fees: Sellers with inventory stored for six months or more face higher fees.
- Return and shipping costs: High return rates and shipping to Amazon’s warehouse add significant expenses.
- Advertising and overhead: Costs for Amazon PPC and business overhead like photography and trademarks can quickly accumulate.
For a full breakdown of what to expect when it comes to Amazon FBA expenses, you can use the FBA calculator to see what the cost for Amazon FBA would be for you.
What can you do in this situation?
Avoid extra costs by following these strategic tips for fee management:
- Product categorization: Make sure your products are correctly categorized to avoid higher referral fees.
- Packing: Design your packing to stay below oversized item categories, reducing fees.
- Inventory management: Keep track of your inventory to match Amazon’s measurements and avoid low-level inventory fees.
Finally, understanding these fees and implementing strategic management can mitigate some of the top problems with Amazon FBA when it comes to fees. However, steering towards a more cost-effective solution like Zenventory’s independent 3PL network can help you get the FBA speed without the FBA price.
Common pitfall: staying compliant with Amazon policies
Navigating all of Amazon’s policies can make any seller want to scream into a void every now and again. However, these policies are essential for sustaining a successful e-commerce business on the platform, making compliance a necessary challenge to tackle. Here’s a look at the key areas that require your attention when it comes to important Amazon policies:
Amazon strict policies
Product detail page policies & customer communication
Make sure your listings comply with Amazon’s guidelines. Adhering to Amazon’s policies around accurate descriptions and communication protocols are a non-negotiable that can result in suspension if not followed.
Seller code of conduct
Amazon’s seller code of conduct is a commitment to fair business practices, honesty, and respect for customers. For many of us, this code of conduct is a no-brainer, but it is always nice to have just in case.
Product compliance
Navigating category-specific requirements, like packaging restrictions, ensures that products are fit for sale.
Amazon performance metrics & compliance documentations
Performance metrics
Amazon's vigilance over metrics like order defects and late shipment rates can significantly impact seller success. Staying above these metrics is crucial.
Compliance documentation
Be prepared to furnish Amazon with necessary documentation like safety certifications or tax documents upon request.
Avoid policy violations
Intellectual property (IP) rights & restricted products
The most common violations involve non-compliance with IP rights and selling restricted items. Your best defense is proactive measures like reviewing product history for past issues and adhering to Amazon’s FBA Inventory Reimbursement Policy.
What can you do in this situation?
Understanding and adhering to these guidelines prevents potential roadblocks and aligns with the pursuit of offering top-notch customer experiences.
Common pitfall: Lack of control of your brand
As a business owner, when utilizing Amazon FBA for selling, you must relinquish some control over your business, which can be challenging.
This means that when Amazon ships your products to customers, they are packaged in Amazon shipping boxes with, yep, you guessed it, Amazon’s logo - not yours. This means that you are unable to include personalized notes for your customers, which makes it difficult to establish strong relationships with your customers. All in all, this makes establishing a robust brand identity with Amazon FBA more challenging.
What can you do in this situation?
If you want to have complete control over your brand and have a more personal relationship with your customers, FBA is not going to be the fulfillment answer for you. Instead, FBM (or fulfillment by merchant) is what is better aligned with your goals. Luckily, there are a couple of options for FBM: you can fulfill the orders yourself or use a trusted and vetted 3PL.
Common pitfall: Customer service challenges
Amazon sellers frequently express dissatisfaction with the quality of Amazon's customer service. Many sellers have described lengthy emails and phone calls with Amazon customer service representatives that take not days but weeks to resolve issues.
Of course, this is different for the Amazon buyer. For buyers, Amazon proactively addresses buyer complaints, alleviating sellers from the burden of customer support (which can be a positive for sellers).
What can you do in this situation?
Unfortunately, avoiding these challenges may be challenging and may require sellers to wait patiently for responses from Amazon's customer service team. To expedite responses, it has been advised to maintain direct communication with the Amazon customer service representative and refrain from sending multiple messages.
Sellers seeking to provide a more personalized customer support experience and engage in personalized communication with their buyers might find Amazon FBA unsuitable for their needs. If this sounds true to you, you might want to consider an independent 3PL instead.
Final thoughts
In conclusion, Amazon FBA offers sellers the convenience of storage, packing, and shipping through its fulfillment centers. However, there are several pitfalls to be aware of, such as complex inventory management and the potential for misplaced stock. Navigating Amazon's fee structure and staying compliant with policies can also be challenging. Additionally, sellers must consider the mandatory free shipping requirement and the limitations and restrictions imposed by Amazon FBA.
Highlighting these pitfalls is not just about pointing out the difficulties presented by Amazon FBA but also about presenting a promising solution that offers FBA speed without the FBA price: Zenventory’s 3PL Fulfillment Network. This network of independent 3PLs stands as an alternative for brands that are looking for efficient order fulfillment, extensive distribution network capabilities, and seamless e-commerce logistics, catering to sellers that are looking for FBA alternatives.
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