The e-commerce business with products delivered directly to your door at the click of aa button is absolutely booming. With people making regular online purchases – estimated at 51% – the business is said to be worth in excess of $22 trillion worldwide, with the average American spending around $488 a year. For the budding entrepreneur this is a huge market to dip your finger into. One platform that many people use is known as Amazon FBA and this article will explain exactly what it is and how it works.
Amazon FBA, the FBA standing for Fulfillment By Amazon – is a service provided by online giant Amazon which allows traders to set up an account with Amazon who not only hold all of the traders inventory but also pick out the orders and process the delivery to the customer. When you make a purchase through Amazon on their website what you might not know is that what you are actually buying is not being bought from Amazon but from somebody who has an FBA account.
So, how does that work? Well, once an FBA account is set up the seller in fact becomes a third party in the agreement. Amazon takes over the whole process after that. Amazon will promote the third parties product under the Amazon brand who then process the order as if it was a normal Amazon purchase. They take care of picking, packing, shipment and payment with all the usual Amazon extras like express delivery, customer service and so on. The buyer is unaware that they have bought from a third party.
You might at this stage be wondering how the seller benefits from this arrangement. Well, the first benefit of an FBA account is that if you are trading as an individual it is free to sign up (they also have a professional account but this charges a monthly fee). Another obvious benefit to the trader is that they do not actually have to hold any inventory. The account holder merely sources a product from a supplier and has the product shipped to a designated Amazon FDA warehouse. From this point on Amazon takes care of the rest. Now, for obvious reasons Amazon do not do this for free. If you are using FBA as an individual then you can expect to pay Amazons closing fee which is 15%.