Using the Fulfillment by Amazon (FBA) service when seeking to make money from online or retail arbitrage is a great way to increase your productivity and your profits. When you use FBA, you are able to scale your business with ease and remove yourself from the shipping and customer service process.
My guess is you want to sell on Amazon to make some extra money right? Although this might be the case, there is more to selling than meets the eye and you can reduce your headaches by using Amazon’s FBA service. In this post, we are going to look at the ways you can use Amazon FBA to your advantage as you start finding online and retail arbitrage deals.
Understanding Amazon FBA
So what in the world is Amazon FBA? In short, Amazon FBA gives you access to Amazon’s vast fulfillment network. I like to think about online selling in four distinct steps:
- Sourcing Inventory – Finding items to sell
- Marketplace Transaction – This happens on Amazon.com
- Distribution – Getting the product to the customer (including storage)
- Customer Service – Handling issues and returns
Most people want to do the first step, but really hate to do steps 3 and 4.
That’s where Amazon FBA comes in. It is a service provided by Amazon that handles the distribution and customer service for you. Essentially, you send your inventory into Amazon and it handles the rest. They charge for the service, but you build that into your sourcing price and you don’t pay anything (besides storage) until the product sells. Plus, your items are eligible for Amazon Prime shipping (without having to run to the post office every day).
Do I Have to Use Amazon FBA for Online Arbitrage or to Sell on Amazon?
All you need in order to sell on Amazon is an Amazon Seller Account, which you can sign up for from Amazon Seller Central.
Amazon FBA is an additional, optional service that you can choose to use.
Although it is optional, I highly recommend using it for a few reasons:
- Scalability – You are able to grow your business without having to build a warehouse or hire shippers.
- Customer loyalty – Customers love Amazon Prime and the service that comes with it. This leads to higher sales when you use the service.
- Ease of use – I personally started out shipping all of my own items, but now I wouldn’t dream of doing that. Amazon FBA has made my secondary income a hobby instead of a full time job.
Let’s take a deeper look at the benefits of using Amazon FBA.
Significantly Reduce Your Storage Costs (Or Keep Your Home Tidy!)
Imagine if you had to keep all of your inventory in your front room. I know personally, my wife would most likely kill me as she would have to step over toys, clothes, and other odds and ends. So I would have to find somewhere to store my inventory. If my garage or basement wasn’t big enough, I would have to rent a warehouse or office space. And that costs a lot of dough that could be used to buy more inventory.
Why not let Amazon handle the storage for you?
When you use Amazon FBA, you actually send your inventory into the Amazon warehouse and they store it for you. They do this to speed up shipping, but it does free up space for you as an unintended consequence.
There is a charge on a monthly basis for storage, but it is a fraction of what you would have to pay in order to rent or build your own facility. And as you continue to grow and source more inventory, you won’t have to worry about running out of space. Amazon is constantly building new distribution facilities and has the storage thing down to a science (really – I went to a warehouse once and it was insane on the way they organize and store items).
Save Time and Money on Shipping
Let’s face it. Shipping sucks.
It shouldn’t be that bad, but there is a lot of effort that goes into making sure an item is packed, labeled, shipped, and delivered. And when you think about all that goes into shipping, you start to realize it takes a lot more time than you might think. When we think about shipping costs, it’s so easy to fall into the trap of only thinking about the actual cost of the shipping itself. In the world of online arbitrage, time is money, so you need to consider the cost of the time in addition to the cost of the shipping.
We often don’t think about the box or the envelope, any bubble wrap or anything else we might need to use as protection within the package, or how much of our own time we’re using in going to the post office or a UPS store.
With Amazon FBA, you don’t need to think about these, because Amazon takes care of the shipping for you! All you have to do is ship your items to Amazon and they handle the rest. Plus you have access to Amazon’s staff so you can travel the world and not have to worry about shipping items out on a strict deadline. Plus you get access to Amazon’s discounted shipping rates, which helps you save additional money over the long run.
Amazon Deals with Your Customers!
Have I ever told you that I hate dealing with customers? Well. I do. It takes up so much time and it drives me up a wall.
Let’s say an item goes missing while being shipped to a customer.
The customer contacts you. You then look up that customer’s details and the shipping information. Depending on what you find, you then communicate back to the customer and the shipping company. You end up having to refund the unhappy customer or sending another item out to them (using even more shipping time on one order!) while then spending your time going through a process to claim back the value of the missing item. That’s all you are likely to get back, too. The shipping companies don’t often show sympathy to the time you’ve wasted and invoicing them for the envelope, bubble wrap, and four hours of your time and you most likely won’t even get a response.
When you use Amazon FBA, Amazon deals with your customer issues, returns, or anything else for you. You don’t have to worry about it.
Sounds a lot better than the potential of going through the above process, doesn’t it? I know I’m willing to pay to not have to deal with an angry customer.
Make Your Amazon Online Store More Attractive to Customers
Let’s say you guarantee that all orders are shipped the next day. That’s great, but even if you then send a product as next day shipping, a customer might still be waiting 48 hours from when they order it to when they receive it.
Sending products via next day services will also incur a higher cost both for you and for your customers. In today’s world, where people want things as soon as they can get them and at the lowest possible cost. When you are handling the faster shipping, you’re probably not offering an attractive deal, and a better offer on the same product is almost certainly no more than a few clicks away, be that on Amazon or on another website.
On the other hand, using Amazon FBA means your products may become eligible for Free Two Day Shipping, or Free Next Day via Amazon Prime. Straight away you’re offering a better deal! A customer can potentially get what they want tomorrow rather than waiting for you to ship it tomorrow.
In my opinion, this is one of the best features of Amazon FBA. The ability to sell with the Prime shipping badge.
To most consumers, that badge makes or breaks a purchase decision. I know I will pay a little more for an item if I know I will get it in two days (or even quicker depending on where you are located).
By using Amazon FBA, you make your items stand out among the competition and provide customers with the amazing customer service that Amazon is known for around the world
Amazon FBA allows customers to feel like they’re buying from Amazon, while you get paid!
How Much Does Amazon FBA Cost?
The costs of Amazon FBA depend on what you sell. You pay for Amazon FBA on a pay as you go basis, for the orders that Amazon fulfils on your behalf and per cubic meter for the space Amazon uses at their fulfilment center to store your products. Bear the latter in mind when choosing products for arbitrage as this will influence your profit margin. While it shouldn’t have a massive impact, ideally you don’t want to be paying for storage for a large number of sizeable products that also happen to be slow sellers.
Is It Worth It?
If we refer back to all the scenarios you could find yourself dealing with that we have looked at here, and think about how much time, money, and energy you could save, then we have to say that we think using Amazon FBA to help grow your arbitrage business is a no brainer.
One final benefit: you’re not signed up for years at a time. If Amazon FBA isn’t for you, then you can stop using the service, but we think you’ll find it extremely useful like many Tactical Arbitrage users already have done in growing their own arbitrage business.