What Is Amazon FBA and Is It Right For You?

LearnJune 21, 20217 min read

These two systems of distribution cater to different types of companies. Each offers its own benefits and associated costs. To understand which fulfillment method is best for your company, it is important to understand the details and requirements of both options. Here is a breakdown of how Amazon FBA works, and how you could incorporate it into your distribution strategy:

What is Fulfilled by Merchant (FBM)?

With the Fulfilled by Merchant (FBM), you distribute directly to your consumer. That means they take care of all of the packing and shipping for their products, including shipping costs. This is generally the best place to start for businesses that are just beginning to work with Amazon because fees are charged on a per-item basis. Those who go the FBM route don’t get charged a fee unless they sell something.

Amazon charges a $0.99 fee to the business for every item sold by way of Merchant Fulfillment.

Fulfilled by Merchant (FBM) is usually a good fit for companies that sell under 40 products per month, or who already have their own distribution facility that they can leverage for Amazon orders. For small scale companies, 40 products is generally the break even point with the FBA program, which costs $39.99 per month.

What is Amazon FBA?

Fulfillment by Amazon (FBA) is a service from Amazon that manages distribution on a third party seller’s behalf. FBA costs $39.99 per month. Brands can leverage Amazon’s large network of distribution centers for fast shipment to their customers without needing to manage all the logistics on their own. The service helps to expedite shipping as well as provide storage, removals, and returns processing. Another major benefit of Amazon FBA is that you have access to Amazon’s customer service and returns service.

FBA is available to companies at the $39.99 per month rate, but it also comes with fees. Inventory fees, long-term storage fees, and unplanned services fees are a few to be aware of. And although you are paying a monthly rate for Amazon to handle the shipping, there is still a fulfillment fee on every unit that you sell. You can find a better estimation of how much you’ll pay using FBA using Amazon’s revenue calculator.

Generally speaking, FBA is intended to help sellers earn higher profit margins because the fees are less expensive at scale. If your business is shipping units day and night, your money might be better spent offboarding those responsibilities to Amazon.

How does Amazon FBA work?

If we’ve learned anything about Amazon, it’s that whatever they do they do it well. When you need to create an Amazon FBA account, the process to get started is pretty streamlined and accessible.

Let’s explore how “the sausage is made.”

Set Up FBA

Unlike the Merchant Fulfillment fee of $.99 per product sold, using an Amazon FBA signs you up for a $39.99 / month fee. While that fee might seem like a steep climb from Merchant Fulfillment, it encompasses all of the base needs for your business while also making it extra streamlined for your customers — especially when you’ve got a high inventory that you have to bust out every month.

Create Product Listings

Obviously, every Amazon sale starts with a product listing. However, there is an art (and science) to what performs best for sellers when it comes to how products are represented on the site. Hot tip: Listings that aren’t too text heavy and look more buttoned-up have been shown to attract more customers and increase sales for businesses.

Once you’ve created all of your product listings, the FBA process truly begins because businesses are able to showcase the breadth of their inventory (which Amazon will need to account for).

Prepare the Products

You’ve set up your FBA and listed your products. Congrats! Now comes the fun part: preparing your products to be shipped to Amazon. As a part of the FBA process, the onus is on businesses to ensure that all shipments are packaged safely and securely to get to Amazon’s fulfillment centers. While seemingly arduous, fret not. Amazon has an in-depth resource for sellers to reference when it comes to getting that inventory on its way.

Ship The Products to Amazon

It’s shipment time! The final step is to ship your inventory to Amazon’s distribution center where they will finish out the remainder of the process. Once they’ve received your inventory, the products become seamlessly available to customers for a streamlined experience..

Get Paid for Sales

Amazon releases funds into your account once a customer’s purchase has been shipped to them. Because Amazon generally ships out items very quickly, they can distribute funds as soon as the next day. Amazon pays out biweekly, but they hold a certain amount of money at all times as a risk hedge — typically the average of one week of sales.

Which is right for your business?

Choosing between Merchant Fulfillment or Fulfilled by Amazon can be tricky for some companies. They each have their respective pros and cons. The right fit, of course, is the one that saves you the most money (and keeps your cashflow moving).

Merchant Fulfillment is a good option for companies just starting out or just getting used to selling on Amazon. Also, if volume is low (under 40 units per month), Merchant Fulfillment is probably a good choice.

Amazon FBA can be a great choice for larger companies, or those with more frequent volume of sales. FBA intends to provide better margins and favorable payout schedules, so you can continue to count on steady income without getting bogged down or stifled by product packaging. Amazon FBA is also a good perk for your customers — it allows brands to offer shoppers a super streamlined checkout process, including free two-day shipping eligibility, Amazon’s customer service, and returns at a scale that would be incredibly difficult to match all on one’s own.

How Settle Helps Ecommerce Companies Scale

Choosing a distribution strategy for Amazon is just one of the many decisions that companies must make to regulate their cash flow. Whether selling on Amazon or selling direct to consumer, ecommerce companies have distinct challenges when it comes to working capital. From R&D to production to distribution, the product life cycle can be long, uncertain, and filled with many vendors, payments, and bills.

Settle helps companies align their COGS with their revenue by paying your vendors up front and letting you take care of the bill later. This allows you to focus on your business without worrying about the constant push-and-pull of cash flow. Much like packaging your products and sending them to customers, the smoother the process the better the return.

We make it easy to pay all your bills in one place, and give you the ability to make payments on time without sacrificing cash efficiency. Settle’s easy-to-use software platform and innovative lending products are tailored to the needs of e-commerce and CPG businesses, so we’re there to partner with you as you grow.

Settle streamlines your finances so you can scale faster. We offer both payers and vendors best-in-class financial tools, with easy set up and integrations that let you make payments within minutes.

Sources:

SharePlatform iconPlatform iconPlatform icon

Subscribe to our newsletter


OR

Recommended Articles

What Are Net Terms?
Learn4 min read

What Are Net Terms?

Making use of net terms can enable both buyers and vendors to increase their profitability and sales dramatically. This is what net terms are.

Settle Spotlight Series: Q&A with Vividly
Learn9 min read

Settle Spotlight Series: Q&A with Vividly

We sit down to chat with Alyshah Walji from Vividly, a trade promotion management (TPM) software built by and for the consumer packaged goods industry.

What is the Cash Conversion Cycle?
Learn6 min read

What is the Cash Conversion Cycle?

A company’s cash conversion cycle can speak volumes about its operational efficiency and financial stability. It can also determine whether people get paid on time.

Accounts Receivable Factoring 101
Learn4 min read

Accounts Receivable Factoring 101

Accounts receivable factoring can help companies can improve their financial stability and cash flow. We’ll explain what it is and how it's beneficial in our guide.

How to Create an Invoice
Learn6 min read

How to Create an Invoice

Creating invoices can be tedious, especially for new businesses processing everything manually. Learn how to create invoices effectively and efficiently with this detailed guide.

Settle Spotlight Series: Q&A with SourceMedium
Learn14 min read

Settle Spotlight Series: Q&A with SourceMedium

In this month’s Settle Spotlight Series, we chatted with Will Holtz from SourceMedium about how interconnected data can be a superpower for brands in hyperscale mode.

The 2024 Settle Staff Picks Holiday Gift Guide
Learn2 min read

The 2024 Settle Staff Picks Holiday Gift Guide

Do you really need another gift guide this time of year? Our Settle team spends so much time obsessing over our customer brands, that the right answer is obviously yes. We have compiled the inaugural Settle Staff Picks Holiday Gift Guide, with the most fire small brands out there. So read on for ideas from stocking stuffers to travel accessories – for everyone on your list. And join us in shopping small this holiday. 

Settle 2023 Product Wrap
New Feature3 min read

Settle 2023 Product Wrap

A year in review of Settle's product releases that make running CPG brands easier.

Your purchasing process. Made simple.
New Feature2 min read

Your purchasing process. Made simple.

We brought simplicity to bill pay. Now we’re bringing it to the purchasing process, with end-to-end support that takes a load off your plate.

Invoice vs. Receipt: What's the Difference?
Learn6 min read

Invoice vs. Receipt: What's the Difference?

Invoices and receipts are similar in concept, but differ in the details. Here’s what differentiates invoices from receipts, and why it’s important to understand.

What is an A/P Aging Report?
Learn6 min read

What is an A/P Aging Report?

The Accounts Payable Aging Report is an essential tool for businesses with a large number of accounts payable to track. Here’s a general breakdown of A/P Aging Reports.

What Are the Consequences of Equity Dilution?
Learn5 min read

What Are the Consequences of Equity Dilution?

Equity dilution can be a very concerning process for shareholders who are unfamiliar with its consequences. This is how to avoid equity dilution and keep stocks healthy.

What is the Accounts Payable Process?
Learn4 min read

What is the Accounts Payable Process?

Accounts payable (AP) refers to all the payments that a business owes its suppliers and creditors. Neglecting your accounts payable process can lead to production and supply issues.

Black Friday CPG Prep Checklist
Learn6 min read

Black Friday CPG Prep Checklist

Black Friday sets the tone for your business’ holiday season. Start early on forecasting demand, devising marketing strategies, and preparing your site.

How to Evaluate Accounting Firms
Learn7 min read

How to Evaluate Accounting Firms

Figuring how to find the right accounting firm for your company can be difficult. Here’s how to choose the best accounting firm for any business.

A Guide To Inventory Management for CPG
Learn6 min read

A Guide To Inventory Management for CPG

Learning to navigate inventory management can be a tricky part of growing your brand. Check out our guide to inventory management to find out more about it.

Non-Dilutive Funding Guide for CPG Brands
Learn7 min read

Non-Dilutive Funding Guide for CPG Brands

A popular source of funding is financing from angel investors and VCs. Yet many companies fail to recognise non-dilutive funding — where no ownership is lost.

Navigating Distribution And Retail Margins for CPG Brands
Learn8 min read

Navigating Distribution And Retail Margins for CPG Brands

For emerging CPG brands, navigating challenges like supply chain disruptions and retail changes underscores the critical importance of understanding and managing retailer and distributor margins, as it directly impacts profitability and success in the industry.

How to Find a CPG Distribution Partner
Learn5 min read

How to Find a CPG Distribution Partner

Partnering with the right distributor is arguably one of the most essential tasks for a retail company. Find out what to look for in distribution partners and how to source them.

Accounts Payable vs. Accounts Receivable
Learn5 min read

Accounts Payable vs. Accounts Receivable

Understanding accounts payable and accounts receivable is an essential part of business workflow. So how do they differ? Learn more about them in this guide.

An Introduction to Cash Flow Forecasting
Learn6 min read

An Introduction to Cash Flow Forecasting

A company’s ability to make a cash flow forecast is essential in the world of modern business. Here is everything you need to know about cash flow forecasting.

What Is Amazon FBA and Is It Right For You?
Learn7 min read

What Is Amazon FBA and Is It Right For You?

Using Amazon FBA is a great way for companies to expand their scalability and fulfillment abilities. Here is how it works, and how businesses can benefit from it.

How Long Does a Wire Transfer Take
Learn7 min read

How Long Does a Wire Transfer Take

Wire transfers can be the quickest method of exchanging funds. Knowing how long it takes can help determine whether wire transfer is the best solution.

Guide: The ABCs of cashflow
Learn2 min read

Guide: The ABCs of cashflow

We put our heads together with the folks at IndieCPG to create a guide to the basics of cashflow for new (and maybe even not-so-new) founders.

Settle blog

Insights in your inbox

Join our newsletter and never miss an update on Settle's latest features and industry trends.