What is Amazon FBA? The Simple Step-by-Step Guide for Beginners
If you want to leverage Amazon‘s massive platform and worldwide reach to sell products, but don‘t want to manage shipping, inventory and packing yourself – then Fulfillment By Amazon (FBA) is made for you.
In this complete guide, I‘ll explain everything you need to know to get up and running with FBA as a beginner…
Chapter 1 – What is Amazon FBA and How Does it Work?
Fulfilment by Amazon (FBA) is a service Amazon offers sellers that handles product storage, packing, shipping and customer service on your behalf.
The basic steps are:
Send your products to Amazon‘s warehouses: As an FBA seller, you ship your inventory to Amazon fulfilment centers in bulk. This allows Amazon to handle quality control and prepare products for orders ahead of time.
Orders come in: When a customer places an order for your product on Amazon, FBA handles the entire fulfilment process.
Amazon picks, packs and ships your order: Employees at Amazon‘s fulfilment centers will pick your product from their massive selection, carefully pack it, and ship it directly to the customer.
- Amazon provides customer service and returns handling: If the customer has any issues with the order, wants to return the items or needs assistance, it is all handled by Amazon.
As a seller, your daily operations become simpler since you don‘t have to do these fulfilment processes in-house. It provides immense scalability.
Here are some of the biggest advantages of using FBA:
Benefits of Amazon FBA:
Free Prime shipping eligibility: By having inventory stored in Amazon‘s fulfilment centers, any sale of your products to Prime customers comes with the 2-day free shipping they expect. This helps boost conversion rates and sales.
Lower shipping costs: Amazon‘s negotiated shipping contracts with major carriers allows them to get huge discounts. These savings are passed down to you, letting you profit more per sale.
National fulfillment network: With over 175 fulfilment centers globally, Amazon can reach 95% of US customers with free 1-day shipping through FBA. That level of delivery speed and reach is unbeatable.
High customer satisfaction: Amazon‘s customer service consistently ranks very highly for support and returns handling. This helps your products get 5 star reviews!
Scalability on demand: As your sales grow, managing huge order volumes yourself can get very complex. FBA allows you to scale up instantly without extra staff or infrastructure costs.
Time to focus on growing your business: By letting Amazon handle these complex fulfilment operations, you have more time to dedicate towards product development, vendor outreach, marketing and sales – rather than shipping logistics.
While this preliminarily overview covers the basic principles, I‘m going to dive into each aspect of selling successfully through FBA in more detail throughout this guide.
Let‘s take a closer look at the inner workings next.
Chapter 2 – Getting Started: How to Launch an Amazon FBA Business
Selling successfully on Amazon FBA requires some strategic preparation and setup.
As an ecommerce analyst, I have helped hundreds of businesses launch, manage and optimize their FBA operations.
Here is the step-by-step checklist I give new sellers to prepare their business:
Step 1: Sign Up for an Amazon Seller Central Account
This is the portal you will use to manage your Amazon seller account, access reports and handle FBA inventory.
To register:
- Go to Seller Central homepage
- Click register and enter your email, password and business information.
- Choose appropriate user permissions settings for any staff.
Tip: Ensure you properly setup and integrate any accounting software you use from the start, to simplify taxes and reconciliation.
Step 2: Decide Which Business Structure to Use
Amazon allows sellers to register under multiple business structures, each with different pros and cons from a compliance and tax perspective.
Common seller structures:
Individual seller
- Easy to setup but no liability protection
Sole proprietorship
- Basic business structure but personal assets at risk
Limited Liability Corporation (LLC)
- More complex but provides liability safeguards
S corporation
- Special corporation with pass-through taxation
My recommendation for most FBA sellers starting out is forming an LLC, as it balances simplicity with some legal protections. Speak with an accountant or lawyer when making this decision.
Step 3: Select Products to Sell
The products you choose to sell plays a huge role in your success on Amazon FBA.
Ideal products have these attributes:
High demand: Use Amazon‘s category and subcategory best sellers lists to identify popular search trends. Tools like JungleScout also assess demand indicators.
Relevant to your brand: Match your existing company strengths, supply networks and areas of expertise when possible.
Low competition: Use the Amazon Seller App to analyze total sellers, reviews and existing pricing for a product. Categories with 10 or less competing sellers indicates a good opportunity.
High margins: Factor in your fixed and variable costs to choose products with 50%+ profit margin potential after fees.
Reputable suppliers: Screen suppliers thoroughly using cost price negotiations, sampling and verification before committing to inventory orders.
Here is a chart showing the 5 most popular and profitable Amazon FBA product categories last year based on total sales:
This mix of trending search volume data, demand indicators and profitability metrics helps me advise FBA sellers on ideal selection. Get this initial product research right, and your business is set up for success.
Step 4: Source and Prepare Inventory
Once you‘ve selected winning products, it‘s time to get them shipment-ready to send to Amazon‘s warehouses.
Follow this inventory preparation checklist:
Place orders with your supplier
- Start small while evaluating quality
Apply FNSKU labels
- Ensure scannability in warehouses
Prep packaging
- Minimize damage risk in transit
Follow bundling rules
- Group by ASIN requirements
Confirm shipment
- Validate delivery window/method
Getting this piece right is crucial – Amazon may reject entire shipments if preparation guidelines aren‘t followed.
As your inventory needs scale, tools like Ecomdash can help streamline this supply chain process.
Step 5: Ship Inventory to Amazon Warehouses
When your inventory is fully prepped and ready, you can ship it to Amazon‘s warehouses for them to handle.
You have two FBA shipment methods:
Ship small volumes (<200 units) yourself: For new sellers testing products, use Amazon partnered carriers like UPS and FedEx to ship test batches.
Amazon Partnered Carrier Program: Once consistently shipping >200 units/month, register for Amazon‘s special rates with major carriers to save ~50% on shipping costs at scale.
Ensure you print Amazon‘s required shipping labels to integrate with their receiving processes.
Once received at the warehouse, you can request inventory checks and audits as needed. Use reports in Seller Central to monitor current inventory levels in real-time.
Step 6: Manage Inventory, Pricing and Fees
A key advantage of FBA is leveraging Amazon‘s analytics and automation to optimize these post-launch factors:
Inventory Management
Use demand forecasting to plan future inventory needs from suppliers
Leverage Keepa and Amazon tools to get dynamic pricing guidance
Pricing Strategies
Algorithmic repricing helps respond to competitors
Run promotions and sales to boost volume
Fee Optimization
Minimize long-term storage fees with inventory velocity monitoring
Achieve volume tiers to reduce referral fees over time
Getting this inventory and supply chain piece right is crucial to maximizing sales and profit margins on FBA.
Step 7: Market Products to Drive Sales
To generate consistent sales on Amazon FBA, dedicating time and budget to marketing is essential. This increases visibility and conversions for your listings.
Must-use marketing approaches include:
Optimized Listings
Compelling titles, descriptive bullets and high-quality photos helps your listing stand out.
PPC Advertising
Amazon ads leverages their search data to target high-intent customers.
Promotions
Discounts, coupons and bundles encourages larger order values.
Reviews
Positive ratings and glowing testimonials build trust and social proof.
Enhanced Branding
Content marketing and external traffic helps establish authority.
Continue testing and iterating on product marketing approaches over time. As you scale up spending, monitor attribution to calculate true ROI.
This covers the core steps for preparing and launching a business selling on Amazon‘s Fulfillment by Amazon program.
By leveraging FBA for storage, fulfillment and distribution, you can focus time and energy on product selection, marketing and growth while letting your business scale.
Next I‘ll share key optimization tips for long term success selling with FBA.
Chapter 3 – Tips and Strategies for Running a Successful FBA Business
Selling successfully on FBA long term requires excelling across many factors – from supply chain management to marketing and financing.
Here are crucial tips for established FBA sellers looking to take their business to the next level:
Continuously Improve Your Product Portfolio
Getting your initial product selection right is crucial – but consumer demand evolves rapidly.
Review your product catalog frequently and prune Poor performers using this framework:
Monitor best seller lists for new opportunities and recurrently test promising additions.
Tools like Jungle Scout‘s Opportunity Finder provide custom product recommendations for your business based on profitability and volume potentials.
Over time, accumulating winning products compounds sales growth and provides a buffer if some decline.
Optimize Inventory Levels Diligently
Managing inventory effectively over time prevents stockouts deterring customers yet avoids storage fees from excessive units.
Use these inventory optimization strategies:
Demand forecasting: Use historical trends to predict seasonal peaks and valleys in sales by product. Amazon provides detailed reports to simplify projections.
Safety stock buffers: For unpredictable bestsellers, maintain extra buffer inventory to prevent stockouts even when demand spikes suddenly.
Lead time monitoring: Account for supply chain lag by assessing typical delays from purchase order to delivery and replenishment.
Turnover tracking: Calculate both overall and product-specific inventory turnover ratios monthly, with a target of over 3x annually.
Maintain High Seller Metrics
Amazon determines search placements and marketing opportunities based on a seller‘s performance across four key metrics:
To keep these at high levels:
Order defect rate: Ship quality products on time and as described to minimize returns and refunds. Self audit randomly to identify issues.
Cancellation rate: Only oversell existing inventory buffers in extreme cases. Respond to availability changes frequently.
Late shipment rate: Set realistic delivery estimates and ship within the window. Monitor carrier on-time delivery KPIs.
Feedback score: Reply to all reviews exceeding or missing expectations quickly. Invest in customer satisfaction.
Master Amazon Marketing Best Practices
Gaining organic visibility is incredibly difficult – so PPC ads, promotions and enhanced content are necessities.
Tactics to integrate:
Keyword monitoring: Use auto bid management software to optimize bids daily per impressions and clicks.
Campaign analytics: Split test ad creative, landing pages and special offers relentlessly.
Reviews funnels: Follow up happy buyers requesting candid feedback and ratings.
Video demonstrations: Add engaging product videos and tutorials to listing pages to build trust and authority.
Learn from other category leaders using sponsored brand analytics – then double down on what converts.
Measuring marketing return on ad spend and fine tuning strategies is what makes certain sellers dominate the first pages of results.
Leverage Software and Tools
Top FBA sellers utilize a suite of software to automate, analyze and optimize key processes:
Here are the capabilities the highest ROI programs provide:
Inventory management – Forecast demand, manage vendors and simplify logistics
Business intelligence – Collect, monitor and benchmark analytics in one dashboard to inform decisions
Listing optimization – Create high converting listing content including pricing strategies
Marketing automation – Manage Amazon PPC, email and social campaigns from a centralized platform
Feedback monitoring – Track reviews and seller rating impacts proactively
Financial planning – Create customizable reports and projections for lending applications
The best tools grow in sophistication with your business. Identify needs across the value chain and fill urgent gaps first – whether advertising, inventory or accounting.
By following these tips and best practices throughout your FBA journey, your processes will institutionalize and sales velocity will compound over time.
Let‘s wrap up with some final thoughts and key takeaways from this guide.
Conclusion and Key Takeaways
Launching and running an Amazon FBA business can be highly rewarding – both operationally from leveraging Amazon‘s infrastructure and financially from tapping into their hundreds of millions of loyal customers.
Here are the 6 crucial points to remember:
1. FBA removescomplex fulfillment burdens
Amazon handles storage, packing, shipping and customer service – allowing you to focus on scaling profitably.
2. Choosing the right products is crucial
Select items with proven demand but low competition for the best results. Continuously test and optimize your portfolio.
3. Prepare and ship inventory properly
Follow Amazon‘s requirements not just during shipment but in labeling and packaging to avoid rejections.
4. Master FBA data and analytics
Leverage Amazon‘s rich reports and statistics plus specialized software to increase efficiency, visibility and control across your operations.
5. Dedicate budget to marketing
Getting organic visibility is near impossible – PPC ads and promotions are required to stand out and convert buyers.
6. Make customer satisfaction a priority
Obsess over perfecting the last mile experience – from branded packaging to timely issues resolution. High ratings and reviews will propel future sales.
Selling on Amazon FBA allows entrepreneurs, startups and brands access to an unmatched audience of shoppers, with world-class infrastructure to support their growth.
It isn‘t easy – but by following this playbook, your business can build scale andhealthy profits over time.
I wish you the best with your FBA journey!
Kamran A.
Ecommerce Analyst & Amazon Expert
