Marcus Richards
If you own a startup that sells products, you know Amazon is a highly competitive eCommerce platform. Many businesses may shy away from this, but it offers excellent growth opportunities and access to a valuable global audience. If you have a solid Amazon marketing strategy and tools like Amazon FBA, you can be a success. This article explores Amazon FBA and the reasons startups are using it.
Amazon FBA Business Model
When selling on Amazon, sellers can choose between two options: Amazon FBM (Fulfilled by Merchant) or Amazon FBA. Fulfilment by Amazon (FBA) is a system sellers use where a third party, in this case, Amazon’s fulfilment model, packs and ships their products. According to Statista, currently, 73% of Amazon sellers rely on FBA to sell their stock, and it’s a large reason for their success.
What’s more, according to a Jungle Scout’s 2022 State of the Amazon Seller Report, new Amazon sellers make an average annual revenue of $26,000 to $810,000, indicating how successful new sellers can be despite the competition.
In short, after selecting an appropriate product and finding a supplier, the vendor uses Amazon FBA to manage the logistics, storage, shipping, customer experience and possible returns. The vendor simply has to market the product to make it a success.
Why Are Startups Using Amazon FBA?
Many startup companies are utilising Amazon’s FBA services and seeing tremendous growth. Below we have delved into why so many startups invest in Amazon services and the potential benefits.
Fewer Responsibilities to Manage
If you have an Amazon FBA brand, you know that Amazon manages all the logistics when the customer purchases your item. Amazon’s third-party fulfilment model creates a seamless process that startups can massively benefit from. When you don’t have to manage warehousing, shipping, customer service or returns, you have a plethora of time to allocate to product development, researching other profitable opportunities, marketing, sales and more. For startups, every minute counts, and smart investments go far to ensure long term growth and more time to develop the company.
Fewer responsibilities mean you can dedicate more time to Amazon marketing to make sure your product looks good, appears in front of the right buyers, and ranks high in search results. However, this can still prove time-consuming, especially if your startup doesn’t have the time, resources or expertise to allocate. In this case, many business owners consider hiring an Amazon advertising agency to scale the brand and set you up for sustainable growth.
Access Prime Shipping
Amazon Prime offers members exceptionally fast delivery and other benefits. FBA brands get access to this free, 2-day shipping, giving you an edge against competitors. The average Amazon buyer spends a minimum of $700 per year, but when customers subscribe to Prime, members spend an average of $1300 yearly.
Furthermore, since Amazon manages shipping and fast delivery, you can sell to last-minute shoppers. For instance, during the Christmas season, when products are in high demand, many shoppers rely on Prime delivery to guarantee their gifts arrive on time.
Lastly, numerous online shoppers dislike shipping costs and prefer to avoid them altogether. Prime members have the luxury of free shipping and only pay for the item’s price. When presented with two products, shoppers prefer free, prime delivery. Startups who invest in Amazon FBA can boost sales, product visibility, and customer satisfaction thanks to Prime access.
Potential to Increase Sales
Joining Amazon FBA brands opens up many opportunities to boost sales. As we discussed above, prime delivery is a key benefit of becoming an Amazon FBA brand, but there are a couple more things to consider.
Amazon A9 Algorithm: Brands that utilise Amazon’s third-party fulfilment services are more likely to reach the top of search results. As FBA brands have access to Prime, consumers are more likely to buy from them, increasing their conversion rate and rankings in search results. In fact, Amazon’s algorithm considers FBA a ranking factor when determining how high to rank a listing. For startups, this means their products will get better visibility by investing in FBA, increasing your prospects to generate sales and grow your business.
Amazon Shipping: We’ve spoken about shipping opportunities several times now, but they are a sole part of Amazon’s unique offerings. Brands tend to increase their sales using FBA because buyers trust Amazon products more than a brand they haven’t heard of. When a potential customer sees two of the same product, but only one has Amazon’s stamp of approval or prime shipping, they are more likely to go for the FBA brand. Knowing a brand is backed by Amazon guarantees a certain level of service, and thus, they have more confidence in your goods.
Multi-Channel Fulfilment
It’s true that being a startup comes with a lot of trial and error as you navigate the highs and lows of business. In fact, during your first year or so, you may experiment with various platforms before deciding which is best for your business model. This is precisely why so many startups favour Amazon FBA. It allows you to try other eCommerce platforms and integrate FBA to streamline your shipping and logistics. FBA isn’t limited to shipping your Amazon products. By integrating these services, you’ll be able to forward sales to FBA to be fulfilled.
Increase the Chance of Securing the Buy Box
As an Amazon FBA brand, your chance of winning the Buy Box increases. This box is a valuable space on the product detail page that allows customers to add items to their baskets. You compete with similar sellers for this space to increase sales, but with FBA, you have a better chance of securing this spot than self-fulfilment sellers. Any opportunity to improve product visibility is valuable, especially when you have 20 other sellers offering the same items.
Smooth, Reliable Customer Service
A strong brand must have an after-sales strategy that manages customer service, including feedback, complaints and potential returns. This can seem daunting for startups, but it is essential to secure repeat customers and positive reviews. Thankfully, FBA has a dedicated customer service team that manages your returns and reviews, providing another avenue to streamline the customer’s after-sale journey. Amazon’s customer service is one of the reasons buyers choose Amazon products because it gives peace of mind that they can return an item with ease if they need to. This option provides a stress-free alternative as Amazon’s good reputation goes a long way to boosting sales and caring for your customers when they need support.
Cost-Effective
Amazon FBA is a cost-effective option for startups in the eCommerce space. With this reasonable investment, you can save money on packing, shipping, and warehouse space.
Packing and Shipping: Shipping rates constantly fluctuate depending on the country, item’s size, weight and more. To reach a global audience, you also need to consider customs fees. Finally, selling online merchandise, such as custom t shirts, means you either have to spend time packing and posting orders or hiring a team to do it for you. Simply shipping the items comes with various overhead costs, whereas using FBA minimises these costs as you only pay a monthly fee for Amazon’s FBA services. It also saves you the hassle of staying up to date with worldwide shipping regulations as Amazon’s team manages all the logistics.
Warehousing: A significant perk of being an Amazon FBA brand is having access to vast warehouse space. Simply put, you don’t have to pay out for storage space or the staff to manage the warehouses because Amazon’s team handles this at the cost of your FBA fees. More importantly, using this space easily accommodates business growth as your sales increase and thus the need for more storage space.
Final Thoughts
Many startups are taking advantage of Amazon’s third-party fulfilment model in a bid to scale their brand. Amazon FBA brands benefit from opportunities to increase sales and product visibility while also managing the customer’s after-sale experience. Amazon FBA is a cost-effective way to grow your eCommerce startup as it reduces the cost you would otherwise spend on staffing, packing, shipping storage, and even expanding your warehouse space as your business grows. It’s easy to understand why so many startups opt for Amazon FBA services. It takes a considerable weight off business owners by giving them more time to focus on core business goals, Amazon marketing and product development.
