Fulfillment by Amazon (FBA) is an excellent service for e-commerce entrepreneurs looking for a reliable and straightforward way to sell products online.
Running an online business through FBA allows you to focus on sales and marketing to boost web traffic and increase profits. It also means you don’t have to deal with warehousing, order fulfillment, logistics services, and other challenging aspects of sourcing products from China.
Instead, you store products in Amazon’s fulfillment facilities, where trained staff handle picking, packing, shipping, and customer service for your products.
In the first ten years following its introduction in 2006, Amazon FBA businesses were extremely popular. FBA proved to be hugely successful in e-commerce, particularly for smaller items like cheap electronics, books, sports clothing, and kids’ toys.
An oversaturated marketplace makes it challenging to make your Amazon business stand out. The online retail industry also continues to change, with consumers’ demanding faster shipping at lower prices, making it even more difficult to establish a profitable business.
The COVID-19 pandemic created logistical issues throughout 2020 and 2021, dramatically increasing prices on goods shipped from China. Shipping container shortages, port backlogs, and manufacturing delays have put significant pressure on supply chains worldwide.
Can Amazon FBA Businesses Stay Profitable?
Although rising shipping costs from China can impact your bottom line, there are two key factors to focus on for long-term profitability. Amazon businesses must adapt strategies to reduce shipping costs and increase return on investment (ROI).
While this might seem like standard practice, it is crucial for small businesses when margins are tight. There is less room for experimentation and risk-taking if consistent profitability is the goal.
The container shortage and level of congestion at international ports are still relatively unstable. While improvements appear to be on the horizon, there is no guarantee that these factors will stabilize, so Amazon FBA businesses must continue to focus on reducing costs and increasing revenue.
How to Reduce Shipping Costs
Rather than waiting for shipping prices to fall, businesses must get ahead of the curve and find alternative ways to reduce their costs. Here are some effective ways for Amazon FBA businesses to reduce shipping costs:
Establish a shipping plan
Amazon businesses must establish clear objectives and create an organized plan to reach their targets. The most important aspects of a shipping plan are:
- Identifying the right products to sell
- Determining an appropriate quantity for each product
- Deciding on a shipment method
- Choosing shipment frequency
- Selecting the most efficient shipping route
A critical factor in creating a successful shipping plan is to conduct good market research. As consumer behavior has changed significantly since the pandemic, businesses should be aware of the latest trends and how best to meet customer demands in a dynamic marketplace.
While online shopping has been growing consistently for many years, the pandemic has accelerated the shift toward a retail space dominated by digital vendors and applications. According to a United Nations report, virtually every industry has seen a rise in online shopping, and they predict these changes are here to stay.
This is good news for online retailers and Amazon businesses. If they can remain profitable throughout turbulent periods, there may be significant growth opportunities on the horizon.
Work with a reliable shipping provider
Established shippers typically have strong relationships with logistics companies, port managers, Amazon warehouse personnel, and the United States Custom and Border Protection (CBP) officials. This ensures the shipping process is carried out efficiently.
Many of these shipping providers offer discounts and promotions due to their size and the regularity of their shipments, enabling you to reduce costs.
Find a shipping provider that reacts in accordance with the changing marketplace. Do your research and choose a shipper that offers frequent discounts and promotions that help you stay within budget.
However, discounts and low prices aren’t the only factors to consider when determining value in a shipping provider. Delivery time, capacity, safety, insurance, and tracking capabilities are other essential aspects of a dependable shipper.
The shipping company that offers the lowest prices for transport may not be as fast or reliable, which may result in lower sales. In these circumstances, short-term savings can be costly in the long run.
Shipping providers that use live tracking equipment can increase the value of your product offering by giving customers more accurate delivery information. It’s important to think about all aspects of the shipping process that impact your bottom line rather than choosing the provider with the lowest rates.
If your budget doesn’t stretch far enough to accommodate large shipments, look for a freight forwarder who can help make international shipping more affordable.
Negotiate with carriers
Although shipping prices are hitting record highs around the globe, most carriers are willing to negotiate prices. Just like with any other business, repeat or regular customers are a priority for most shippers.
If you’re planning multiple shipments over the coming months or years, use this to your advantage in negotiations. Avoid settling for an initial asking price from a quote.
When negotiating freight rates, get quotes from multiple carriers, read the fine print on proposals, and develop trusting relationships with carriers. This approach should help secure the lowest prices and best value shipping deals for your business.
Adjust product packaging
Whether you’re dealing with ocean or air freight, the weight and volume of your shipments are two of the most influential factors in determining prices. Any unnecessary bulk or weight increases the cost of your shipment and reduces available cargo space.
Ensure your products are packaged efficiently to minimize weight and space utilization. However, you must also avoid unnecessary damage to your goods, so don’t compromise product safety for reduced weight.
Amazon has a strict set of rules for any business selling products on its platform. If your packaging doesn’t adhere to these regulations, your goods may have issues, leading to delays, fines, and extra service fees.
As well as making sure the packaging meets Amazon FBA guidelines, consider the following tips to ensure your goods are packaged safely and efficiently:
- Use six-sided, sturdy boxes
- If you are reusing boxes, remove any existing address labels, information stickers, or barcodes
- Wrap each product individually
- Use industrial strength tape to secure the package for long haul shipping
- Place cushioning, like bubble wrap, between each product for added protection
- Don’t pack items too closely together
- Avoid bundling multiple products
Once your box is packed, shake it gently to test that the items are safely and neatly arranged. Any significant movement could cause damage to your goods while they are in transit.
How to Improve Profitability
After negotiating the best possible shipping rates, turn your focus to improving your return on investment (ROI). A data-driven approach is key to boosting your ROI.
Here are some effective approaches for increasing ROI while shipping costs are high:
Prioritize best selling items
To protect your investment in new inventory, prioritize best-selling items. Although this may mean dropping certain product lines and redeveloping your marketing plans, it helps maintain a steady revenue stream, making it easier to stay profitable.
While you may be tempted to diversify your product offering to explore new opportunities, this may put your capital at risk if the products fail to sell.
If you are unsure of what products to prioritize, use Amazon’s built-in seller tools to identify your highest-performing products. Consider market trends and the reasons for some items selling well.
Just because an item had a surge in sales for a short period, it doesn’t mean it will continue to sell at a high rate. For example, seasonal goods such as Christmas decorations are likely to be in high demand throughout the winter, but there is no point in prioritizing these goods during spring and summer.
Plan for busy holiday seasons
It’s important to be prepared for busy periods to maximize sales—plan for holiday seasons and special events associated with shopping. For example, dedicated marketing campaigns for Prime Day, Black Friday, Christmas, New Year sales, and summer promotions can drive up sales, resulting in strong ROI at the end of the year.
To take maximum advantage over busy seasons, research sales data and identify which times of year provide your business the most profit potential. Different types of products perform better at certain periods.
Adjust your pricing strategy
Rising shipping costs can often be offset through price adjustments. Use a pricing optimization platform to explore different pricing strategies. While increasing your prices too much can be detrimental to overall sales, a new strategy may provide opportunities to improve your ROI.
Source products from alternative locations
In some cases, the price of shipping products from China may make profitability extremely difficult. While some companies are willing to risk making a loss in the short-term, hoping that things will turn around soon, this isn’t a realistic option for many Amazon businesses.
Consider sourcing goods from alternative locations where shipping costs are less. Although manufacturing may be more expensive in these areas, cheaper shipping could make them more profitable options.
Create a targeted advertising campaign
As a cost-saving measure, some businesses choose to reduce spending on their advertising budget during tough times. This can be a serious error, leading to massive reductions in sales. Advertising through a crisis is often the best way to gain an edge over the competition. It ensures your brand is recognized and may even open up opportunities in new markets.
Advertising on Amazon is designed to maximize sales for your FBA businesses. Use this built-in tool to target specific audiences in different formats. Some of the most effective advertising strategies include sponsored ads, pay-per-click (PPC), SEO-based advertising, and content marketing. Pay close attention to the data and find opportunities to optimize all advertising campaigns.
Find a Reliable Shipping Partner With Asiana USA
Whether you decide to break off from Amazon or simply adjust your strategy to align with the current market, ensure you work with a leading international shipping company, like Asiana USA. As a world-class freight forwarder, we can help you with all aspects of the shipping process, from preparing goods for shipments to checking international customs compliance.
For more information on our services or to request a quote, contact Asiana USA today at (855) 500-1808.