Amazon is the world’s biggest eCommerce website – and a real boon to sellers who want to tap into its far-reaching marketing, sales and fulfillment infrastructure, not to mention a customer base second to none.
Making the most of Amazon’s advantages while minimizing costs, though, requires careful consideration of the options for seller types and figuring out what works best in your situation. Fortunately, the options available should meet most merchants’ needs.
Those options are: Fulfillment by Amazon (FBA), Fulfillment by Merchant (FBM), and Seller-Fulfilled Prime (SFP). To determine which is best for your situation, you’ll want to consider your business model, amount of working capital, margin, and how well you can store and move your inventory.
Fulfillment by Amazon
With FBA, Amazon handles the picking, packing, and shipping on your behalf. Amazon also handles customer service and returns and stores your product in its warehouses. That leaves you free to focus on other aspects of your business.
There’s a cost to all this convenience, though. As an FBA merchant, you’ll pay fees in four areas: order handling, pick and pack, weight handling, and inventory management. That last item is especially problematic. Amazon will charge you additional fees for products that stay in its distribution centers for long periods of time, so you’ll want to move products within six months.
And, of course, giving someone else control of the all-important shipping, returns and other customer-service issues can be nerve-wracking because it leaves your company’s reputation somewhat out of your control.
Check out Amazon’s fee schedule for FBA so you know what you’re getting yourself into, and keep in mind Amazon reserves the right to change those fees at any time.
With FBA, you’re paying for Amazon to handle lots of headaches and hassles associated with eCommerce and you’re getting access to Amazon’s prime customers. Those are the customers who spend the most on Amazon and get two-day shipping, and, therefore, are more likely to buy your products, too.
FBA merchants also are likelier to land their products in the highly sought-after Buy Box; that’s the spot on a product detail page that allows shoppers to add the item to their shopping cart. Because multiple sellers often offer the same product, Amazon’s choice of which one gets in the Buy Box has a huge impact on sales.
Fulfillment By Merchant
With FBM, you’ll avoid those Amazon fulfillment fees but you’re responsible for shipping, handling, and customer service. That can be both time-consuming and expensive.
Of course, handling your own shipping, handling, product returns, and customer service gives you control over these key facets of your business. For example, you can send your items in your own branded packaging, instead of Amazon’s. And when customer-service issues arise, you make sure they’re resolved satisfactorily yourself.
Another challenge of FBM: you’ll have to store your own inventory. Warehouse space isn’t cheap. Your marketing potential is limited, too; it’s unlikely you’ll win a spot in Amazon’s Buy Box, and prime customers are likely to overlook you because you’re not a prime merchant.
SFP offers a middle ground – giving you access to Amazon’s prized prime members while letting you handle shipping, handling and customer service.
SFP is especially helpful if you’re shipping items that are high-priced, oversized or potentially hazardous, giving you the shipping and handling flexibility you can’t get in an Amazon fulfillment center. You also can better handle returns for larger items; for example, you can arrange carrier pickup instead of requiring the customer to haul the item to the carrier.
You can choose which states see SFP items so that you’re only promising two-day shipping to regions where you can guarantee it. You can even turn on and off SFP items if temporary operational issues pop up.
Remember, with Amazon, it’s all about access to prime customers, which can increase sales, in some cases as much as 20-30%. With SFP, you get that, along with control over key aspects of your business.
Amazon does have some requirements for SFP participation. You have to offer premium shipping and ship at least 99 percent of your orders on time. You must maintain an order-cancellation rate of less than 0.5 percent. For more information on SFP requirements, see here.
Deciding Which To Use
How to know which option is best for your business? If you’re not sure, start with FBA. The advantages of outsourced operations are huge, especially for smaller businesses that lack space for storage and working capital to handle customer service.
If you have your own warehouse and shipping, handling and customer-service operations, FBM or a combination of FBA and FBM might be best.
If you can make SFP work for your business and meet Amazon’s requirements, that’s the way to go, particularly when selling large items or products that require special handling. You get the advantages of both FBA and FBM: access to Amazon’s prime customers and the flexibility of handling your own shipping and various customer-service issues.
Also, don’t forget to consider the costs of inventory when weighing the different options. If you think your products are going to stay in storage for a while, then you’ll have factor in the additional storage costs associated with FBA. Some merchants that can get a good deal ordering large amounts of product will store most of it themselves and send smaller shipments to Amazon to keep control on those Amazon inventory fees.
Obviously, you won’t have to worry about Amazon storage fees if you’re handling shipping from your location, which is the case with FBM and SFP.
The good news for your business is that the seller options offered by Amazon are varied enough that you can almost certainly find a system that will work for your needs.