One of your first decisions as an Amazon Seller is how to fulfill customer orders. You have four options (not mutually exclusive), as we explain in the following.
When considering FBA, weigh the pros and cons.
Here are the pros:
- All FBA products receive two-day shipping to Prime customers, which improves your chances of closing sales. About half of Amazon’s customers (101 million in the United States alone) are Prime, with each spending on average about $1,400 annually in products on Amazon.
- Using FBA is hassle-free. All you need to do is get your products to Amazon fulfillment centers, and Amazon handles the rest.
- You get reduced shipping rates to Amazon fulfillment centers and from those centers to your customers: Amazon negotiates high-volume shipping contracts with carriers, and you reap the benefits of lower shipping costs.
- An FBA product has a greater chance than a Fulfillment by Merchant (FBM) product of winning the buy box (being the featured offer). Buy box placement accounts for more than 80 percent of all Amazon sales.
- FBA can also be integrated into your other sales channels, so if customers purchase a product on your own ecommerce site (outside Amazon), FBA can fulfill the order (subject to a higher FBA fee).
- Offsite product storage is much more convenient. If you’re running your ecommerce business out of your home or garage, you avoid the clutter of having to store inventory onsite.
- Amazon charges FBA fees to cover storage, fulfillment, and customer service, plus you pay for shipping products to fulfillment centers. You may also incur a high-volume listing fee on some items and long-term storage fees if products don’t sell through within a year’s time.
- Preparing and shipping products to Amazon fulfillment centers requires some work. Each unit must be labeled with a bar code, so it can be picked and packed easily with outgoing orders.
- Access to your inventory is limited because it’s stored in Amazon fulfillment centers.
We strongly encourage you to use FBA as your primary fulfillment method, especially for high-volume, high-margin products, leveraging Amazon’s industry-leading logistics and customer service to cater most effectively to Amazon customers and simplify the process of scaling your business. Reserve other fulfillment methods for specialty items, such as custom-made furniture that requires special packing or a more personal touch.
To compare the costs of FBA and FBM, use the Fulfillment by Amazon Revenue Calculator:
- Go to the Fulfillment by Amazon Revenue Calculator.
- In the Find Your Product on Amazon.com text box, type the product name, UPC, EAN, ISBN, or ASIN and select Search. Amazon presents a collection of products that match your search term or phrase.
- Below the product you’re interested in, click Select.
- In the Your Fulfillment column, type your fulfillment costs in the Item Price, Shipping, Cost of Seller Fulfillment, and Cost of Product fields.
- In the Amazon Fulfillment Current column, enter your numbers for Item Price, the per-item cost to ship the product to an Amazon fulfillment center, and the cost of the product.
- Press the Calculate button. The calculator crunches the numbers and displays a comparison of your net profit and margin percentage for your fulfillment costs versus Amazon fulfillment costs.
Here are the pros:
- Avoiding FBA fees may help to lower your costs, which can boost profit margins. Crunch the numbers, though, to determine whether Amazon’s lower shipping fees offset other FBA fees.
- Fulfilling orders yourself gives you greater control over inventory, packing, and shipping, which can be beneficial when selling custom products or adding a personal touch to outgoing packages.
- With FBM, you spend more time and effort to pick, pack, label, and ship products and process customer service requests, returns, and refunds.
- FBM products aren’t automatically eligible for Prime. You may be able to qualify for Seller Fulfilled Prime.
- You have less opportunity to win the buy box (and be the featured offer).
- Although profit margins may be higher with FBM, sales volume is likely to be lower.
- You need to store products in your home or garage or procure warehouse storage.
- Overhead costs, including shipping fees, are generally higher.
During the time of this writing, Amazon wasn’t accepting new registrations for Seller Fulfilled Prime, but you can join the waitlist.
- You pick, pack, and ship products from your warehouses, so you have greater control over your own inventory and operations.
- You can list products as Prime, which is very appealing to Amazon’s most loyal customers. Prime customers often filter product listings so as to display only Prime products. To have a chance to win this business, your products must qualify as Prime offerings.
- Prime listings have a greater chance of winning the buy box.
- By offering free two-day guaranteed shipping, you improve your chances of repeat and multiple orders.
Seller Fulfilled Prime is generally best suited for high value items, seasonal products with unpredictable demand, slow moving goods, items with variations, and inventory that requires special handling or preparation.
- Offer premium shipping options.
- Ship more than 99 percent of the orders on time (the same day you receive the orders).
- Maintain order cancellation rate of less than 0.5 percent.
- Buy Amazon shipping services for at least 98.5 percent of Amazon orders; for the most part, you buy shipping labels from Amazon-approved carriers, who deliver orders to customers.
- Allow Amazon to handle customer service queries.
- Agree to and comply with Amazon Returns Policy.
Assuming you successfully complete the trial period, you’re enrolled in the program, and the Prime badge is displayed for participating ASINs.
- Maintain sufficient inventory in your warehouse(s) to fill customer orders.
- Buy shipping labels from Amazon-approved carriers. In Seller Central, select Orders and then Manage Orders and press the Buy Shipping button for the order you want to ship. Follow the on-screen instructions to complete the process.
- Pick, pack, and ship the orders the same day they’re received, typically by 4 p.m. Orders will be delivered within two days by Amazon-approved carriers.
Inspect shipping costs closely prior to deciding whether to “Buy Shipping” from Amazon-approved carriers. Seller Fulfilled Prime free shipping options may be cost-prohibitive for certain products or product categories.For questions about Seller Fulfilled Prime, email [email protected].
Although drop-shipping may strike you as the ideal option, consider a couple potential (and significant) drawbacks:
- Although drop-shipping is a low-cost, low-risk approach to testing the waters with customers, as your sales and business grow, the costs eat into your profit margins. If you’re selling high-volume or low-margin items, drop-shipping may not be the best choice for selling any product long term.
- If the drop-shipper drops the ball on an order, you suffer the consequences of disappointing a customer.
- You’re at the mercy of the drop-shipper regarding inventory. If your drop-shipper runs out of stock or discontinues a product, you’re out of luck.
- Be the seller on record
- Identify as the seller of the products on all the packaging material, invoices, and any other documentation
- Remove any mention of the drop-shipper from invoices, packaging, products, and anything else sent to customers
- Be responsible for all the product returns
- Comply with all other seller policies and Amazon policies
Drop-shipping is a great way to test the market for any new, unproven products. You can list the product without investing in inventory. If the product takes off, you can switch to FBA or FBM.To find out more about drop-shipping, check out some of the top drop-shipping suppliers: