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Tips and tricks to scale your business from the experts in eCommerce

Amazon Fulfillment Methods: How to Decide What's Best for You

Posted by Guest Poster on Nov 3, 2016

amazon-fulfillment.jpgAs a seller on the Amazon Marketplace, you’re probably aware that there are three Amazon fulfillment methods available: Fulfillment by Amazon (FBA), Fulfillment by Merchant (FBM), and Seller-Fulfilled Prime (SFM). What might not be as obvious is that each of these methods is uniquely suited for sellers in varying positions on the Marketplace and each has both positive and negative attributes.

Let’s take a deeper look at the three fulfillment options and how they can be utilized the most efficiently.

Fulfillment by Amazon (FBA)

The first Amazon fulfillment method we’ll discuss is FBA. Off the bat, it’s important to understand that Amazon handles the entire fulfillment process, meaning your products are Prime eligible. Due to this, your ability to win the Buy Box increases since your products will utilize Amazon’s Perfect Seller Rating.

The major benefit being able to win the Buy Box is increased sales volume. When your sales increase, it opens up opportunities for bulk discounts from suppliers or manufacturers. Additionally, since it’s Amazon that is fulfilling orders, your Seller Rating won’t be penalized if an order arrives late or the package is damaged.

 

Experienced sellers can utilize FBA to alleviate the need to warehouse inventory that sells rapidly. By sending products to Amazon, the overhead can be greatly reduced, allowing for a much larger margin.

This is great, because it helps offset the higher fees involved with using FBA. These fees are roughly double what you would pay for FBM. On top of the increased fees on products, there’s the distinct possibility that not all of your inventory will sell quickly. If this is the case, you could incur long term storage fees on any products that aren’t quite as popular. This makes it crucial to understand which products are your top sellers and plan accordingly with what you want to list as FBA.

It’s also important to understand that with FBA, your products are co-mingled with the same items from another seller (unless you opt out for an additional fee). This means that if the product the customer receives is defective or counterfeit, your account will take a hit and could even be suspended! This is the case, even if the product didn’t come from you.

Lastly, make sure that you are able to match competitor’s price points, or at least come close. If you can’t come close, you probably aren’t going to win the Buy Box and will end up losing money due to the increased fees with FBA.

[Click here to learn how to use Fulfillment by Amazon (FBA)]

Fulfillment by Merchant (FBM) 

Fulfillment by Merchant is where the merchant is responsible for all aspects of the order process.

There are several major benefits to this method. First and most important are the lowered fees. Since you are responsible for fulfilling orders, you pay the shipping costs, which can be passed on to the buyer. There is still a commission fee for Amazon (different amount depending on product category, usually 15%).  However, this is considerably less than what many products using an FBA method would cost.

Additionally, with FBM you are always in control of your products. As mentioned earlier, in FBA, items can be co-mingled with other sellers’ products, causing your account to be negatively impacted if the product received by the customer is defective or counterfeit. You don’t have to worry about that with FBM since you are in control of what the customer receives from start to finish.

On the negative side, FBM listings often find it difficult to compete against Prime eligible offers. There are nearly 60 million people who have Amazon Prime accounts, and without that Prime eligibility through FBM, your listing could get passed over.

Additionally, seller metrics such as on-time delivery and order defect rate are at a premium with FBM. If any of the metrics dip below Amazon’s minimum threshold, your account can get suspended. It can take a long time to get an account reinstated if this happens, due to having to get that metric back into the green. This is especially impactful to a seller with a small order volume or short seller history where it may take longer to get the sales necessary to move the needle.

Order processing can also cause additional problems. Since the orders come from Amazon, sometimes the integration with your fulfillment and customer service protocols can be negatively impacted if you aren’t properly prepared. Amazon has strict requirements in fulfillment and operation, so make sure your teams are trained and understand how to deal with any issues in a timely manner to avoid delayed orders and negative customer feedback.

Ideally, FBM works well for experienced sellers with their own warehouses. Those who can ship efficiently and have processes already established don’t need to solely rely on Amazon traffic and can be more patient with their selling process.

Seller Fulfilled Prime (SFP)

Last but not least is Seller-Fulfilled Prime. This method gives you the perfect opportunity to gain all the benefits of Prime eligibility while still maintaining control of your products. If you are able to fulfill an order quickly (you must be able to ship on the same day and guarantee two day delivery) and meet the high seller standards of Amazon, you may be able to utilize this method.

Due to the additional bulk of products you will be shipping via SFM, you might also be eligible for shipping and vendor discounts. This can go a long way to improving your margins and allowing you to decrease your prices and be more competitive with other sellers.

The only real down side to this method is that these requirements are not always easy to achieve.

Aside from shipping and fulfillment requirements, strong performance metrics and an established seller account are mandatory. This includes metrics such as a high on-time delivery rate and a low cancellation rate, as well as solid customer feedback scores. You also must be enrolled in Premium Shipping.

However, should your business meet these requirements, SFM is an excellent to keep Amazon fees low and maintain Buy Box eligibility.

Conclusion 

These three methods are all unique and all have their uses for a wide range of sellers.

If you are a newer seller, FBA might be a perfect solution for your products to be Buy Box eligible and gain yourself a foothold in the Marketplace. Just keep in mind the higher fees and make sure your bottom line can handle it.

Established sellers can consider FBM in instances where their own internal systems are strong and in which they want to reduce fees. For those established sellers who meet all the criteria, SFM is an additional option for reduced fees and also still affords the opportunity to win the Buy Box.

Whichever method you choose, there’s certainly a lot that goes into selling on the Amazon Marketplace. If you are still struggling to understand the intricacies of the platform, ROI Revolution has the solution! Download our complimentary e-books on Owning the Amazon Buy Box and Amazon SEO Seller Strategies to get a leg up on the competition.

 


This is a guest post from ROI Revolution is an eCommerce-focused, digital marketing agency in paid search, online shopping, marketplaces, social media advertising, CRO, and SEO for 290+ clients. If you're interested in learning how a WMS can increase product rankings and visibility on Amazon, check out our guest post on the ROI Revolution blog. 

 

 

Topics: Amazon, Marketplaces, eCommerce Businesses