Introduced in 2015 to celebrate Amazon’s 20th anniversary, Amazon Prime Day started Monday at 3 pm. Prime Day not only produces a spike in online sales for Amazon, but it also promotes new sellers to begin investigating the potential Amazon has as a new sales channel. Amazon mentioned that Prime members worldwide ordered over 100 million products during Prime Day this year! Before Prime Day, Coresight Research predicted sales would reach $3.4 billion (about $1 billion more than last year). Amazon sellers have two primary selling options: Fulfillment by Amazon (FBA) program or Fulfillment by Merchant (FBM).
FBA means Fulfilled by Amazon, you sell it and Amazon ships it. The seller sends bulk products in Amazon’s fulfillment centers for Amazon to pick, pack, and ship products once sold. FBM means Fulfilled by Merchant and the seller lists the products on Amazon while handling storage and all aspects of order fulfillment. You sell it, you ship it.
What should a seller evaluate when looking at fulfillment by Amazon or merchant?
Can we ship at a low cost? Can increased shipping volume discounts translate into more profit?
How much per unit will it cost to ship units to Amazon? How popular is the item?
Will there be any additional monthly or long-term storage fees?
Can the increased price still compete with FBA to offset additional fees?
According to Joseph Abitbol at Seller Locker, understanding Amazon’s fulfillment fees can get tricky. Amazon will charge the greater of the dimensional weight or actual weight so it is important to know what size tier each product fall into before sending units to FBA. “Amazon is constantly changing the pricing structure and sellers must stay up to date with these announcements. In 2018 fulfillment fees for almost all size categories have increased by 15%,” according to Abitbol.
What are the benefits of FBM?
More control: Seller has more control over inventory and can access inventory anytime
Lower costs: Amazon’s fees are based on the size of the item, large items with small margins might not be a great fit for FBA
Opportunity for Prime: Seller-Fulfilled Prime allows Amazon sellers to access FBA benefits while avoiding Amazon fulfillment and storage fees. Amazon sellers with Professional Selling accounts can display the Amazon Prime badge on orders fulfilled via their own warehouse.
Lower costs outside Amazon: Greater discounts on shipping and supplies can be used with non-Amazon sales channels
As an FBM seller, you have greater control over your shipping rates. Since the seller is purchasing the shipping from UPS or FedEx directly, increased volumes and discounts can translate into more profit. Many shippers are able to utilize ground or home delivery services to deliver packages within 2 days, but buyers that live further distances will require shipment by express.
Using UPS published rates would not work for the smaller seller fulfilled prime shipper because any profit would be eaten up by shipping costs. But if you have a larger volume discount with FedEx or UPS, this could work. With proper help and data, UPS and FedEx will lower your 2nd day air discounts to make the rate more competitive with ground pricing.
If you are interested in exploring deeper discount rates with FedEx or UPS contact Refund Retriever for a full contract rate analysis. Our experts can start a free deep dive analysis of your yearly shipping spend and help with a full contract strategy.
Seller Locker is a program built by a group of Amazon sellers who were tired of being overcharged on FBA fees. Amazon measures products at the fulfillment center and remeasures the product every time the inventory is replenished. The slightest overmeasure on a product can result in major overcharges on fees. Seller Locker monitors all of your FBA fees, as well as any inventory related issues, such as lost/damaged or missing inventory.