Guest blog post by Sam Moses, CEO, RetailOps
When was the last time you thought about Amazon? Yesterday? Today? In the last hour?
I’d guess it’s very recently, as Amazon can impact your business in dramatic ways. The retail giant ultimately plays a starring role in the day-to-day operations of online retailers of all shapes and sizes.
Therefore, a good presence on Amazon is crucial to the success of your business, while visibility on Amazon Prime is even more important.
In fact, with 60 million Prime members worldwide spending an average of $1,200 per year – compared to the $500 per year average spent by non-members – Prime is a market you’d be crazy not to tap into.
Two programs allow you access to those golden Prime shelves: Fulfillment by Amazon (FBA) and Seller Fulfilled Prime – also known as merchant fulfilled Prime.
Both share one big feature: they allow you to sell on Amazon Prime, giving you huge exposure and opening your business to that massive market. But that’s about where the similarities end. FBA and SFP are fundamentally very different and have features that pretty much guarantee they will only appeal to certain businesses depending on size, profitability, and aspirations.
To help you determine which program may be best for your business, I’ve outlined five key differences between the programs:
The most striking difference between FBA and SFP is the way your items are fulfilled.
As the name suggests, Fulfillment by Amazon means your inventory is completely taken care of by Amazon. You send a portion of your inventory to Amazon’s fulfillment centers, where it’s stored until a customer decides to buy it. Amazon then picks, packs and ships the items to your customers, while you sit back and profit (in theory — see my next point).
With Seller Fulfilled Prime, fulfillment is in your hands. Customers will purchase through Amazon Prime as usual, but your company ships the items directly, with no intervention from Amazon. You use the Amazon Prime brand name and shipping rules, but it’s up to you to pick, pack and ship to your customers.
So what’s the catch with SFP?
Shipping! A huge difference between FBA and merchant fulfilled is that the merchant has to pay for shipping. This can drastically eat away at your margins and possibly result in a negative sale if you’re not careful. If you’re curious about the cost difference between the two programs I broke down a comparison between the two programs and created an excel template that you can download here.
“Sit back and profit,” I said. “This is too good to be true,” you thought – and if poorly managed, you may be right.
This is thanks to FBA’s notorious fees. As anyone who has been part of FBA will know, Amazon’s fulfillment fees can quickly eat into your profit. In fairness to Amazon, they do everything for you, so you can expect them to ask for something in return. Of course, that comes at a cost.
For example, on one small non-media item, Amazon can charge around a few pounds for order handling, picking, and packing, weight handling and storage. Regardless of what you are selling, these fees can escalate fast.
SFP users, on the other hand, are able to avoid these fees – as you’re not sending anything to Amazon to be stored, handled, packed or returned, there is no reason for them to invoice you with eye-watering fees. It’s more work naturally — plus you have your own shipping costs to deal with — but that bit of margin is yours to keep.
The storage of your inventory is another area that highlights the differences between these two Prime programs.
FBA is a compelling proposition for retailers selling strictly on Amazon. But for the rest of us, we choose to sell on as many sales channels as possible — why? Because multichannel customers are more profitable! Of course, you could use Amazon’s multi channel fulfillment services, but then you lose control of your precious inventory.
To be a merchant fulfilled Prime member you’ll need your own warehouse. By keeping control of your inventory and fulfillment, you’ll need a warehouse and warehouse staff of your own, which can be costly to acquire, maintain and staff. In addition, as a merchant fulfilled Prime member you HAVE to ship Prime orders same-day. This means your warehouse must be streamlined and process orders efficiently.
- Inventory Control
Inventory control certainly ties in with the storage issues I just highlighted.
With FBA, after you’ve sent your inventory to Amazon’s fulfillment warehouses, it’s gone. This sounds like an obvious statement, but the impact of this means that you can’t just go down to the warehouse to see exactly what you have when you need to.
Therefore, it can be a little tricky to determine exactly what’s in stock, which can easily lead to stale inventory. On top of this, Amazon charge penalty fees for inventory stored in a Fulfillment Center for longer than six months.
The difference when it comes to SFP is that you have complete control over your stock — no split inventory between Amazon’s warehouses and your own. All your inventory can be stored in one central location, meaning you have complete power over your stock. This is a big plus if you sell on multiple sales channels and/or have a brick-and-mortar location. This is even more evident when it comes to events such as Prime Day or Black Friday, as there’s no limit on how much you can sell.
With FBA, Amazon will handle returns on your behalf, as well as provide their ‘top-class’ customer service. This is very useful for smaller businesses who will benefit from the time and resources this will save.
SFP sees your company handle all returns, which means you’ll need your own returns and/or customer service department. However, this brings its own benefits because — whereas Amazon sends FBA members a general box of returned goods — things are certainly less vague with SFP.
The plus point with this is that you can easily identify exactly which returned item ties to which order — resulting in more chance of avoiding potential customer fraud.
Plenty to Consider
These five differences certainly highlight the main variations between Fulfillment by Amazon and the newer Seller Fulfilled Prime programs.
It’s clear that both SFP and FBA have certain advantages and disadvantages, and they will appeal to different businesses with different aspirations. And it’s also worth mentioning the strict requirements retailers have to meet to be part of Amazon’s merchant fulfilled Prime program, which we have broken out for you here.
While it’s not always easy to determine which program is best for your business, remember that you are not alone when it when it comes to making this important decision. Contact us today to see how ChannelAdvisor plus RetailOps can help.