In this episode of Follow The Data, we’re interviewing Michael Sene from Deliverr – one of the top 3PL companies eCommerce sellers are tapping into for explosive growth.
Amazon’s revolutionary two-day Prime shipping changed the logistics game forever and played a sizable role in making it the eCommerce powerhouse it is today. Fulfillment by Amazon (FBA) is one of the many pillars that make becoming an Amazon seller appealing and possible.
But it isn’t the only way to store your products and fulfill your orders on time.
Amazon coach and Follow the Data host Cam Yoder sat with Michael Sene from Deliverr to discuss the advantages of Fulfillment By Merchant (FBM) third-party logistics.
Like Amazon Prime, Deliverr boasts fast and affordable shipping options that enable multi-channel logistics to sellers of any size. However, unlike Prime, Deliverr allows for fulfillment on orders outside of Amazon. As a result, they’re simplifying the fulfillment experience and allowing sellers the opportunity to explore omnichannel options.
When COVID-19 hit, Amazon sellers saw their inventory (and profit) freeze. Many started searching for alternative options for fulfillment and researching the growing industry of 3PL companies such as Deliverr.
Alternative fulfillment options allow you to maintain the shipping speed and convenience necessary to continue growing while opening the door to easily host and sell your products on websites like Walmart, Shopify, Wish or eBay (not to mention protecting your eCommerce operations when big events like COVID-19 or the holidays hit).
Check out this installment of the Follow The Data podcast for more information on 3PL companies like Deliverr and if FBM via 3PL is right for your business.
Get to know Michael Sene, Director of Sales and Partnerships at Deliverr. If you haven’t already heard of Deliverr, get up to speed with one of the companies to watch in ecommerce.
On Deliverr’s rise, and why merchants are flocking to their service. (1:45)
Based in San Francisco, Deliverr has skyrocketed since its 2017 inception thanks to its speedy and affordable fulfillment platform. Michael breaks down what solutions they’re offering to innovate the fulfillment space and become a preferred service for sellers.
Fulfillment has made significant strides in recent years. What do the next 2-3 years of fulfillment look like? (16:00)
The appeal of Amazon Prime’s two-day shipping changed eCommerce forever, but it’s not the end of advancements in shipping fulfillment. Is same-day shipping a realistic possibility? Sene gives us a look into what Deliverr is doing to shape the future of fulfillment.
What should sellers be thinking about when considering the migration to a 3PL? (22:41)
For existing Amazon sellers, change can feel like a risky proposition and is easy to put off. But Amazon is continuously evolving, and all avenues to earn a leg up on the competition should be weaponized. Sene provides his expert insight on what aspects should be considered when migrating from FBA to FBM using a 3PL.
What sets Deliverr apart from the competition? (26:45)
Deliverr is at the forefront of transforming logistics as we know it, but they aren’t the only 3PL. Hear from the expert on why Deliverr is the hottest name in logistics with seemingly limitless potential.
For more information on whether Deliverr is right for you, be sure to head to their website. With powerful integrations and shipping options for Amazon, Walmart, Shopify, Wish, and more, Deliverr is an up-and-coming 3PL that is shifting eCommerce as we know it and helping sellers fulfill their dreams.
Ready to ditch the corporate life and sell Amazon FBA (Fulfillment by Amazon)? Not sure how to get started?
Or maybe you’re already selling Amazon FBM (Fulfillment by Merchant) and looking to make the switch …
If you’re interested in FBA vs. FBM each program has its pros and cons. But ultimately, FBA provides an unmatched, hands-off selling experience with the ability to scale. For these reasons, many sellers prefer FBA to FBM.
FBA is a method of fulfilling products by having Amazon store, pick, pack and ship your inventory. Through FBA, Amazon even handles returns. Although there are additional fees, setup, and tax obligations, FBA makes it easy to quickly start and scale your business. lot of the content in this blog can also be found from our How To Sell series! Check out the video if you’d like to get started on your Seller Journey:
Why Would I Want to Sell Through Amazon’s FBA Program?
You don’t have to store boxes of inventory at your house. One major benefit to selling FBA is that Amazon handles a good portion of the selling process, namely the most time-consuming portions. Although you still have to set up an Amazon Seller account (we’ll talk more about how to do this later), choose a product to sell, list the product, and have the inventory sent to an Amazon Fulfillment Center, Amazon takes care of the rest of the process with FBA. So when a customer orders your product, Amazon handles the fulfillment logistics of picking, packing, and shipping. In their words, “You sell it, we ship it.”
Once your products are ready to sell and in stock at Amazon’s warehouses, they are automatically eligible for Prime 2-day shipping. Although it is possible to be a Prime seller through FBM, you must meet extensive criteria to be eligible. And with an estimated 112 million Amazon Prime members, or about 62% of U.S. households subscribed to Prime in 2019, you can’t afford NOT to have Prime shipping. Numbers like that are hard to ignore when it comes to the sales potential that Prime provides.
What are the Different Methods of Selling on Amazon FBA?
Now that we’ve established which program you should sell through (FBA), let’s talk about methods of selling, or where to get inventory. There are many options, all of which appeal to different kinds of people. Some are more hands-on, while others allow for higher earning potential. Three of the most common methods include Retail Arbitrage, Wholesale, and Private Label.
Retail Arbitrage – This is a process of finding discounted products in retail stores (such as Walmart, Target or Kohls) and reselling them on Amazon. To make it profitable, the items need to be bought at a significant discount and sold at a higher price on Amazon. You can sell other branded products using this method and it is often a lower risk option, since you can check before purchasing the items if you will be able to make a profit or not. You can also search liquidation stores or online sites for pallets of returned items that can be resold.
Wholesale – To sell wholesale, a more unique method, you must find a manufacturer (local or abroad) and convince them to allow you to sell on their behalf. The smartest way to do this is to create an official business or LLC, acquire a wholesale license, then reach out to manufacturers/wholesalers to discuss a contract for selling their items. Getting the business to agree to providing you exclusive selling rights can lower your competition as well.
Private Label – Private Label selling involves working with a manufacturer to produce items and add your own brand name and logo to the products. As long as there is no patent on the product model, you can legally sell under this method and even work with manufacturers to create product modifications or additions to make your brand’s product stand out. Many private label sellers use Alibaba.com to connect with manufacturers, get samples, purchase inventory and more.
How Do I Get Started with FBA?
There are two account options when selling on Amazon: Individual and Professional. With Individual Selling Plans, you pay $0.99 per item every time a product is purchased. For those sellers making fewer than 40 sales per month, this may be more cost effective than paying the $39.99 Professional Plan subscription fee. These fees are on top of other FBA fees, which we’ll get into more later.
If you haven’t already created a Seller account, you will need to set one up. If you already have an account as an FBM seller, you can easily switch over to FBA inside your Seller Central account.
For retail arbitrage sellers selling FBA, you will need to add the product to your inventory in Seller Central and follow the steps to create labels for your items, which can be printed at home. Once you have printed labels, you can package different items in one large box to be shipped to an Amazon fulfillment center and print a shipping label for that box as well.
Keep in mind that you will need to pay for these shipping costs out of pocket, plus any materials needed for shipping (labels, boxes, tape, scale, etc.). Additionally, Amazon may require you to send inventory to multiple fulfillment centers depending on their inventory levels, which could increase your shipping costs.
Amazon does not require sellers to sticker products at the SKU level as long as you have a manufacturer barcode for the product. But other sellers with the same product (that are also “stickerless”) could get mixed in with your inventory in an Amazon warehouse and could be picked up and shipped to a customer instead of your stock. If their product is used, lower quality or even counterfeit, you could receive poor reviews, a higher return rate or even be suspended by Amazon for counterfeit sales (even if the product is not actually your inventory).
If you choose to sell Private Label or Wholesale, you’ll want to find a good product to source as well as a trustworthy manufacturer. Check out our podcast about finding a good manufacturer to make sure you make a smart partnership as well as our podcast about sourcing the right product to make a sourcing decision that meets your goals.
You can choose to label items yourself (following the method mentioned for Retail Arbitrage) as long as each unit has a scannable barcode or you can pay to have Amazon prep and label each item for an additional per-item fee. Fees can be as low as $.70 per item to as much as $2.20 per item.
When your shipment is ready to be sent to Amazon, make sure you have an organized shipping plan that includes easy tracking so you can ensure your inventory makes it to the desired fulfillment center. To learn more about carriers who partner with Amazon to deliver shipment to their warehouses, visit their page featuring Partner Carrier options.
Once Amazon has your inventory and your listing(s) is live, Amazon will handle the delivery of purchased items to customers as well as customer service throughout the process. Sellers just need to ensure their item is always in stock and ready for customers to buy. Check out our blog on inventory best practices to make sure you never get behind or run out of stock.
What are the Fees for Selling through Amazon FBA?
Because your inventory is stored, packed and shipped by Amazon when you sell FBA, there are additional fees associated versus FBM. Earlier in 2018, Amazon restructured their FBA fees into two fee structures:
Fulfillment Fees
Inventory Fees
Fulfillment Fees are per unit, based on the size and weight of each item and include the complete picking, packing, shipping and handling, customer service and return process for each item.
Monthly Inventory Fees are assessed per cubic foot based on the total size of your items. Inventory fees increase for Q4, so it’s important to calculate your costs for each quarter. Below is a breakdown of Amazon’s FBA fees. Make sure to double check your math with an FBA Calculator for help determining your costs before you source.
Other potential fees sellers could incur include long-term storage fees (if items in your inventory have sat in a fulfillment center for 6 months or more) and additional storage fees if you choose to participate in Amazon’s Multi-Channel Fulfillment Program (more on this later).
Things to Keep in Mind as You Start Your Amazon FBA Business
Tax Obligations
Although there was once a time when online sellers could get away with not paying sales tax, those days have come and gone. In June of 2018, the United States Supreme Court ruled in favor of South Dakota in South Dakota vs. Wayfair, Inc. Now, one-by-one, states are starting to enact economic nexus legislation.
Because the decision is new at the time of writing this post, it will take some time for the effects to play out. We encourage sellers to keep an eye on internet sales tax by state, and stay informed on the latest news in Amazon sales tax. Sellers should connect with a tax consultant versed in online sales tax regulations to avoid slip ups or potential mishaps in their FBA businesses.
Multi-Channel Fulfillment
Did you know that you can fulfill orders from sales channels outside of Amazon.com through the Amazon FBA Multi-Channel Fulfillment Program? Rather than having multiple different inventory locations and shipping methods for your different online sales sites, store all of your inventory in Amazon’s warehouses and let them pick, pack, ship and handle your items to customers, whether the sale is through Amazon.com or elsewhere. There are additional fees associated with the fulfillment process for multi-channel orders, but you can skip the headache of storing, packing and shipping your items and let Amazon do the heavy lifting.
Buy Box
If you are selling retail arbitrage or wholesale, the Buy Box is going to be very important to you. The Buy Box is the box on the right hand side of a listing page with the price, seller and shipping information as well as the “add to cart” button. If there are multiple sellers on a listing, they will be listed below the seller who has “won” the Buy Box. Since the majority of buyers purchase from the seller who has “won” the Buy Box, winning is critical to increasing sales. Although there are several factors considered to “win” the Buy Box, fulfillment method is a crucial component. And FBA sellers are significantly more likely to secure the Buy Box over other sellers.
Reviews
If Amazon is handling the customer service for your product under FBA, you shouldn’t have to worry about reviews right? Wrong! Reviews are a huge driver of sales, so whether you’re selling wholesale, retail arbitrage or private label, bad reviews and a low star rating can tank your sales rate. And, with the ability to filter by star rating, too many bad reviews could effectively leave you out of a user’s search results.
For private label sellers, positive product reviews are key to buyer trust in your product quality. If your product is similar to several others in the market, a better star rating could guarantee your product is chosen over your competitor’s. For wholesale and retail arbitrage, positive seller reviews are extremely important to establishing trust in your brand’s quality. Buyers want to hear from their peers if they can trust purchases coming from your seller account or if they should be concerned with used or damaged goods.
There’s been a lot of talk around reviews and Amazon cracking down on review fraud, so making sure you don’t violate Amazon’s Terms of Service for reviews is vital to avoiding suspension. Check out our video about Amazon’s recent “review crackdown”:
Final Thoughts: Learn from Failure
Look, it’s no secret – Amazon FBA can be a confusing and difficult platform to navigate. You’re bound to make some mistakes. What’s important is that you learn from your mistakes and minimize missteps in the future. Following our Amazon FBA guidelines is a good start, but to be truly successful, sellers should keep seeking out new information and staying up to date on changes.
There’s an old quote that states: “Complacency is the enemy of progress.”
Getting complacent or lazy at any stage of your FBA business journey is a recipe for disaster as it requires constant maintenance and upkeep to stay on top. By working hard and arming yourself with up-to-date information, you’ll have the tools you need to achieve Amazon FBA success.
FBA is Fulfillment by Amazon. FBM is Fulfillment by Merchant. But what exactly does this mean?
We all want to make money. And most of us would like to do it from the comfort of our home. Or, if you’re like me, from a warm sandy beach. Just look at our Google search suggestions below, and it’s pretty clear that we, as a general population, are looking for a great opportunity to make some extra cash.
While it may not be for everyone, selling on Amazon is a great way to make money. With the right strategy, tools, and mindset, selling on Amazon can be made simple. There are a few different ways to sell on Amazon, including Fulfilled by Merchant (FBM), Fulfilled by Amazon (FBA), Vendor Express, and Vendor Central. Today, we’ll compare FBA vs FBM by going through the pros and cons of each. When we’re finished, you’ll have a good understanding of the differences between Fulfilled by Amazon and Fulfilled by Merchant. Let’s jump into FBA vs FBM.
What is Amazon Fulfillment By Amazon?
FBA means Fulfilled by Amazon. “You sell it. We ship it” in Amazon’s terms. With FBA, the seller stores products in Amazon’s fulfillment centers where Amazon will pick, pack, and ship those products. How does FBA work? As the seller, you’ll set up FBA in your Amazon account. Create your product listings, prepare your products, ship your products to Amazon, and let Amazon pick, pack, and ship your items as customers order your products.
Amazon FBA Pros:
Prime eligibility. Your products are automatically eligible for Amazon Prime free two-day shipping and other Prime benefits such as free shipping and increased chances of winning the Buy Box. With Prime, you’ll likely sell more inventory, since your product is associated with Amazon. The Reputation Institute named Amazon the #1 most reputable global company among the American general public, so it’s safe to say that shoppers typically trust products fulfilled by Amazon itself.
Hands-off fulfillment. Focus on important aspects of your business without worrying about fulfilling orders. FBA provides a simplified process of hands-off packing and shipping. Amazon will also store your inventory in its warehouses, so that you’re not stuck with hundreds to thousands of units scattered across your living space.
Buy Box advantages. The Buy Box is the CTA (Call to Action) that leads Amazon shoppers to purchase the product on the product listing. The Buy Box is found on a product page and contains the price, shipping information, seller, and an “add to cart” button. When multiple sellers are selling the same item, one seller will “win” a purchase made on the Buy Box, while other sellers can be found underneath the Buy Box. When Amazon shoppers buy a product, they do so through the Buy Box 82-83% of the time (as opposed to the “Other Sellers” section). This is why it’s so crucial to win the Buy Box as often as possible. When you’ve got the Buy Box, you’ll likely get the purchase. Many factors determine who wins the Buy Box: from seller rating to order defect rate to customer response time. One of the biggest factors in determining who wins the Buy Box is fulfillment method. Generally, an FBA seller can set a slightly higher price than an FBM seller and still win the Buy Box.
Multi-channel fulfillment. Access fast, trusted shipping by Amazon for orders made from other sales channels. Amazon will store your inventory in its fulfillment centers and will pick, pack, and ship them to customers when products sell on your own site or other e-commerce sites. This makes integrating FBA into other channels fairly effortless. Amazon handles the details to save you time, so that you can focus on your business.
Lower shipping rates. Depending on the size and weight of your product, the fees associated with selling FBA will typically be smaller than shipping costs you’d spend fulfilling the orders yourself. Amazon is the largest online retailer in the world, and with that comes pretty drastic shipping discounts. Take advantage of those discounts by fulfilling through Amazon. As an example, to ship a 4 pound toaster from San Francisco to New York City in 2 days with USPS, it’d cost $20.05. Talk about crushing margins! With FBA, you simply ship your products to the Amazon warehouse and let Amazon handle the rest of the fulfillment process.
Amazon FBA Cons:
Additional fees.FBA fees include fulfillment fees, monthly inventory storage fees, closing fees, and order handling fees. Depending on the product’s category, you may run into a few additional fees, such as a high volume listing fee. You’ll also need to consider the cost to ship the product to Amazon’s fulfillment centers. On top of that, you may run into long-term storage fees and Q4 storage fees.
Limited access to inventory. Because your inventory is in Amazon’s fulfillment centers, you’ll have limited access to your products. Inventory can also be harder to track without a hand in the process. Further, if inventory issues arise, you must rely on Amazon to resolve the problems or have inventory shipped back to you.
Tax Obligations. Contrary to what you may think, Amazon does not automatically collect sales tax for the seller. To enable tax collection on purchases, sellers have to provide their state tax registration numbers for each state they want Amazon to collect tax for. Sellers can then enable Amazon sales tax collection within the Tax Settings in Seller Central. Amazon will store the inventory in many warehouses across different states, which will constitute a sales tax nexus (or significant presence) in those states. If a seller has a sales tax nexus in a state, he or she has to collect sales tax from people who buy the product and live in that state. As an FBA seller, It’s important to understand your tax obligations.
Preparing products. Labeling products can be a tedious process, especially for newbie Amazon sellers. Each unit must be labeled so that the correct item can be picked up from Amazon’s inventory and shipped to the customer. There are two kinds of barcodes that you can use to identify your products: manufacturer barcodes or Amazon barcodes. However, Amazon does provide the option for eligible products to have Amazon apply barcodes for you for a per-item fee, called FBA Label Service. You can also speak to your supplier and have them label for you to help save on these costs.
Multi-channel fulfillment is pricey. If you choose to use FBA multi-channel fulfillment, you’ll incur some additional, hefty fees
What is Amazon Fulfillment By Merchant?
FBM means Fulfilled by Merchant. With FBM, the seller lists the product on Amazon and handles storage and all aspects of order fulfillment. How does FBM work? As a seller, you’ll set up an Amazon account. Create your product listings and store, pack, and ship the products as customers order them on Amazon. You’ll take responsibility for any late, missing, or damaged arrivals.
Amazon FBM Pros:
Hands-on fulfillment. With FBM, you have more control over inventory, and some sellers certainly see this as a benefit. You store, pack, and ship products, so you can access your inventory whenever you need it. This allows you to take more ownership of the actual fulfillment process.
Fewer Amazon fees. Selling FBM, you’ll skip out on paying the fulfillment fees and storage fees associated with selling FBA. You’ll still incur referral fees and closing fees.
Opportunity for Prime. Seller-Fulfilled Prime allows all Amazon sellers to access FBA benefits without the increased FBA fees. The criteria for approval to Seller Fulfilled Prime is pretty extensive, and includes having good standing with a Professional Account, existing premium shipping order volume and outstanding performance metrics.
Slightly higher margins. Because you’re paying fewer fees without having Amazon fulfill the orders, you’ll likely make slightly more on each sale (depending on the product). However, you’ll likely drive less sales, especially if you’re not Prime. Over half of Amazon shoppers are Prime, and many times they’ll want Prime products, since they’re paying annually for free two-day shipping.
Amazon FBM Cons:
More responsibility. When selling FBM, responsibility falls on you. Packaging, shipping, managing inventory… It’s all you. This can be a pro for some sellers, but it gets pretty daunting with high volume products. You’ve got to be on the ball all day, every day, including weekends and holidays. Amazon isn’t there to take the blame if something goes wrong, so be ready to stay on top of everything.
Not automatically eligible for Prime. While you can be Prime using Seller-Fulfilled Prime, Amazon will make you work for it. And, you’ll have to constantly stay on top of your game to keep your seller metrics clean.
Buy Box is harder to win. Because fulfillment method is a major factor in determining who gets the buy box, FBM sellers will have a harder time getting and keeping the buy box than FBA sellers. FBM sellers may have to set a lower price to win.
Overhead costs. – While you won’t pay fulfillment and storage fees selling FBM, you will likely have more overhead costs, including your own storage, fulfillment, and shipment expenses.
Missing out on Prime members. Because over half of Amazon shoppers are Prime, 2-day free shipping with Prime is often a purchase criteria. Without being Prime, you’re missing out on many customers who many have purchased your product if it were Prime. Again, you can enroll in Seller-Fulfilled Prime, but it’s a sizable task.
Should I use FBA or FBM?
FBA vs FBM: “Which is better for me?” FBA is typically best for high volume, large margin products. This type of fulfillment is for sellers who are ready/willing to drop the selling price to the lowest possible profit point if need be. FBM is generally good for smaller scale, small margins products or one-offs. Fulfilled by Merchant allows sellers to take control of the fulfillment process without crushing small margins.
Ultimately, there’s no perfect formula when it comes to FBA vs FBM, and it’s up to you and your business’ needs. If you’re still not sure which fulfillment method to utilize, reach out to a Amazon Seller Coach, who will be happy to assist you throughout the entire process at no cost to you. So, are you thinking about selling on Amazon? Make sure you do your research, so you don’t get into a bad product market. Check out Viral Launch’s Amazon market research tool, Market Intelligence, for extensive real-time and historical data you’ll need to make informed sourcing decisions.
FBA vs FBM: Infographic
When it comes to FBA vs FBM, which do you prefer? We’d love to hear from you in the comments below.
