In our latest edition of the Amazon Growth Guide, Lewis takes you through how you can choose the right fulfilment method for your products, and ensure you have happy customers without impacting your budgets.
THE AMAZON GROWTH GUIDE: CHOOSING THE RIGHT FULFILMENT METHOD FOR YOUR PRODUCTS
As we’ve covered in past editions of our Amazon Growth Guide, when selling on Amazon, there are a lot of things to consider when deciding how you’ll be providing your service. One of the key considerations is which fulfilment method you’ll be using, and what costs are associated with each.
There are three fulfilment types that we’ll be covering today;
- Fulfilment by merchant
- Fulfilment by Amazon
- Seller Fulfilled Prime
Read on to learn more about how to pick which of these will work for your business.
Fulfilment by Merchant
The first method we’ll cover is fulfilment by merchant. As the name suggests, using this fulfilment method will give you control of your entire handling and shipping processes, right from where the customer orders, through to fulfilment in your warehouse and, finally, shipping through your own courier directly to the customer.
A large benefit of merchant fulfilment is that you won’t incur any storage costs from Amazon. This is especially useful if you have;
- Large & heavy items that will rack up storage fees
- Products that don’t have a quick turnover so will incur long term fees
- Products that are risky to store in fulfilment centres (ie. Foods with best before dates that you’d have to pay to remove once they expire)
|You keep full control over the process||Products aren’t eligible for Prime (and could therefore be less attractive to customers)|
|You achieve bigger margins as you don’t need pay fulfilment fees||Matching the speed of Amazon’s shipping can be difficult or expensive|
|You maintain control over your inventory and how it’s stored||If problems with shipping occur, you’ll be responsible for following this up|
|No expected cost for long term storage fees||It can be more expensive, especially if you don’t have the best rates with local couriers|
|Easy to maintain both an online and offline retail activity within one country using one warehouse||It can be time consuming – you need to factor in time to fulfil and ship orders instead of solely deploying your business|
Fulfilment by Amazon
Fulfilment by Amazon (FBA) is an option that lets you store your products in Amazon’s fulfilment centres, where they will pick, pack, ship and provide customer service for your items, leaving you to focus on growing your business.
FBA is particularly useful if you’re competing against other sellers as having your product fulfilled by Amazon boosts the quality of your listing and helps you achieve the buy box more frequently.
If you don’t have much storage space readily available, but have large amounts of fast moving product ready to ship in large quantities, fulfilment by Amazon can be a smart way to go.
|Sellers frequently win the Buy Box due to the prime visibility.||You will need to manage how full you should keep your inventory, which can be tricky around busy times, whereas with merchant fulfilled it would all be in one place|
|Amazon takes care of inventory, customer service and shipping, giving you peace of mind||You have less control due to essentially handing over your stock to Amazon|
|You have a higher chance of conversions due to the Prime and speedy delivery options||You need to follow very specific rules when sending your inventory to Amazon and they can reject your products|
|Your retail operation can run 24/7 and will not be restricted to your own warehouse opening hours||Changes to Amazon warehouses will affect your product visibility (for example, in the first lockdown Amazon were prioritising essential goods)|
|You’ll have a simplified returns process, all offered by Amazon||If you are a casual seller, the costs involved in storage and fulfilment fees can impact your profit margin considerably|
Fulfilled by Amazon Fees and Costs
Obviously, when considering whether FBA will be a worthy investment for your business, you’ll need to be aware of the fees and costs involved in having your products store and deployed by Amazon.
Unsurprisingly, the cost will vary according to the size and weight of your product with items falling into either the ‘standard size’ or ‘oversize’ category - Amazon will calculate the fulfilment prices based on the size of your item, as well as the selling price. You can use their FBA Calculator to get a rough guide cost before having to make any commitments to the FBA programme.
Your storage fees will be based on the daily average volume in cubic feet per month, with a charge per unit.
|Clothing, Shoes & Bags|
|January - September||£0.40|
|October - December||£0.56 (+40%)|
|All other categories|
|January - September||£0.66|
|October - December||£0.93 (+41%)|
|January - September||£0.46|
|October - December||£0.64 (+39%)|
As you can see, Amazon also two different charges for storage throughout the year, due to the high level of demand in storage space during Q4 (thanks to Black Friday, Christmas and, last year, Prime Day too!). If you need to up your inventory in this busy period, this is something you’ll need to consider although as long as they’re fast-moving products this shouldn’t impact you too much.
Long Term Storage Fees
Long term storage fees for FBA are worth considering if parts of your inventory are not fast moving. They’ll only apply for items that have been stored in fulfilment centres for more than 365 days.
- Non-media items: Monthly storage fee of £4.30 per cubic foot/€170 per cubic metre per month
- Media items will be charged the greater of either a monthly long-term storage fee of £4.30 per cubic foot/€170 per cubic metre per month or a minimum long-term storage fee of £0.10/€0.10 per unit.
These long term storage fees are in addition to regular inventory storage fees, so FBA is really best for goods that are going to sell quickly and not subject you to these additional rates!
Seller Fulfilled Prime
By using the Seller fulfilled Prime fulfilment method, you take advantage of Amazon’s Prime delivery service by using approved carriers to deliver your products quickly. Seller fulfilled Prime is a great method to use if you want the benefits of Prime visibility, while being able to store and manage your own inventory and handle your own customer service.
To qualify for Seller Fulfilled Prime, you must first enrol in a trial period of around 30 days, in which you prove you’re up to the job of filling orders to their high specifications.
The requirements of enrolling are;
- You must shop over 99% of your orders on time
- You must have an order cancellation rate of less than 1%
Due to the association you’ll have with Amazon Prime, they’re extremely strict on these requirements and will hold you to these high standards. You must also agree to Amazon’s return policies and allow for customer service inquiries to be dealt with by Amazon themselves too.
For the process of delivery, you have to purchase your own shipping levels through the ‘buy delivery services’ on the Amazon shipping website, choosing one of their own supported couriers. You’re able to select one of the following;
- Amazon shipping (only valid in select areas)
- Royal Mail
It’s worth bearing in mind that Amazon may add further approved couriers to this list, that you could already be using in your own operations.
|You’re able to access the benefits of selling through Prime while keeping control of your own warehouse||You will need to maintain high performance to keep hold of these benefits and any problems result in a quick termination from the programme|
|You have the ability to use couriers that you may have existing collections from (if you currently use DPD or Royal Mail)||You are bound to Amazon’s rates and collection times for couriers, while you may currently have a cheaper and more convenient arrangement.|
|You can avoid Fulfilled by Amazon fees or long-term storage fees while still getting your Prime benefit||This option can be time consuming due to the extra processes required. If you already have an integrated API added with your own couriers this could be an extra step for you to arrange.|
There are two ways in which you can fulfil products in Europe either through;
- The European Fulfilment Network (EFN), which allows sellers who are registered for FBA to store inventory in their local fulfilment centre, and fulfil orders coming from European marketplaces. You’ll manually choose where your inventory is stored but can pick any number of fulfilment centres.
- The Pan-EU FBA gives you the same visibility as EFN, but your inventory is stored in each country, allowing for faster delivery times and prime eligibility. The benefit of this is that Pan-EU will look at where your highest demand is and move inventory around accordingly.
Due to Brexit, as of January 1st 2021, Amazon is unable to fulfil FBA orders across the border between the UK and EU, meaning that transferring products is something you’ll need to do yourself. You’ll therefore need two sets of inventory pools, one to send your inventory to fulfilment centres in the UK and another to send products to the EU.
Hopefully we’ve given you a good idea of what fulfilment methods are ideal for your business, but to quickly recap:
- Merchant Fulfilled – use this for slow moving products that would rack up storage fees, oversized items which will be expensive to store and handmade products Amazon can’t fulfil
- Fulfilled by Amazon – use this for small, fast moving goods to remove any fulfilment pressure from you and give you more time to focus on your business
- Seller Fulfilled Prime – use this for products that would be expensive to store, but you want to be able to offer Prime to and be more competitive.
To find out how we can do for your Amazon activity, sign up for an Amazon Deep Dive or check out our upcoming webinars for more in our Amazon Deep Dive series.