When most entrepreneurs think of Amazon, they think of a prime place to sell online. And that’s the truth — but there’s a lot behind the scenes that goes into selling on the marketplace. Namely, order fulfillment.
Amazon offers four main ways of getting your orders to the customer’s door, each with its own pros and cons, and each with its own ins and outs. Here’s a primer on every fulfillment model the marketplace supports.
Fulfillment By Amazon (FBA)
This is one of the most popular programs Amazon has to offer, and that’s mainly because you’re punting fulfillment 100% to Amazon. It allows sellers to ship their inventory to an Amazon fulfillment center for storage and shipping — when you make a sale on the sales channel, they’ll handle everything on their end. That includes picking, packing, and shipping the order, plus dealing with customer service, i,e. returns.
That said, the program does come with some big costs; paying for Amazon’s fulfillment expertise has a price. The two main fees for FBA are inventory storage fees and fulfillment fees for the orders they fulfill. For inventory storage, fees can escalate the longer items stay on the shelf collecting dust. The holidays — ecommerce’s busiest season — is also of concern. Demand for warehouse space is high during the period, and Amazon tends to significantly mark up its FBA fees.
Amazon also keeps tabs on how well an FBA user is doing. They measure this through what’s called an Inventory Performance Index score (IPI) that combines your sales, inventory levels, and costs into a single metric. Long story short, you must be sure that your stock sells, or you can expect to pay up. For that reason, some retailers stay away and prefer to handle fulfillment themselves.
Multi-Channel Fulfillment (MCF)
Let’s say you have zero interest in selling on Amazon’s marketplace. You’ve got your own site that you run. Or, let’s say you’re using FBA for your Amazon orders and would like some of that inventory to be used to fulfill orders from other platforms like Shopify or Bigcommerce. Don’t worry, Amazon’s still totally fine with fulfilling your orders. MCF is available regardless of whether or not you are selling on the marketplace.
The pro? It’s just like FBA — you get to offer expedited delivery options (1-day, 2-day) to your customers and use Amazon’s fulfillment expertise to manage the process. The main issue is that you’ll need to have an integration with the marketplace so they’re able to receive your orders when they’re placed. Many platforms, like those mentioned above, have connections with Amazon to facilitate it. But if you’re on your own home-grown site or brand new sales channel, you might need one built.
Regarding fees for MCF, you can expect some related to storage and fulfillment as well. The storage fees are the same as for FBA, so plan for an increase during the holiday season. The fulfillment fees, however, differ from FBA fees — they depend on the type of shipping method chosen; higher fees for faster delivery.
Seller Fulfilled Prime (SFP)
SFP is a pretty important program that Amazon offers to merchants that are amazing at fulfillment. We’re talking near 100% success rate fulfilling orders all on their own. Unlike the previous two methods, where Amazon fulfills for you, this one requires merchants to fulfill on their own, hence the “seller fulfilled” part.
The main appeal to being an SFP merchant is the access to Prime customers that it provides. If Amazon accepts you into the program, you get that beautiful blue Prime badge next to your listings, and you have a greater chance of locking down the Buy Box (more on that later).
That said, not everyone is allowed in the SFP club. The program has some very stringent requirements. Here are a few of the biggies to give you an idea about how intense it is.
- 99% On-Time Rate — Amazon expects orders to arrive on time with little to no exceptions.
- Less than 0.5% Order Cancellation Rate — Better make sure you’re stocked and loaded to fulfill SFP orders, because if you cancel an order, you’re in trouble.
- Use Amazon Buy Shipping Services for 98.5% of Prime Orders — They want your business, so you’ll need to use their services.
- Deliver via Amazon-Supported SFP Carriers — You’re only allowed to work with carriers they trust.
Fulfillment By Merchant (Non-Prime)
If you want to sell on Amazon but fulfill on your own without the stress of SFP, the marketplace is still fair game. It’s as simple as selling your products on the channel and shipping them yourself once an order is placed. Keep in mind, however, that you will not have access to all those Prime benefits.
One of the perks to Fulfillment By Merchant is your ability to mix and match your fulfillment how you please. As you sell on Amazon, it’s totally possible for you to practice in-house fulfillment or use a 3PL and outsource it. It’s totally flexible.
Which To Choose
The method you use will largely depend on your operation and the type of products you sell. Are you comfortable enough with your margins to use Fulfillment By Amazon? Are you able to handle SFP thanks to your clockwork-like fulfillment operation? Do you introduce personalized branding and prefer fulfilling yourself? It’s all down to your scale and preferences.
Another question to consider is how stiff the competition is for the product(s) you sell. Since multiple sellers can sell the same product on Amazon, the marketplace has a way of ranking offerings to make it easier for customers to select one. They do this by showcasing a particular vendor’s offering in the Buy Box — a box on the product detail page that has the product’s price and the “Add to Cart” button in it. Eligible buyers rotate through the Box.
Research shows that 82% of all Amazon sales happen through the Buy Box and even more on mobile. So the more severe the competition for your product, the more important it is for you to win the Buy Box. Both FBA and SFP sellers have a higher chance of securing the Buy Box, so you might want to go that route.
But ultimately, there’s no one superior method of fulfillment. And to make matters better, you can mix and match your fulfillment choice depending on the specific products you’re selling on Amazon. Here’s an example.
Let’s say you specialize in bicycles, selling bikes and individual bike parts on the marketplace. The parts are listed individually, but you also sell a bundle that includes all the parts needed for an entire bicycle, and you want to offer expedited shipping for both. Storage and fulfillment costs can quickly add up for oversized items on FBA, so SFP would be a better way to go for the bundle specifically since it’s a large shipment (it contains a lot of parts). On the other hand, for the individual parts, you don’t want to deal with the hassle of fulfillment, so you choose FBA. Lastly, if you sell speciality bikes where not many other vendors sell them on Amazon, you could avoid FBA/ SFP entirely and simply fulfill them on your own through FBM (Non-Prime).
It’s all about fulfilling how you see fit! But a tool for managing all of your Amazon orders — as well as your fulfillment methods — is certainly helpful. Ordoro’s like a Swiss Army Knife for handling every aspect of your Amazon orders, and we play extremely well with the marketplace. Unlike many of our competitors, we do not charge extra for Amazon prime orders! Check out how Ordoro helps merchants become top sellers on Amazon.
The SmallBizRising Blog is designed to be an educational content hub pulling information, best practices and practical advice for the small business owner and features topics including accounting, marketing, technology and more. Be sure to subscribe to stay up to date with new content as it is posted. The blog was created by The Neat Company and receives contributed content from a group of contributing companies that provide technology, services and solutions to small businesses.