Fulfillment by Amazon and the Extra Fees
Did you know that Amazon sales make up half of all the sales on the internet? Over the years, Amazon has become an e-commerce powerhouse. It attracts sellers with its vast, international customer base.
When you start selling on Amazon, you have the following order fulfillment options:
FBA – Fulfillment by Amazon
FBM – Fulfillment by Merchant
SFP – Seller Fulfilled Prime
Even though 76% of Amazon sellers use FBA, it’s not the right choice for every business. To find out if Amazon’s fulfillment service is worth the fees, keep reading.
What is Amazon FBA?
Fulfillment by Amazon (FBA) is Amazon’s order fulfillment and shipping service.
Here’s how it works:
You ship your inventory to an Amazon fulfillment center
Amazon stores your inventory until it’s sold
Once one of your products sells, an Amazon staff member picks it from your inventory
Next, they pack, ship, and track the order
If your customer returns the item, it goes back to Amazon’s fulfillment center automatically
If your customer has an inquiry, Amazon customer service eventually takes care of it
For Amazon’s fulfillment services, Amazon charges several fees.
Why Use Amazon FBA?
The main selling point of FBA is that it qualifies your products for Amazon Prime. Prime customers shop more and spend more than the average Amazon user, making them an ideal target market for any business.
As an Amazon FBA seller, your products will feature the recognizable Prime logo within its Amazon listing. This symbol builds trust with Amazon users and captures their attention.
Furthermore, by using FBA, any of Amazon’s 150 million Prime members can order your products with free same-day, 1-day, or 2-day shipping.
**This all comes at a steep price for brands, and not everyone realizes just how unprofitable Amazon makes their brand.
Benefits of Using Amazon FBA
There are some benefits for brands to use FBA:
Fast, free shipping for Prime members
Amazon FBA Fees
While Amazon FBA has been popular, it’s not cheap. Amazon FBA charges quite a few fees.
Here’s a rundown of Amazon’s FBA fees:
Standard storage fees – Amazon’s storage fees are based on your inventory’s size and weight. Since your products are held in Amazon's warehouse, they charge a substantial storage fee. They also vary depending on what time of year it is. The holiday months have pricier storage fees than the rest of the year. Furthermore, if your inventory is hazardous or requires special handling, your storage fees will be even higher.
Long-term storage fees – If your inventory sits in an Amazon warehouse for over 365 days, Amazon will drastically increase your storage fees.
Fulfillment fees – Fulfillment fees are charged per unit for the picking, packaging, shipping, handling, and customer services provided by Amazon.
Unplanned service fees – If you send your inventory to Amazon without the proper packaging and labeling, Amazon will charge you a fee to do it themselves.
Return processing fees – If your customer requests a return, you will have to pay a fee to cover Amazon’s free return shipping.
Removal order fees – If you’d like to get back your inventory from an Amazon fulfillment center, you’ll be charged a fee for each item you remove.
As you can see, Amazon FBA fees add up quickly.
More Amazon FBA Drawbacks
In addition to costly fees, the Amazon FBA program comes with some notable downsides:
Strict inventory preparation requirements – Amazon fulfillment centers receive high volumes of inventory from thousands of sellers. In turn, they require that all sellers send in inventory according to strict preparation guidelines. Adhering to these rules can be time-consuming, potentially requiring the assistance from a third-party.
Merchandise commingling – Amazon gives sellers the option to “commingle” their products. This means that Amazon can ship another seller’s product (if it’s the same as yours) in place of your product if it allows for faster shipping to prime customers.
For example, let’s say you receive an order from a California customer while your inventory is located in New York. With commingling, Amazon can send a product from a California fulfillment center to your buyer. This way, Amazon can save on shipping. You’ll still get the sales revenue.
The only problem with commingling is that some sellers submit poor quality products. If an inferior product gets shipped to your customer, you’ll be at risk of receiving a negative review. You could even face legal consequences if the product is fraudulent. Amazon offers very little recourse in these situations.
Sales tax compliance – Amazon’s warehouses are located in several states across the US. You won’t always know which location your inventory is stored at. When you make a sale, you must calculate sales tax based on the location of the inventory. Since this location is not clear, many sellers struggle with their sales tax compliance and even face expensive liability issues. In this case, it is important to understand the difference between centralized vs decentralized inventory management.
More returns – When you use FBA, you must use Amazon’s return policy. Since it’s quite flexible, FBA products tend to see a higher return rate. If you’d like to customize the return policy, you’re out of luck.
As you can imagine, these issues complicate your life and make Amazon FBA a little less attractive.
FBA vs FBM vs SFP
If you don’t want to pay Amazon’s hefty FBA and follow their strict requirements, you have two other options: FBM or SFP.
#1 Fulfillment By Merchant (FBM)
With FBM, you (the merchant) are responsible for the entire fulfillment process, including inventory storage, packing, shipping, and customer service. You can attempt to manage these tasks on your own or you can outsource them to Verde Fulfillment USA. Verde has an integration with FBM for processing your orders fast and efficient.
The benefits of choosing FBM for your fulfillment include:
Avoiding Amazon’s costly fees
Escaping Amazon FBA’s strict regulations
Gaining greater control over your shipping process
Providing more personalized customer service to your customers
Enjoying higher profit margins
Why Outsource to a 3PL For Your FBM?
If you run a small Amazon store with very few orders, you can get away with handling the order fulfillment on your own.
However, if your goal is to run a thriving e-commerce business, you’re better off outsourcing fulfillment to Verde Fulfillment USA. Verde offers better services than Amazon FBA does. However, Verde also:
Charges fewer fees
Doesn’t have restrictive preparation guidelines
Are more accommodating
Allow you to personalize your packaging and branding
Provide better customer service
Match you with a Client Coordinator who will get to know your business
By using Verde Fulfillment USA for your FBM business, you’ll improve your profit margins and set your business up for scalability and growth.
#2 Seller Fulfilled Prime (SFP)
The second option you have is Seller Fulfilled Prime (SFP). This fulfillment option also places the burden of fulfillment on the merchant (you). However, SFP enables you to keep the Amazon Prime badge on your product listings. In turn, SFP offers the best of both worlds of FBM and FBA.
SFP comes with all the same benefits of FBM, plus the added perk of enjoying Amazon Prime’s customers and benefits. This way, you can compete with Amazon FBA businesses without paying the fees. Plus, Verde has an integration with SFP for processing your orders fast and efficient.
Qualifying for SFP
To be an SFP seller, you must qualify for it first with Amazon. During a trial period, Amazon will monitor your order fulfillment quality. This way, they can feel confident bestowing your products with their coveted Prime badge.
Once you’ve successfully fulfilled at least 300 orders, you can start selling with SFP. Keep in mind that you must always maintain Amazon’s eligibility requirements, which include:
Having a warehouse (Verde)
Shipping orders on-time 99% of the time (Easy!)
Offering customers premium shipping options (Always!)
Canceling orders less than 0.5% of the time
Using SFP supported shipping carriers (Yes!)
Signing up for Amazon’s Return Policy
Using Amazon Buy Shipping Services for 98.5% of your orders
Handing over your customer service to Amazon
These standards are in place to ensure that Prime members get the same quality of shipping and service, whether they purchase a product fulfilled by FBA or SFP.
So Is Amazon FBA Worth It?
While Amazon FBA is a valuable service for small hobby brands, there are more cost-effective options out there for brands that want to blossom. Thus, Amazon FBA is not worth it for most businesses.
Selling with FBM or SFP is a much better option, especially if you choose Verde Fulfillment USA. With our flawless fulfillment services, you’ll qualify for SFP with ease, enabling you to enjoy all the perks of Amazon Prime without the FBA fees.
Verde Fulfillment USA: The 3PL Fulfillment For Amazon Sellers
If you want to work with a dedicated 3PL that offers shopping cart integrations, eco-friendly packaging, and international expertise, look no further than Verde Fulfillment USA.
As an expert in e-commerce order fulfillment, Verde Fulfillment USA makes sure your inventory is taken care of. Since over half of our clients are international, we have expertise in fulfilling orders worldwide.
If you’re ready to take your Amazon store business to the next level, reach out to Verde Fulfillment USA today!