However, for many merchants trading on Amazon, the awkward truth is that there are too many hands laying claim to the margin and many have stepped back from it altogether. Certainly, those selling branded products sourced from distributors (who are themselves buying from manufacturers) will struggle to make any money by the time commission and distribution costs have been discounted.
For those left on the battlefield, it is a question of how to make best advantage of Amazon’s unchallenged market reach. Undoubtedly, listing items under the Prime banner is priority. Prime customers spend more than double that of non-members, so being a part of the club is somewhat essential. Hitherto, this has involved sending stock to Amazon and paying them to dispatch goods on your behalf via their Fulfilled by Amazon programme, which is more commonly referred to as ‘FBA’.
FBA is a good option if selling ubiquitous items almost exclusively on Amazon, but there are drawbacks. Firstly, the fees can be very high, particularly if you have voluminous or non-compliant items and slow-moving lines which, after six months, are surcharged for storage. Understanding costs of selling and sending a product via FBA is not the easiest undertaking; if you are operating on penny margins, the dream can soon turn into a nightmare. On a practical level, tying up all [or a significant proportion] of your stock in one of Amazon’s warehouses doesn’t suit a multi-channel approach, where an item may be sold across many different stores.
The good news is that there is an alternative – Seller Fulfilled Prime or ‘SFP’, which enables merchants to list items as Prime, but fulfil their own orders. Rightly, Amazon are very protective over Prime and would not countenance sellers playing fast and loose with their reputation. Entry on to the programme requires a solid history of sales and successful completion of a trial period where near-100% of orders need to be shipped same-day through an Amazon-nominated carrier. Whilst commission fees would still be collected by Amazon, the fulfilment costs including storage, pick/pack and returns are borne by the seller.
So, SFP presents a great opportunity for merchants to have their proverbial cake and eat it. They can make best opportunity from Amazon whilst lowering distribution costs and ensuring stock is available to service other sales channels. However, it is also a challenge and worry. Shipping within the tight tolerances demands the best processing software, warehouse layout, handling equipment and management systems, which are often beyond the means of smaller businesses. Using a specialist third party fulfilment provider (‘3PL’) who can tick all these boxes is becoming an increasingly popular choice. These companies are entirely judged on service levels and invest in the technology to meet the most demanding requirements. Overall costs are often much lower than FBA and despite stock being held by a third party, merchants have more flexibility and sovereignty. The constant scrutiny of Amazon will always be there, but this only serves to ensure all stakeholders are focussed on the customer. Isn’t that the way things should be?
Find out how our Amazon Seller Fulfilled Prime fulfilment service can help you to pass the pre-requisites to gain the Prime badge and ship your goods using our warehouse.