July 20, 2020

Selling on Amazon: FBA vs. SFP

Steven Toews

Selling on Amazon can seem like a no-brainer. After all, with 112 million users of Amazon Prime in the US alone, the total available market on that site is gargantuan. But once you actually get into the nuts and bolts of selling on Amazon, the choices you need to make start piling up faster than your orders.

Should you let Amazon fulfill your orders? Or do you go with Seller-Fulfilled Prime? Have you thought about Multi-Channel Fulfillment (MCF)?

Your answers to these questions will depend on what you’re selling, how much of it you want to sell, and your own logistical capabilities. Continue reading below to learn the basics of how to sell product on Amazon.

Fulfillment by Amazon

Fulfillment by Amazon is exactly what it sounds like. Amazon fulfills your orders for you.

What is FBA?

Fulfillment by Amazon (FBA, for short) is one of the most popular fulfillment strategies in e-commerce today. For a (not so) small fee, Amazon will store, pack, and ship your products to customers around the world.

Amazon Requirements for FBA

Benefits of FBA

There are numerous benefits to using Fulfillment by Amazon.

  • Simplicity

Above all else, FBA is simple. It’s a turnkey solution that lets you focus on sustaining and growing your business instead of worrying about operational and logistical details. You’ll be amazed at how much time you have to work on your company’s long-term health when you’re not dealing with returns, exchanges, and individual orders.

Additionally, you won’t need to worry about things like customer service or warehouse storage space. Amazon takes care of (almost) everything.

  • Speed

As you already know, Amazon is fast. And products shipped by way of Fulfillment by Amazon are no exception. These products ship to Amazon’s usual speedy standards. All things being equal, you can expect to see an uptick in sales solely due to the fact that the customers who find you on Amazon can get their hands on your products that much faster.

Drawbacks of FBA

All the aforementioned benefits of using FBA come at a significant cost.

  • Cost

While Amazon sells you everything but the kitchen sink in their Fulfillment by Amazon service, that service is going to cost you. FBA involves significant fees, both for fulfillment and for warehouse storage. You’ll also have to pay extra, long-term storage fees if your items sit in an Amazon warehouse for more than six months.

  • Branding

Because your items are bought on the Amazon website and ship in Amazon boxes, there’s very little room for your brand to have a significant impact on the buyer. From their perspective, they’re dealing with Amazon, and the role of your brand is reduced.

  • Increased Returns

One of the often unforeseen side effects of having a frictionless returns process is, unsurprisingly, an increase in your return rate. And because Amazon does such a good job of facilitating customers’ returns, you might see an increase in the rate at which customers send back your products.

Seller-Fulfilled Prime

If Fulfillment by Amazon’s fees are too steep for you, you might want to consider taking Seller-Fulfilled Prime for a spin.

What is SFP?

Seller-Fulfilled Prime (SFP) is just as self-explanatory as Fulfillment by Amazon. You participate in the Prime program but, as the seller, you fulfill your own orders. In order to participate in the SFP program, you’ll need to enter and successfully complete a trial period during which you demonstrate your ability to meet the strict deadlines and customer service requirements imposed by the Prime program.

Amazon Requirements for SFP

If you can establish that you meet the following criteria, you’ll be allowed to participate in SFP:

  • You have a professional seller account
  • You provide premium shipping options
  • Over 99% of your orders are shipped on time
  • Less than 0.5% of your orders are canceled
  • You use Amazon BUY Shipping Services for 99% or more of your orders
  • Orders are delivered with Amazon-supported carriers
  • You agree to the Amazon Returns Policy
  • You agree to allow Amazon to handle all customer service inquiries

Benefits of SFP

There are a variety of benefits to using the Seller Fulfilled Prime program.

  • Use an existing fulfillment solution

If you already have a storage and fulfillment solution that’s humming along nicely, Seller-Fulfilled Prime can be a fantastic addition to your e-commerce arsenal.

  • Boost revenue

While you’ll need to comply with the program’s lengthy list of requirements, the addition of that Prime logo to your Amazon-listed product can significantly boost sales.

  • Take advantage of Amazon customer service

Amazon offers one of the most comprehensive customer service programs in the world and it’s one of the best perks of being in the Seller Fulfilled Prime program. No longer will you be stuck on the phone trying to figure out how to get a replacement for one of your products to John Smith in Topeka, Kansas when the one he bought initially fails to work. Let Amazon take care of it while you focus on running your company.

Drawbacks of SFP

There are a couple of drawbacks to using the SFP system.

  • Demanding requirements

There’s no doubt about it, Amazon expects a lot from merchants who participate in their Seller Fulfilled Prime program. This is understandable, given the huge stake they have in protecting their reputation as one of the quickest and most reliable e-commerce retailers in the world.

So, you’ll need to stay on that SFP treadmill, churning out products as fast as your customers demand and making sure that you have sufficient warehouse space and the robust shipping solutions that Amazon requires of you.

  • Prime dependence

“Prime dependent” is how we refer to those e-commerce companies that have come to rely so heavily on the boost in sales that the Prime designation can bring that they can’t function without it. These businesses are at significant risk. If, for whatever reason, they temporarily fail to meet Amazon’s strict guidelines for SFP membership, their Prime badge will be turned off and their business will suffer.

Remember to maintain good business practices and diversify your sales channels in order to protect against this kind of risk.

Multi-Channel Fulfillment

Further to the comment we made above, the benefits of diversifying your sales channels should be apparent by now. You can reduce your risk, increase profits, and shrink your sales volatility by relying on more than one sales channel to move your product.

But how can you use multiple channels if you’re using Amazon to fulfill your orders?

What is MCF?

Multi Channel Fulfillment on Amazon allows you to take orders from multiple sources (including your own website) while still having the orders fulfilled by Amazon.

Benefits of MCF

There are several benefits to using Multi Channel Fulfillment on Amazon. While we’ve covered some of them in the section on the benefits of Fulfillment by Amazon, there are a few more to consider with MCF.

  • Convenient risk mitigation

Using multiple channels to sell your products decreases risk and volatility in your sales. It’s a great strategy for limiting your exposure to a catastrophic reduction in sales from a single source due to a policy change or the failure of a sales partner’s business.

Amazon MCF allows you to realize the benefits of having multiple sales channels all while enjoying the convenience of Fulfillment by Amazon. It’s really the best of both worlds. You get to focus on your business while knowing that Amazon is taking care of the logistical heavy lifting and you’re protected against unexpected swings in revenue from a single sales channel.

  • Straightforward pricing

While not cheap, the pricing for MCF on Amazon is, at the very least, straightforward. You won’t be confused by a bunch of fine print or unusual conditions. You simply take a look at their tables of fulfillment and storage fees and you’ll know how much you’ll be paying per product.

Drawbacks of MCF

We’ve already hinted at the one major downside to Multi Channel Fulfillment on Amazon: price.

  • Cost

MCF is not cheap. If you deal with low-margin, high-volume products, you may find that Multi Channel Fulfillment cuts too heavily into your profits to be of much use. This is also true of people who sell large, heavy, or bulky items that cost a lot to ship and store.

Final Thoughts

How you go about utilizing Amazon’s powerful sales channel depends heavily on your personal circumstances, characteristics, and goals. If you’re looking for convenience and time savings, Fulfillment by Amazon might be right for you. If you already have robust logistical capabilities, you might consider Seller Fulfilled Prime. Finally, if you want to take advantage of multiple, established sales channels, Multi Channel Fulfillment can be a wise choice.

Whatever your situation looks like, give careful thought to how you structure your operational and logistical approach. It can be the difference between healthy profits and steadily declining margins.

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