What are the primary differences between Fulfilled by Merchant and Fulfilled by Amazon (FBA) and what strategy is best for your business? In this video, I break down the pros and cons of each, as well as the dual-fulfillment strategy often recommended for most brands. Plus expert tips on reducing FBA fees and increasing profitability 📈
Have questions or comments? Drop them in the comments section below!
If you use FBA, don’t forget to Sign up for GETIDA!
Use the FBA Calculator to estimate your Fees
Transcript
Hey guys, Shannon Roddy, from Marketplace Seller Courses, and today, in this video, I want to talk about the difference between Fulfillment by Amazon, FBA, and Fulfilled by Merchant, or FBM. So, Fulfillment by Amazon means, Amazon has 100 warehouses that are all used for their distribution, and what that means is that you’re gonna send your products into one of their warehouses, they’re gonna inventory them, they’re gonna typically transport them, and separate them into the different warehouses, and then when a customer orders your product, Amazon’s gonna ship it out for you. So the idea is your really shipping into Amazon in bulk, and they’re shipping off the one-off orders. There’s a lot of benefits to that. The other one is Merchant Fulfilled, and that’s where a customer is ordering a product through Amazon, and you’re shipping out to the customer directly. So it’s a little more intensive in terms of the order fulfillment, because every single time a customer orders, you have to ship it out.
Now, a lot of companies that start off selling on Amazon, they’re like, “we’ll just do merchant fulfilled, and we’ll just fulfill it ourselves.” So let’s talk about some of the key reasons why you might use one or the other, or in some cases both, what we call a duel fulfillment method. So let’s talk about the primary reasons to use fulfillment by Amazon. Number one is Amazon has 100 million Prime customers, like myself, I love Amazon Prime, and the problem with Prime members is we tend to filter by free two-day shipping. So whether your on the desktop, or you’re on your mobile application, there’s a way that you can click a button that says, hey, only show me products that have free two-day shipping. What that means is that 80% of Prime members filter by free two-day shipping, they never even see your product if it’s fulfilled by merchant, okay? Here’s the other challenge with that. Prime members tend to spend two to three times more, than non-Prime members.
Okay, so if you don’t use FBA you’re missing out on a huge component of sales, in terms of the overall Amazon market place, and just discoverability, a lot of customers are never even seeing your product. Okay, merchant fulfilled can be really great for some products, and one of those would be if it’s a very, very big product, it’s very, very difficult to ship, it’s not gonna be cost effective to store, or ship at Amazon’s warehouse, and remember that you have to ship into Amazon, and then Amazon has to ship. Amazon only charges you a Pick-and-Pack fee, as well as a monthly storage fee, so be sure that you’re aware of both of those. A lot of companies say, “Well, you know, “fulfillment by Amazon is too expensive.” So what I what I want you to actually do, is make sure that you do a couple of things, one, checkout the FBA Calculator, we’ll put a link in the comments section below, but two, go through and actually see what your actual costs are, your inbound shipping to FBA is gonna be a UPS deeply discounted rate, so again if you’re shipping case packs, or you can even do pallets, or in some cases containers, your gonna be able to do deeply discounted rates for your smaller products, to go into Amazon’s fulfillment centers.
The other challenge that companies have, when having to decide between the two, is if they have products that aren’t shelf stable, like a frozen product, or they have a product that’s meltable, so a lot of chocolate companies deal with this, and it’s a big challenge because every time summer rolls around, they’re not able to send their products into FBA. So what we recommend for these situations, is what we call Dual Fulfillment. So one ASIN, that is one detail page for your product, but two SKUs. And typically we recommend if you have a SKU, your gonna have your SKU for your merchant fulfilled, and then SKU-FBA, and what this allows you to do, is it allows you send in inventory to FBA during the winter months where it’s colder, and then come spring, you’re able to shut off that listing, and keep your merchant fulfilled listing going. This allows you to seamlessly switch between the two, and you don’t ever have to worry about missing out on sales, because you’re converting one SKU to FBA, and then converting that SKU back to merchant fulfilled.
The other benefit of doing a dual fulfillment model, is it allows you to continue selling a product even if Amazon’s out of stock. In some cases Amazon does inter-warehouse transport, so they’re actually transporting your inventory from one warehouse to another, and that means it’s not available for customers to purchase. In some cases Amazon may find that there’s a problem with one of your products, or you got a number of returns, and they temporarily shut that SKU down to examine it. So what that means, is if you have a merchant fulfilled SKU, that’s also up and running, you can continue to take orders from customers, your campaigns can continue to run, and it allows you to continue selling. So, whether you use FBA, or merchant fulfilled, or a hybrid model, it’s important to understand all the ramifications.
The last thing to note, is if you’re using an FBA, there’s three probably really critical things that you want to do. Number one, sign up for Getida, okay. What Getida’s gonna do is they’re gonna automatically get you reimbursements from Amazon, if Amazon owes you money, if Amazon has overcharged you, or not given you a reimbursement for use of fulfillment by Amazon. That link will be below, but that’s gonna be like the best service that you could ever use, it’s absolutely free, they just take a percentage of what Amazon reimburses you.
The second thing is if your product’s, if you look at the reports, and your products are oversized, like Amazon has basically scanned them in too big, and that’s not actually the size of the product, you can ask Amazon to do what’s called a Cubiscan, and a Cubiscan basically will allow Amazon to look at one of your products, and make sure that they get the dimensions right, which means then Amazon is gonna be charging you correctly for every order that is fulfilled by Amazon, as well as your monthly storage fee. So those are some really important things for use of fulfillment by Amazon.
The last one is, if you feel like your fees are too high for the amount of money that you’re making, consider doing multi-packs, or bundles, right, this allows you to add a few more products in, increase the average order value, and typically, especially with food products, creating a multi-pack, or a bundle of your products, all of a sudden goes from being marginally profitable, to profitable, simply by packaging them a little differently.