For companies that don’t have their own warehouse and retail order fulfillment capability, Amazon FBA might be a very convenient way to get started selling on Amazon.
But those FBA fulfillment fees really add up, and most larger Sellers can fulfill customer orders for less. One thing has held them back until now: the Amazon Prime program.Prime was one of Jeff Bezos’ best ideas. An paid membership program for consumers which afforded them free 2-day shipping within the US. Amazon loses money on this program, but it sure wins them a lot of loyalty. According to Amazon:
Amazon.com listings that became Prime-eligible for the first time through Seller Fulfilled Prime experienced an average sales uplift of more than 50%
Since Amazon Prime members spend an estimated 20% more than non-Prime members, and many Prime customers filter out any product results which are not “Prime” eligible, most sellers have either happily or grudgingly accepted the FBA (Fulfilled By Amazon) fees required to make their products Prime-eligible.
FBA Fees typically include:
Amazon also has a heavy fee penalty for any inventory kept in a Fulfillment Center for longer than 6 months, so is not suitable for slower-moving inventory.
Many brands with their own warehousing and fulfillment capabilities have bemoaned the fact that they had to default to Amazon Fulfillment in order to have their products be Prime-eligible on Amazon. But now, Amazon has introduced the Seller Fulfilled Prime program, which enables companies to process and ship out customer orders directly from their facility.
Here’s an overview of the program:
Amazon fiercely guards the trust that consumers have in the Prime program. So you’ll be required to meet some pretty strict performance guidelines to first become, and then stay eligible for the program.
The criteria for approval in Seller Fulfilled Prime:
Once approved for Seller Fulfilled Prime, sellers have to maintain the other conveniences of the Prime program that customers are accustomed to. These include:
Already being approved for, and having a track record of successfully delivering on Premium Shipping is a requirement for approval in Seller Fulfilled Prime.
According to Amazon, “Premium Shipping provides fast shipping options that require high delivery performance standards from sellers to offer them. In the United States, Premium Shipping options are Same-Day Delivery and Two-Day Shipping.”
To be eligible to offer Premium Shipping, sellers must meet strict performance metrics, including
Filling out the application form for Seller Fulfilled Prime may be the easiest part of the whole process! The questions you’ll be asked include:
Companies need to run some math to determine if Seller Fulfilled Prime will actually end up being more cost effective, taking into account their product assortment, existing fulfillment capabilities, and also the factor of control.
Existing Fulfillment Capabilities. Companies who already have their own storage & fulfillment solution in place are best able to immediately take advantage of Seller Fulfilled Prime. This could be a warehouse facility with staff who can process orders, or an outsourced Third Party Fulfillment Provider (3PL) who can commit to a Service Level Agreement that meets the Amazon Premium Shipping requirements.
Product Assortment. Seller Fulfilled Prime makes a lot of sense for brands with products that:
Control. While Amazon FBA offers operational simplicity for sellers, it also creates a black box. The extremely lenient product return policy under the Prime program means that companies are often left out of pocket for items that have been refunded but never returned.
Amazon also frequently loses and damages your inventory, and while sellers are reimbursed for some of these losses, the lack of information that Amazon provides sellers in this area can be frustrating. Particularly when entire inbound shipments are caught in the receiving process and unavailable for purchase, sometimes weeks at a time.
On a related note, inventory tracking can be more of a challenge when using FBA. If you hold some inventory at your own facility and some at FBA warehouses, it can be a constant juggling act to maintain appropriate inventory levels and avoid selling through your inventory.
Our best advice is to carefully review your product assortment for items which would benefit from direct fulfillment, and begin testing the waters with Premium Shipping which will allow you to start tracking shipping costs under the program. If the economics make sense, Seller Fulfilled Prime may benefit brands not only from a cost standpoint, but also allow you to regain some control by consolidating inventory management and order fulfillment back in house.