Whilst a solid presence on Amazon is crucial for running a successful online business, having thorough visibility on Amazon Prime is even more important – especially now that Amazon Prime members make up more than half of the channel’s consumer base, outnumbering non-Prime customers.
Since Amazon can impact many different aspects of your business, it’s only understandable that – as an online business owner – you’re constantly looking for new ways to best utilise the selling channel to maximise your profit. To help you take full advantage of the available programmes, we’re taking a closer look at the differences between Fulfilment by Amazon (FBA) and Seller Fulfilled Prime (SFP) – both of which give you access to those invaluable Prime orders but are fundamentally different and have features that benefit different types of businesses.
1. Fulfilment
As you can tell by the name, FBA completely takes care of your inventory. You send a portion of your stock to Amazon’s distribution centres, where it’s stored, and where items are picked, packed, and shipped to your customers when they make purchases.
With SFP, customers will purchase through Amazon Prime as usual, but you’re responsible for fulfilling these orders – with no intervention from Amazon whatsoever. But here’s the potential catch if your operation is not set up as efficiently as it could be: SFP sellers have to pay for shipping themselves, which may not seem like that big of a difference to FBA at first glance, but as your business begins to upscale, this can eat away at your profit margins or even result in negative sales.
2. Fees
As any business that has been part of the FBA programme will know, the fulfilment fees can quickly eat into your profit. Fair enough, all your fulfilment needs are taken care of by Amazon, but it does come with a potentially high cost. Take a small non-media item for example, which can set you back a few pounds for order-handling, picking, packing, weight-handling, and storage – and these fees soon add up if you’re selling a large quantity of items.
On the other hand, as an SFP seller, you can avoid these fees because you’re storing and sending items from your end and you are free to keep hold onto that little extra margin. If you don't have your own warehouse you can also opt to use a third party logistics partner to fulfil Prime orders, which also comes with the added benefit of supporting your business when the time comes to upscale.
3. Storage
Don't have access to a huge warehouse for your inventory? Amazon can store it all for you for a fee, which is what makes FBA such a compelling proposition, at least for sellers who operate strictly on Amazon. These days, multichannel shopping is where the profit is at for most online sellers, so more and more of them are trying to sell on as many marketplaces as possible. Sure, there is the option to use Amazon’s multichannel fulfilment services, but that would mean losing control of your inventory altogether.
As an SFP member, you need to have the capacity to dispatch your own orders, and with that comes a string of other requirements, such as warehouse staff and warehousing technology that’s capable of keeping up with demand – all of which costs time and money to acquire and maintain. Not to mention that, as an SFP member, you’re required to ship your orders same-day, meaning your warehouse must be perfectly streamlined in order to process orders efficiently.
FBA isn’t your only option if you’re lacking the resources for your own warehouse, by using a fulfilment partner you can spare yourself the investment of your own facility whilst retaining valuable time for marketing and new product development.
4. Inventory Management
With FBA, you have very little control over your inventory – once it’s sent to Amazon’s distribution warehouses, it’s gone, and you can’t just drop by to see what you have when you need to. This means it can be a little tricky to know what’s in stock and can therefore lead to stale inventory, which is the least of your worries when you also risk getting charged penalty fees if you have inventory stored in their fulfilment centres for longer than six months.
The difference with SFP is that Amazon has no part to play in the management of your stock at all – you have full control. This is a huge advantage over FBA, especially for businesses that run brick-and-mortar shops, or businesses that sell on multiple channels like most do. This is particularly beneficial during sale seasons like Christmas, because there’s no limit to how much you can sell.
5. Returns
This is the part that most e-tailers dread: when customers are dissatisfied with your products and they demand exchanges or refunds. With FBA, your returns are handled by Amazon, but that’s not all: Amazon will also provide its top-class customer service to unhappy customers, saving you time, energy, and resources that you can spend on efficiently growing and strengthening your business instead.
If you opt for the SFP route, your company will need to handle all returns. This means you’ll need your own returns department as well as a customer service team, but it also means that you can easily identify which returned item corresponds with which order – a luxury that you won’t get to enjoy otherwise. Because as an FBA member, you’ll only receive a general box of returned goods from Amazon, with no clarifications on which orders the items are tied to.
Food for Thought
There you have it, some information to consider in terms of how your business may benefit from either of these Amazon programmes. While it’s clear that both FBA and SFP have their own advantages and disadvantages, it is not always easy to determine which of them is best for your business.
The good news is that you don’t have to make this important decision alone! Our team is always happy to talk you through our FBA and SFP options, so contact us today.
By Katie Shepherd