Any Amazon seller worth their weight on gold understands the importance of selling on Amazon Prime. With over 150 million subscribers around the world spending an average of $1,400 every year, Amazon Prime puts you at an enormous advantage. If you want to tap into Amazon Prime, you can participate in one of two programs: Fulfillment by Amazon and Seller Fulfilled Prime. While both programs can grant you access to these millions of customers, they are quite different. Let’s find out what each program brings to the table to help you decide what will work best for your business and customers.
What is Fulfillment by Amazon (FBA)?
Using the FBA program means entrusting Amazon with all your packaging, shipping, returns, and even customer service. All you have to do is to ship your inventory to an Amazon Fulfillment Center and they will handle the rest. With Amazon FBA, all your products automatically become eligible for Prime when you sign up.
Amazon FBA Benefits
Amazon takes care of everything related to shipping and logistics, saving you time from packing items and delivering them to your customers. Every time a customer places an order, Amazon ships the item directly to them.
You also open up space in your home or garage. Amazon stocks on your inventory in their shelves so you don’t have to fill your house with boxes and products, especially during busy shopping periods. Just make sure you monitor your inventory so you don’t lose sales due to out-of-stock items.
Further, Amazon favors FBA sellers when it comes to Buy Box eligibility. Meaning, you will be the first option when shoppers are looking at buying a product. Non-prime sellers have a lower priority and are usually filtered out by customers.
Amazon FBA Disadvantages
Requires some effort: You have to prepare the products yourself before you send them to Amazon’s warehouse. This involves labeling items correctly and following other requirements to ensure that they are accepted. Otherwise, Amazon will send your products back and you have to go through the process again.
Charges storage fees: Storing your items in Amazon’s warehouse is not free. This can even be exasperating due to Amazon’s ever changing, often unpredictable storage fees. If your items are not sold within 180 days, you will be charged for long-term storage fees. Amazon calculates your inventory storage fees based on the square cubic footage that your inventory occupies. It is therefore important that you send just enough inventory and restock efficiently.
Charges fulfillment fees: Amazon will do all the dirty work for you, but you have to pay a fee in exchange. Every time a customer places an order, Amazon charges you a certain fee. It is crucial that you understand all the FBA fees so you know exactly what your margins and profits will be.
Limits inventory control: Since your items are stored in Amazon’s warehouse, you lose control and visibility over some aspects of your inventory, including the packaging. Also, if a problem with your inventory arises, you must rely on Amazon to resolve it.
What is Seller Fulfilled Prime (SFP)?
Seller Fulfilled Prime allows sellers to list their products on Amazon Prime and deliver them to customers via their own fulfillment methods or from a qualified third party logistics company (3PL). Unlike FBA, SFP is a fulfillment method that you have to apply to and be approved for.
Seller Fulfilled Prime Benefits
Although following Amazon’s performance requirements may prove challenging (as discussed later on), the benefits can be financially rewarding. If you successfully finish off the trial, you can display the much-coveted Prime badge on your products. This makes you a more attractive option to 150+ million Prime members. Prime-eligible products also often get placements in the Buy Box, leading to improved sales and revenue.
Amazon SFP allows sellers to deliver products directly to the end customers, reducing the FBA cost per order and increasing profit margins while still maintaining Prime eligibility. This option is especially beneficial for retailers that sell large or slow-moving goods.
The Today’s Deals page is one of the most visited pages on Amazon since it features a daily list of discounted Prime products, which are known as Lightning Deals. By joining Amazon SFP, you can earn the Prime Badge and include your products under the lightning deals.
Seller Fulfilled Prime Disadvantages
You need to apply to be considered: To qualify for Prime, you will need to sign up for a professional account and have your own warehouse space or facilities that should meet Amazon’s high standards.
You must abide by Amazon’s stringent rules: You also must complete a trial period, which can range anywhere from 5 to 90 days, depending on how long you can complete Amazon Prime’s requirements. These include:
- Offer premium shipping options. You need to deliver orders using Amazon’s supported Seller Fulfilled Prime Carriers.
- Use Amazon Buy Shipping services. You need to buy all your shipping labels through the Buy Deliver Services or Amazon Shipping website. Another option is to partner with a third-party that is integrated with the Amazon Buy API to automate this process. In so doing, Amazon can streamline outbound delivery and return process for whichever carrier is selected.
- Ship over 99% of your orders on time. As an SFP member, you are required to ship Prime orders same-day or within two days.
- Agree to the Amazon Return Policy
- Maintain an order cancellation rate of less than 0.5%
- Allow Amazon to deal with all customer service inquiries
You are under pressure: Once you have successfully completed the trial period, you are auto-enrolled in SFP and must follow these rules for 7 consecutive days and sell 200 eligible Prime orders within 90 days. Falling short of these requirements restarts the trial period and resets your stats. This means you will have to start from scratch again. Alternatively, you may continue selling your products as a non-prime seller.
You have to wait: Amazon SFP is not accepting new registrations as of the moment. If you want to join their active waitlist so you are immediately notified when enrollment reopens, visit Amazon.com.
Key Differences Between Fulfillment by Amazon and Seller Fulfilled Prime
Here’s a closer look at their contrasts to help you determine which is the perfect choice for your Amazon store.
Storage and Inventory
Storage and inventory are the two main things that make Amazon FBA and Amazon SFP different from each other. Like what we mentioned earlier, Amazon FBA frees you up from storage space as Amazon itself manages all your inventory. Whereas in Amazon SFP, you need your own storage facilities and logistics to control inventory and fulfillment. Although this means saving from hefty inventory fees associated with Amazon, you still need to shell out money for storing and shipping your products yourself. If you are not careful, this can slowly eat away at your profit margin.
On the flip side, SFP gives you full control over your stock and your warehouse costs and needs. You are free to make any changes to your inventory very easily. If you are selling on multiple sales platforms or have physical retail, SFP might be the best option for you. Moreover, SFP is especially advantageous for seasonal products that normally get sales spikes during the holidays like Amazon Prime Day, Black Friday or Cyber Monday.
Shipment and Delivery
Another factor that sellers have to consider when it pertains to Prime is that same-day or two-day shipping. Although this is appealing to shoppers, it might not be feasible from a logistics standpoint. FBA sellers gain a competitive edge over non-FBA sellers since Amazon handles all of the heavy lifting for them. On the other hand, an SFP seller must have an efficient supply chain or must team up with a reliable 3PL in order to achieve that fast shipping.
Customer Returns and Refunds
With FBA, Amazon manages all returns that come in and handle all customer services related to item returns. If you are a small business owner with a shoestring budget, you can greatly save time and resources from this. On the other hand, SFP places all returns on your plate, which requires having your own dialed-in customer service and returns department. This could also mean covering expenses for returned goods, without being contacted by Amazon first.
The difference also comes down to control. FBA sellers get a general box of returned goods while SFP sellers receive specific returned items. If you’re using FBA, you might have a hard time identifying which returned good ties to which order, which could potentially increase risk of customer fraud. On the other hand, SFP offers more transparency into why and when items are being returned, reducing customer fraud.
Fulfillment by Amazon and Seller Fulfilled Prime: What’s Best for Your Business?
Deciding which Amazon fulfillment option works best for your business is not a decision that should be taken lightly. Be it Amazon FBA or Amazon SFP, using the right seller option is vital to the success of your Amazon store. Obviously, Fulfillment by Amazon and Seller Fulfilled Prime each has its own set of pros and cons that will appeal to different businesses with different objectives.
If you are just starting out on Amazon but want to scale up quickly without going beyond your budget, FBA might suit you. However, if your business is more established and sells through multiple marketplaces, SFP might be a better fit. At the end of the day, it all comes down to your goals. So be sure to evaluate each fulfillment method carefully and pick which best matches your business aspirations.
Need more help?
If you’re using an Amazon seller software, like SellerMobile, you are ahead of the game. SellerMobile provides cutting-edge tools and features that enable sellers to streamline their processes efficiently and deliver customer shopping experience like no other. We work with all types of Amazon sellers. We can manage your inventory and shipment; optimize your PPC listings; deep dive into your metrics, expenses and profits; and even automate your feedback emails.
If you need assistance on how to manage your Amazon business wisely, contact us or schedule a demo now. We would be more than happy to walk you through our software.