This article covers everything that a seller needs to know in order to decide which fulfillment model to choose to scale up on Amazon. Further, it also gives insight into which model is the most cost effective, which one should a seller choose – either of them or a mix. But first, let us understand the various formats and how do they actually work:
FBA Stands for “Fulfillment by Amazon” where the products are stored in Amazon’s fulfillment centers and delivered via their distribution network. FBA is an all-in-one solution to sell products to Amazon customers. Seller needs to send the inventory to Amazon Fulfillment Centers and the rest is taken care of by Amazon. They store the products, and when an order is placed, Amazon handles order receiving, packing, shipping, and ultimately delivering the product to the customer’s doorstep. Post sales activities like facilitating product returns, managing refunds, and providing customer support are also Amazon’s responsibility. Further, FBA gives ‘Prime Badge’ to the products and offers same-day or next-day delivery for eligible customers.
For more information, check out this link on Amazon Seller.
Seller Flex – It gives sellers the flexibility to keep inventory in their own warehouse while making it prime eligible. The seller flex inventory even gets a “Fulfilled by Amazon” tag. An important thing to note is that it is an invite only program and there are certain requirements for setting up a flex site. Sellers need to invest in IT hardware e.g. 2 computers, printer, barcode scanner bins, barcoding, dual internet connection and dedicated manpower
Some pointers to note:
1. Inventory remains with the seller and no need to send it to FBA.
2. No appointment issues like FBA.
3. In case of heavier/ bulky products greater than 1 kg, Flex is better in terms of costing.
4. There is a separate technology fee (~Rs. 15) which is levied on all orders fulfilled through flex.
5. Seller needs to pack and keep the orders ready for dispatch. Orders are picked by Amazon logistics network as is done for easy ship orders.
6. The orders and inventory are managed through a separate Seller Flex portal.
7. Initial training is required to manage the portal like uploading inventory and processing orders.
8. Manpower issues need to be handled.
MFN stands for Merchant Fulfilled Network wherein goods remain in the seller’s warehouse and the seller needs to keep the orders ready for pick up as per the schedule given by Amazon.
Some pointers to note:
1. Sellers can use Amazon Easy ship service or use any third party delivery service (Self ship) to deliver the orders.
2. Stocks remain with the seller and seller can expose the same stock to multiple marketplaces.
3. Savings on warehousing cost if the seller has a cheaper warehouse.
Now since we have an understanding of the various formats, let us answer the bigger question. Which format is best to use?
Well to answer this, it entirely depends on the seller’s end objective. If the objective is to increase sales then the order needed to be followed is FBA>Flex>MFN. If cost is the main concern, then MFN (self-ship) will be the most cost effective solution.
Sellers should always aim at maximizing sales on Amazon. Pricing of products should be such that they are in accordance with the profit that the seller is willing to make. Now let us understand why FBA is the best for maximizing sales. Another question to note is does Amazon increase visibility (resulting in more sales) of the products that are in FBA?
1. Most important for all sellers (including new and established sellers) is that the Prime tag is given instantly on FBA listings and because of this there is at least 20% uplift in sales.
2. No difference in cost as such – “Amazon does not want to earn from the FBA fee but wants to deliver a superior buying experience”.
3. Apart from nominal warehousing fee of Rs 33/- per cubic feet of space (e.g. Rs 4 per T-shirt per month) Amazon only charges a pick and pack fee of 12/- per order but simultaneously gives a discount of Rs 12/- per order in shipping fee. In addition, all the printing and packing is free. There is no minimum for the number of products to be sent.
4. For the first 3 months FBA is free. No warehousing, pick and pack fee is charged. If the seller is not satisfied with the service, inventory can easily be recalled (free of cost) and it will reach the seller within 5 days.
5. Products are eligible for free one day shipping and free shipping as well.
6. Businesses can be scaled up easily without any new investments in capital or staffing as Amazon will manage the packing, delivery, customer service and returns.
7. For a seller achieving Rs. 3-5 lakh monthly sales, we insist on adding another city to FBA (NCR, Mumbai, Bangalore and Kolkata in that order starting with the nearest location).
Now to answer whether Amazon increases visibility of products kept in FBA? Or Why does Amazon want sellers to keep products in FBA?
Amazon’s prime motto is to ensure customer delight and anything that aids in improving the buying experience, Amazon will surely promote that, be it a product or a seller. For inventory that is kept in FBA, Amazon is able to deliver a superior buying experience because of the following reasons:
1. Assured inventory and no chance of seller cancellation due to no inventory.
2. Assured visual QC of the products. No issues on that front.
3. Superior delivery promise as compared to when the product is with Merchant.
4. The pick-up and connection time is cut by at least 36 hours even in metros.
Due to these reasons any product which is kept in FBA will receive more sales when compared to the same product kept in Flex or MFN
Why Upriver advises sellers to send goods to FBA and keep Flex as a backup:
1. Flex is always expensive to operate and also in terms of charges levied by Amazon.
2. Although flex also gets a “Fulfilled by Amazon” tag, FBA is always preferred by Amazon’s algorithm due to reasons stated above.
3. There is a delivery lag of at least 24 hours when compared to FBA. Therefore, Amazon always gives preference to inventory in FBA.
Always make 2 SKU for any ASIN. Name one SKU with a suffix _FBA and the other one keep as it is. Now always send FBA inventory in the sku names _FBA and keep inventory live on Merchant SKU also. This will help sellers in 2 ways:
1. As soon as the inventory is inwarded, ASIN gets live from FBA and no need to shift the SKU to FBA to make it live.
2. No need to convert SKU back to MFN when inventory is out of stock.
3. No issues of stranded inventory due to SKU not converted to FBA.
4. ASIN will always be live if the seller has an inventory in MFN, therefore the visibility will also be more.
If you found this information helpful, you can also have a look at Why Are Reviews Important On Amazon?
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